Maintaining a balance sheet can be defined as the act of balancing the assets, liabilities, and equities of a business. In a way, it represents the financial conditions of the business. For a business in healthy condition, assets must be equal to the sum of debts and equity in the balance sheet. And for business progress, it is important to keep the financial conditions in mind. It gives you a good picture of the business performance.
Balance sheet eventually supports the task of planning and decision-making, thus, making it crucial for the businesses. Since we are not part of an ideal world, some ignorance can cause vital errors in the balance sheet. Even the smartest and highest-paid accountants are also prone to errors and mistakes, which could change the financial equations and lead to turbulence in the business plans. Some of the most common accounting errors that affect the balance sheet are listed below:
The balance sheet is about data that gives the information about what company owns and what it owes. Now this owning and owing includes everything from the building infrastructure of your office to the mouse connected to a computer. So, this data can be very big and at the same very crucial. A small error in entering the data in the sheet can affect the balance sheet in big way. This error could be as simple as wrong decimal use, for example- an amount $599.99 entered as $5999.9. Digit exchange, not following currency rate, etc. are some more frequent errors. When you make thousands of entries of these small and big numbers on the balance sheet spotting such minor error will not be easy. But their effect may not be so minor. So, be cautious and wide awake when you prepare the balance sheets.
Isolation from Chronology
This is rare but exists. Arranging the data in the balance sheet in the actual sequence of occurrence is very important but many novice accountants have the tendency of not taking it seriously. The randomness in the balance sheet not only makes it illegible for some, but also the chances of missing out on some data are very high.
Since updating the sheet instantly is not always possible, keeping the receipts and bills safely becomes crucial to avoid this error, so that the balance sheet can be updated correctly at the earliest. Waiting for the month-end or year closing to update the details can be a stupidity as finding those receipts and bills can be a tough thing itself.
Flaws with Classification
Assets listed in the balance sheet must be equal to the sum of liabilities and equity of the organization. Listing an asset as a liability or vice-versa can disturb the equation and create a humiliating situation for accountant. Assets/liabilities with variable prices require the accountant to be razor-sharp and most of the accountants are able to do well with that and somewhere, they go lose with the classifications.
Accountants should try to update the balance sheets timely, so they are able to work without stress. It reduces the chances of making such mistakes to a considerable level.
Lagging on Technology
While modern accounting software is highly in-demand market, some business owners and accountants are still sticking to the traditional mediums. A recent study claims that a big number of businesses are still using Excel as their most advanced accounting tool. This explains the story why they struggle with the balance sheet. From curbing fund management ability to losing clients and investors, mistakes in the balance sheets have many ways to decline your business.
Switching to some reliable accounting solutions, such as- QuickBooks, helps you reduce the number of mistakes with the balance sheet. With defined range and proper indexing, data input errors can be minimized. Hosting QuickBooks on cloud, allows the accountants to work from anywhere and thus, the data entries are not missed. Realtime collaboration lets the different users make changes to the file in realtime, which means your team of accountants can also work on the same balance sheet.
We have also come across some entrepreneurs, who underestimate the significance of accounting for their business. Hiring the newbies in the field to handle the responsibility is their idea to go with. Even an experienced accountant cannot guarantee the perfection, but choosing the fresher for such a critical task is not a smart choice.
Implementing multiple layers for error checks is an option that some businesses choose. It has its own good and bad. However, today’s technology has grown to a great level and there are number of software that can make accounting easier and error-free to a certain extent. It might cost a little on expenses at the beginning, but in the long run it can pay off for many good reasons.