The Dangers Of Accounting Errors

Many small scale businesses make the mistake of operating in their businesses without up to date accounting records or efficient and timely periodical booking write-ups. Business owners are sometimes in a quandary as to whether they should outsource their bookkeeping activities or should prepare their accounts in-house using their own employees. This may be due to cash shortage or even due to the careless approach of business owners. We shall examine in detail some disadvantages of delaying the accounting and bookkeeping activities and functions. A businessperson who runs his business without properly kept accounting data will not know how his business fares at a particular point in time. There would be some amount in the bank, but this cannot be counted as profit. He needs to know precisely, in a timely manner, how the business performs during a certain period. He must compare accurately the documented revenue against the expenditure incurred in order to see whether he is making a profit or not. When there is a lack of reliable and accurate accounting data, the occurrence and incidence of pilferage or fraud may not get detected at all. The employee guilty of theft might have departed well before the discovery has been made, leaving very slim chances of recovery of the lost capital. Timely preparation and entry of accounts that are examined by the business owner can help prevent many untoward incidents. Accurate financial information is needed at regular intervals for bookkeeping people to calculate sales, taxes and other statutory obligations. Proprietors of business firms will be penalized for aspects including late payment of taxes, errors in tax submission and computation or even non-payment of taxes. If the books are not maintained well and are not up to date, these types of tax computations can get more difficult. In the case of partnership firms, or where more than one person run the business, the lack of exact and detailed accounting information will make it well nigh impossible to determine each one?s share of profits and loss; this can result in mistrust among the business partners. The longer it takes to implement a good bookkeeping system by correcting the mistakes in the accounts, the more difficult it would be to investigate and apply the remedial measures. All the transactions and operations should go with a perfect system of internal control and procedures so that fraud and errors can be minimized to the maximum extent. In this regard, it can be said that the timely preparation and upkeep of accurate accounts and bookkeeping write-ups will definitely aid in complying with the various internal rules and regulations. More often, some small scale business managers prefer to do bookkeeping all by themselves. But in a majority of the instances they may not have the time or expertise to do the bookkeeping and operations part. Errors are likely to appear because business owners may not be skilled or good at accounting matters, and errors in the various financial documents and reports can lead to grave consequences that can have adverse effects on the operations of the entire business.