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5 Common Bookkeeping Mistakes You Might Be Making

Doing your own bookkeeping can be pretty tricky unless you have an accounting background or know someone who does, but that shouldn’t hold you back.

I’m sharing the five most common bookkeeping mistakes I see when reviewing clients’ work, how you can fix them and have peace of mind you’re on the right track.

5 commong bookkeeping mistakes freelancers make

1. Recording payments to owners as an expense

If you’re a sole proprietor or single-member LLC, make sure you’re not categorizing payments to yourself as an expense. This lowers your overall profit and gives you a false sense of the income you’ll need to pay tax on. Instead, record these payments to an equity account called “Owner’s Draw.”

Note: if you’re an S-corporation, you will still report the wages paid to yourself through a salary as an expense.

2. Not reconciling your accounts each month

Think of reconciling like balancing a checkbook. You’re going line-by-line through the transaction detail to make sure what’s in your bookkeeping program matches up exactly with the bank statement. If it doesn’t, now is the time to figure out why. Sometimes transactions just don’t import and sometimes duplicate transactions will import (very common with PayPal).

Most cloud bookkeeping programs (Xero, Quickbooks, Wave) have tools built in to make this a quick and easy process. If you’re using a program that doesn’t have a reconciliation tool, I suggest printing out your monthly bank statements for each account.

Then, as you see the transaction or give it a category on the computer, mark it off your bank statement.

Anything that appears in the bookkeeping program but not on your bank statement needs to be looked into and same goes for the opposite.


3. Reporting transfers as income

I’ll explain this one with a personal example.

I have a PayPal account and a checking account. Every so often, I transfer the balance of what’s in my PayPal account to my checking account.

Most cloud accounting programs see that transfer the same as they see income. To their software, it looks like a deposit because the total cash increased.

When I categorize these transfers in Quickbooks or Wave, I have to manually tell the program “hey, I took this money out of PayPal (so that balance needs to go down) and put it into my checking account (so that balance needs to go up).”

4. Not saving receipts

Whether something cost $1 or $1,000 you’ll need to save that receipt if you want to count it as a business deduction.

You can keep digital copies of your receipts or paper copies and some people like to do both. Many bookkeeping programs are incorporating the ability to take a picture of a receipt with your phone and link it to the actual expense in the program.

I’ve also heard from clients that love using Evernote to save and organize their receipts.

Whatever method you choose for organizing and saving your receipts, just make sure you can easily find what you need in case you’re ever to get audited. Plan to keep these receipts for seven years.

5. Using your business account for personal purchases

This is super easy to do, especially if your business bank card looks a lot like your personal bank card. I just noticed that I accidentally made this mistake a few weeks ago and used my business card to buy groceries at Trader Joe’s.

Luckily, it’s not the end of the world. You can reimburse your business account for the purchase, or you can record the purchase as an “Owner’s Draw.”

The biggest thing here is to not use your business card on a regular basis (or ever if you can help it) to make personal purchases.

Some people get in the mindset that it’s like paying themselves and it skips the step of having to make a transfer to their personal account. This is a slippery slope and can lead to messy bookkeeping and blurring the line between your personal assets and business assets.

If you’ve reviewed your bookkeeping and processes and find yourself doing one or more of these common mistakes, don’t stress out. Now is the perfect time to go back and review your bookkeeping and make any corrections before tax time gets here.

be-your-own-cfoFeeling lost about how to handle bookkeeping and everything money in your business? Amy’s course Be Your Own CFO is here to save the day. Learn how to setup your business legally, how to correctly use bookkeeping softward and much more. She’s generously offered FTFers $75 dollars off- just use coupon code FREELANCETOFREEDOM to get it! Don’t wait til tax time and get caught with your pants down!

Amy Northard Amy is a Certified Public Accountant who loves working with small creative businesses to make their bookkeeping and taxes less scary. She’s recently created Be Your Own CFO, which is a course that goes through the basics of setting up your business, creating a usable bookkeeping system, tax deductions, and much more. Amy loves sharing her #offdutyCPA adventures, doodle pup pics and tax tips over on Instagram. Find her on Facebook and Twitter.

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{ 13 comments… add one }
  • I love it when I read a business post and find I’m doing everything right! OK – in this instance, I only scored 80%, but do I *really* need to reconcile my account each month? Just kidding – I just reconciled 3 months of transaction and it’s so much harder when you wait that long… Thanks for the post

    • 80% is great! Reconciling each month is not fun, but so worth it when you get to December and only have one month to do!

    • Haha! I think I’m at about 80% as well… 😉 Reconciling is my *least* favorite thing to do! 😛

  • Thanks for these tips! I am very guilty of a couple of them, and the Evernote for receipts tip is a fantastic one. My accountant will probably want to send you a fruit basket.

  • There are some really great tips here! I prefer using Expensify to record and categorize my expenses, but I do know some people who like to use Evernote as well. Thanks for the info! 🙂

  • Julienne

    This is a good point. I left the ‘activate’ sticker on the front of my biz debit card to serve as a big STOP sign when I pull it out of my wallet. 🙂

  • Hi Amy! I never even thought about these, that’s why I’m a designer and not an accountant 🙂 Thank you for sharing these tips!

  • Love this Amy! Thanks for all the great tips 🙂

  • Christine

    Great info Amy, always tips good for me to revisit and make sure I am adhering to. My bank allows me to customize my debit card photo, so I used my biz logo, that way it is super clear to me when I am grabbing that card to pay (and a little impressive to clients if am out and I pay the check with that, teehee 😉

  • Ed

    Thanks for the tips. I like seeing I’m doing things right. Well, to be honest, I like seeing that I know how to do things right. I discovered I made several mistakes in last year’s books because I didn’t keep up, so I’m having to re-create the year in the account package – verifying I have all the documentation.
    My bank accounts are now all reconciled for the year. I also discovered by reconciling my Expense and Income accounts, I can verify I have copied all receipts/documentation in a specific folder. But what about the Draw and Capital (D/C) accounts? Is it necessary or useful to reconcile the Equity accounts.
    Since a Draw account is temporary and gets closed out at the end of the year by transferring to the Capital account, should I wait until the end of the year to reconcile the D/C accounts? Or does reconciling D/C accounts matter at all?
    Thanks, I appreciate your willingness to share your experiences.

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