Common Mistakes That Happen With DIY/At Home Accounting

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DIY is incredibly popular these days. There are countless projects out there ranging from personal care products to home décor to furniture making. DIY is appealing because it requires no special training or no-how while at the same time allowing the “average-joe” to create something unique from every day, easy to find items. And anyone, from the ultra-creative to the not-so-creative, can tackle a DIY project and have stellar results.

One area, however, where DIY has no place is in the financial arena, especially in accounting. Accounting is the process of recording the financial transactions of a business. There is no room for makeshift processes here. Accounting requires a very specific methodology of checks and balances; everything must add up, there is no wiggle room.

There are many mistakes that can occur when someone who is not properly trained tries to do the work of an accountant. These include misclassifying assets, recording loans incorrectly, non-reconciled loans, incorrect hedging entries, and misclassifying expenses. When any of these mistakes are made, the result is inaccurate and inconsistent records. This also creates data that isn’t reliable or audit-ready and can create issues with keeping pertinent documentation.

 

Inaccuracy and Inconsistency

Consistency is a key aspect of accounting and is important because it allows financial data to be compared month over month or year over year. It also allows financials to be compared with other businesses and across industries.

 

Unreliable

If records are incorrect and inconsistent, the resulting data will be unreliable. Unreliable data is a problem for several reasons. It is impossible to make sound business decisions if data can’t be trusted. Also, lenders will not agree to fund new loans if the data is unreliable. Lending problems leads to an entirely different set of difficulties!

 

Not Audit-Ready

Another area of concern with DIY accounting is the unexpected audit. Audits are never fun, but substandard records can lead to bigger problems. Upon discovering issues with the data, an auditor may request extra documentation and may even open the audit up to a longer time period than was initially being reviewed: which can lead to discovery of additional errors. All of this can lead to filing amended tax returns, which can be quite costly, as well as paying additional taxes and fines.

 

Record Keeping

Tidy accounting records are also necessary when it comes to payroll documentation. Complete and clean payroll records are of utmost importance. Payroll is associated with HR and if HR is not handled properly, it can lead to many issues for a business, including, but not limited to violations of state employment law and lawsuits by employees. Lawsuits are not something any business wants to be implicated in, so it’s imperative to maintain clean payroll records and processes to the highest degree possible.

DIY can be applied to many areas of life to create some splendid items. However, one area where DIY does not belong is in accounting. DIY accounting can lead to a slew of issues, from inaccurate, inconsistent records, to unreliable data, to unexpected taxes and fines, to poor payroll recordkeeping. It’s best to leave accounting to the professionals!

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Written By

Amanda Fields

Amanda Fields

Senior Accountant | afields@agrisolutions.com

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