Common bookkeeping mistakes

Cash leaves no line on a bank statement, so a cash sale or purchase that isn't written down at the time is simply missing from the books. The ATO's record-keeping tips, drawn from common errors it sees, begin with keeping accurate records of all cash and electronic transactions.

The fix is a same-day habit: a receipt kept, or a note made, for every cash amount in or out. Cash sales recorded on a register or in a receipt book should be checked against the cash actually banked.

Books brought up to date once a quarter describe the business as it was months ago. business.gov.au lists not knowing how much money is coming in or going out among the signs of a cash flow problem, and a weekly review of the financial records is one of its steps for getting a struggling business back on track.

A short weekly session, on the same day each week, is easier to keep up than a long one every few months, and receipts are still easy to explain while the week is fresh.

The ATO suggests reconciling cash and EFTPOS sales regularly, by making sure the payments you have recorded match external records, and checking for mistakes when things don't add up. The same goes for every bank, card and loan account.

The opposite mistake is posting an unexplained adjustment so the books seem to agree with the statement. A reconciliation should explain each difference, such as a payment not yet cleared, an entry missed or an error, not hide it. A balancing figure carried forward makes the next month's reconciliation harder too.

When personal spending goes through the business unrecorded, business expenses are overstated and the owner's withdrawals are understated. Our guide to separating business and personal finances covers how to keep the two apart.

• Record money a sole trader or partner takes for personal use as drawings, not as an expense.
• In a company, record money moving between the company and its owners in the account your accountant advises.

Some errors are hard to spot because each entry looks right on its own:

Most of these leave a statement or the list of unpaid invoices and bills out of step with the books, which is why regular reconciliations and a look at those lists help catch them.

An entry without a receipt, invoice or statement behind it can't be checked later. The ATO says the minimum information on a record generally includes the date, the amount, a description, the purpose of the transaction and, where relevant, the relationship between the parties. A bank line gives only some of that. business.gov.au lists records of all business expenses, including cash purchases, among the records to keep, and says most must be kept for 5 years.

• Editing old entries: rewriting a period already reported on leaves no trail of what changed. Correct a past mistake with a new, explained entry instead, and store records so they are protected from change or damage, as the ATO's record-keeping rules say.
• No backup: business.gov.au suggests backing up digital records and, if possible, keeping a secure off-site copy.
• Lost access: business.gov.au says digital records must be on a device you have access to, including all passwords. A system only one person can log into is a risk to the whole business.
• Changing systems: the ATO says that when your record-keeping system changes, you still need to be able to rebuild your original data. Keep a full copy of the old records before switching.

Forecasts and budgets use estimates, and that is fine as long as nobody mistakes them for results. business.gov.au's profit and loss and cash flow statement templates say that if you use estimated costs, you should label them clearly. Keep estimates in forecasts and budgets, and keep the books to what actually happened, with any estimate there labelled and agreed with your accountant.