In this episode, Caroline and Erica talk about common bookkeeping mistakes and how to remedy them. 

The first pitfall, is miscategorizing transactions. Never have things in the uncategorized expense account at the end of the year. That account should be a placeholder for expenses that you are temporarily unsure how to categorize. Come year-end, that account should be empty.

For example: If you’re putting utilities into that account, but then claiming a home office on your taxes, you’ll most likely miscalculate what you spent on internet or electricity because they’re not included in utilities. 

The second pitfall is merchant fees. The IRS requires you to submit the whole dollar in sales. If you don't go to the payment platform you used and pull a report for your merchant fee, and claim an expense against the sales, you’ll be overstating your income. You may have made $100 and you DO have to claim that. However, you must also claim the $2.90 that the payment platform kept back from you as an expense, OR you’ll be taxed on $100 rather than $97.10. 

The third pitfall is spending out of your cash or paypal sales. Cash sales DO count as sales! You need to track gross cash sales and any business expenses you may have. Your bookkeeper needs to know where your cash is going if it’s not going right back into your business, so they can account for it in your books. If the cash is not going to the bank, label it and use it as petty cash. 

The final pitfall is gift cards. Mistakes here can go multiple ways. One way, is by counting it twice, which overstates your sales. Let’s say you sold a $50 gift card. When the customer returns to use it, you have to set it up as a gift card redeemed, otherwise it will appear as a $50 sale. You’ve now mistakenly doubled your profit. The gift card is the sale, owing the customer $50 worth of merchandise now makes it a liability.

You want to avoid these pitfalls! The most important thing for your business, whether you DIY or outsource, is maintaining accurate books. This will set you up to have the freedom to do all of the things you dream of with your studio.

Check out our website at www.dancebookkeeping.co for more resources!