March 6, 2019

How to Avoid Three Most Common Financial Statement Mistakes?

Naveen Shayan

LedgerMax specialist

As a business owner, you must be well-informed about the significance of a financial statement for your business. The analysis of your financial statement gives you an evaluation of the preceding financial performance of your business along with its prospective potential. However, regardless of what method you use to generate your financial statements, there is always a chance of mistakes that can cost you heavily given that you considerably count on these statements to make substantial financial decisions.So, lets discuss the 3 most common errors businesses make on financial statements and some tips to avoid them:

Error # 1:

The most common financial statement blunder is made at the time of categorizing liabilities and assets on balance sheets. This undeniably becomes burdensome for financial professionals as liabilities and assets are put into different groups: long-term liabilities and current liabilities, long-term assets and current assets, as well as equity of the owner. In point of fact, one could unintentionally place a current liability in the incorrect column which will consequently upsurge the debt amount to pay in the coming year, and possibly result in the loss of investor capital or clients due to instability apparent on the paper.

Suggestion:

It is always recommended that you save the balance sheets of preceding years as a reference which sounds quite arduous; however, if you're using a software for your book-keeping requirements then it۪'s a snap. An accounting software saves all your financial statements and provides you easy access to view them whenever required. On the other hand you can also avoid this error by checking your balance on a regular basis so that you never fail to notice the changes.

Error # 2:

Another common mistake with respect to financial statements is an inaccurate sales record. It is very important to record every single rupee sale in a business because one unnoticed sale can disturb your records as your statement will show incorrect profit margins.

Suggestion:

It is suggested that you go for an accounting system that will let you record the level of information essential for a precise income reporting.

Error # 3:

Inaccurate classification of financing, investing and operating activities in your cash flow statement can also become a reason of disruption. It is very important to distinguish that which item goes in which group. For instance, financing activity deals with items meant for your creditors like repayment of loans or taking out etc, investing activity is generated from whatever you are spending on your business while operating activity includes the core business of your company.

Suggestion:

As a business owner, you should recognize the difference between financing, investment and operational activities and categorize them accordingly.As a matter of fact, financial statements assist you in preparing a financial plan for your business and then guide you in taking important decisions or seeking business associations accordingly. Moreover, when you take precautions and sidestep even the slightest errors then your business can itself safeguard its core. So, if you're in search of assistance with your financial statements, please visit www.ledgermax.com

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