Service businesses often have fewer inventory concerns, but they can still develop significant accounting problems.

Common mistakes include:

  • Mixing personal and business transactions
  • Recording transfers between business accounts as income or expenses
  • Categorizing the entire loan payment as an expense instead of separating principal and interest
  • Recording owner contributions or loan proceeds as sales
  • Recording owner distributions as business expenses
  • Adding bank feed transactions that were already entered through invoices, bills, or payment systems
  • Failing to reconcile every bank and credit card account
  • Recording the net payment processor deposit without separately recording fees
  • Leaving customer payments unapplied to invoices
  • Failing to track accounts receivable
  • Recording equipment purchases as ordinary office expenses
  • Failing to collect Forms W-9 from contractors
  • Failing to review potential Form 1099 filing requirements
  • Recording sales tax collected as business income
  • Ignoring the balance sheet because the owner only reviews the profit and loss statement

A profit and loss statement can appear reasonable while the balance sheet contains significant errors. Both reports should be reviewed as part of monthly bookkeeping and tax preparation.