Cloud Accounting – How To Avoid The Top User Errors

cloud accounting

Cloud Accounting – How To Avoid The Top User Errors

Cloud accounting has become hugely popular with businesses, especially with the introduction of Making Tax Digital for VAT requiring VAT registered businesses to keep digital records. There are many benefits of cloud accounting software, which we have covered in a previous blog, but there are also common errors made by users which can affect the quality of their record keeping and can skew their financial reporting within the software.

Reconciling payments from the bank without matching to invoices already added into the software

Problem/error

A common issue that we have come across is that users will add an invoice, sales or purchase, to the accounting software, but once it is show on the bank will reconcile this payment without matching it to the invoice already created . This will mean that the invoice has effectively been duplicated in the system and the invoice that has not been matched will show as outstanding within aged creditor/debtor reports even though the payment has been made.

Solution

The best way to avoid this issue is to always check if an invoice has been previously created for the transaction showing on the bank and also running the aged creditor/debtor report periodically to check which invoices are marked as outstanding and correct any which have been incorrectly reconciled straight from the bank.

Matching bank transactions against the wrong invoice

Problem/error

This usually occurs when businesses will receive the same amount of money for invoices from different clients (e.g. subscription services which are priced the same for multiple clients). Cloud software will try to help businesses speed up reconciliation by searching the system and matching the payment to invoices with the same value. This is very helpful and simply has to be accepted by the user to be reconciled, but this match is not always correct.

Solution

It is always best to check the detail of the invoice to ensure it is for the correct client and specific invoice.

Where to post payments that have bounced on the bank account

Problem/error

Occasionally payments are not always successful and can bounce, showing as going in and out of the bank account.

Solution

The best place to post both of these transactions is to a suspense account which will enable them to contra off against each other and the account will balance to nil. If the original bank line has been reconciled before it has bounced, this will need to be unreconciled and re done as stated above.

Where to post refunds

Problem/error

Another issue that we have come across frequently is confusion on where refunds should be posted once received.

Solution

If a refund is received, it should be set against the same code the original payment was set against, for example you have paid your electricity bill and posted it to light and heat expenses, but receive a refund as you have overpaid, this should also be set against light and heat expenses to reduce the cost shown in the account to the correct figure that was due. It is also important to check that the VAT rate is correct, and that the VAT rate shown on the refund is the same as the original payment made.

The importance of posting a wages journal

If you use cloud accounting software and use that software to also process your payroll, it will automatically post a wages journal for you and you will only need to set the wages payments against net wages account and any HMRC payments against the tax and social security liability account. However, if you do not use the same software to process the payroll, it is important to do a wages journal as this will ensure that your profit and loss show the correct figures for gross wages, employers national insurance and pension contributions and will also ensure that your net wages liability and tax and social security liability match the amounts due for each month.

If you would like more information on cloud accounting, please do not hesitate to contact us.

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