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What are the Most Common Financial Accounting Issues?

Rhonda Rivera
Rhonda Rivera

The most common financial accounting issues are rarely difficult to avoid, but they are difficult to overcome once created. Inadequate record keeping, fraudulent record keeping, and unmonitored cash flow management can all lead to the downfall of a business. Both inadequate record keeping and fraudulent record keeping makes a business’s records extremely unreliable, and it can be time consuming and expensive to find and fix all the mistakes. Limited or no cash flow, also known as working capital, can also lead to serious consequences best avoided. Even large businesses can be ruined with improper financial accounting, and indeed they have in the past.

Among the most common financial accounting issues is improper record keeping. Without complete record keeping of income and money spent, a financial report is unreliable at best. This is perhaps the most common mistake a small business makes. Inadequate or incomplete records of money in and money out can lead to income tax mistakes and severe government penalties — usually applied years after the fact. Most companies can benefit by regularly having their records reviewed by an independent auditor, which is an accountant with no affiliation to the business who can ensure that records are being kept properly.

Improper financial accounting can lead to faulty financial reports.
Improper financial accounting can lead to faulty financial reports.

A business that neglects its record keeping can more easily become victim to fraudulent financial accounting issues. This issue can be created by an employee who reports false sales in order to take merchandise like gift cards. Frequent reports of false sales make it appear as if the business is growing, when it is actually losing money. Employees are capable of threatening a business in other financial ways too, but good record keeping will keep problems to a minimum, and the thief can be caught faster.

Other financial accounting issues include poor cash flow management and analysis. While the definition of cash flow varies, it generally refers to the movement of cash into or out of a business. Sometimes a business fails solely because of negative cash flow. The business might have been profitable in the long run, but it could not cover immediate expenses like employee wages, necessary equipment, and government taxes. Closely monitoring cash flow is critical for both new and old businesses to thrive.

There are numerous financial accounting issues that can crop up, some less common than others. An independent auditor can provide another set of eyes to ensure that all is well in the financial side of a business. These professionals are routinely used to avoid disasters both big and small.

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    • Improper financial accounting can lead to faulty financial reports.
      By: Nataliia
      Improper financial accounting can lead to faulty financial reports.