5 Common Bookkeeping Mistakes in QuickBooks & Xero That Cost Small Businesses
Clean books protect your business. Messy books drain cash, trigger IRS attention, and sabotage decisions. Fix the big five mistakes we see every week—then lock in standards that keep your numbers bulletproof.
Summary — Jump to a Section
Mistake #1: Misclassified Transactions
What happens: Expenses coded to the wrong account, assets expensed instead of capitalized, owner draws posted as payroll, sales tax recorded as income. The result: distorted profit, wrong basis, and confused cash flow.
Quick self-check in QuickBooks
- Run Profit & Loss and scan for unusually large categories.
- Open Account Quick Report for suspicious accounts (e.g., “Ask My Accountant”).
- Review Fixed Assets for items that should be capitalized.
Quick self-check in Xero
- Use Account Transactions to review spend/receive money mappings.
- Scan the Account Summary for unusual totals.
- Confirm tax rates (GST/VAT/sales tax) aren’t inflating income.
How to fix
- Recode misclassified transactions to the correct expense, asset, or equity account.
- Capitalize qualifying assets; set depreciation schedules outside the GL if needed.
- Separate owner draws/distributions from payroll expenses.
- Map sales tax to liability accounts, not income.
Mistake #2: Broken or Incomplete Reconciliations
What happens: Bank feeds create duplicates, clearing dates are wrong, or “reconciliation adjustments” patch over real problems. The ledger doesn’t actually match the bank.
Quick self-check in QuickBooks
- Open Reconcile and review uncleared items > 60 days.
- Run Reconciliation Discrepancy report.
- Compare statement ending balance to GL balance on the same date.
Quick self-check in Xero
- Check the Bank Reconciliation Summary.
- Review “Unreconciled” tab and long-outstanding items.
- Trace transfers to ensure both sides exist and match.
How to fix
- Remove duplicates (never mask with reconciliation adjustments).
- Correct dates and clearing status; tie to bank statements line-by-line.
- Confirm merchant deposits (Stripe/Square/PayPal) net to sales minus fees.
Mistake #3: Negative or Impossible Balances
What happens: Negative Accounts Receivable/Payable, negative inventory, negative undeposited funds. These are credibility killers—signals something is wrongly entered or missing.
Quick self-check in QuickBooks
- Run a detailed Balance Sheet and click into any negative account.
- Trace the source transactions; reverse/replace where needed.
Quick self-check in Xero
- Open Account Transactions for affected accounts.
- Check for payments posted before bills/invoices, or missing documents.
How to fix
- For A/R: apply payments to invoices correctly; re-date if necessary.
- For A/P: post vendor bills before payments; fix prepayments and credits.
- For inventory: correct item quantities; align purchase receipts and COGS.
- For undeposited funds: group customer receipts into the exact bank deposit.
Mistake #4: Duplicate or Missing Entries
What happens: Bank feeds import the same transaction twice; transfers get recorded as income; bills/invoices get deleted without a paper trail. Results: inflated revenue/expenses and unreliable cash reporting.
How to spot it
- Unusual spikes in income/expense lines compared to prior months.
- Transfers that appear as income in one account and expense in another.
- Gaps in numbering for invoices or bills.
How to fix
- Delete true duplicates (retain the reconciled transaction).
- Correct transfers using the proper “transfer” workflow in your software.
- Restore or recreate missing documents; add memos for audit trail.
Mistake #5: Wrong Period & Timing Errors
What happens: Back-dating or future-dating entries to “make the numbers work,” closing months late, or mixing cash and accrual concepts. This destroys comparability and invites IRS scrutiny if tax returns don’t tie out.
Quick safeguards
- Use Close the Books with a password (QuickBooks).
- Lock prior periods after reconciliation (Xero month-end).
- Document adjustments with memos and attachments.
Fixes that stick
- Reverse back-dated entries; re-post with correct dates.
- Create month-end checklists: accruals, deferrals, and cut-off tests.
- Standardize cash vs. accrual reporting for tax vs. management.
When to Use a Bookkeeping Health Check
Use it when you see negative balances, reconciliation headaches, or you’re about to file taxes, seek financing, or migrate systems. We diagnose, correct what we can immediately, and hand you a prioritized roadmap to keep your books clean.
FAQs
Are these mistakes normal?
Common, yes. Acceptable, no. Small errors compound into costly problems. The standard is clean, reconciled, and explainable books.
How often should we review for these issues?
Monthly at minimum. Quarterly is too slow—you’ll chase old errors. Our Health Check sets the standard; light monthly routines keep it.
Can you fix issues in QuickBooks and Xero remotely?
Yes. We work nationwide with secure access. You’ll receive a written summary and a walk-through call.
What do you need from us?
Access to your file, bank statements for the review window, and any supporting docs (merchant summaries, loan statements). We keep it simple.
Will corrections change my tax returns?
If prior-year errors are material, yes—we’ll advise on amending vs. prospective fixes. The goal is accurate, defensible books going forward.
Helpful Articles
This post is part of our Bookkeeping Health Check series. Start with the main page, then explore the related articles below.