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An inaccurate record in bookkeeping can cost your company dearly. A silly mistake, such as entering an income which is not realized as yet, affects the profitability of the company. You may end up paying tax for an amount that you have not received. Apart from this, there are many such incidences which affect the smooth functioning of the company if you have inaccurate financial statements. Some of the dangers of an inaccurate financial reporting are as follows.
Incorrect financial position
One of the dangers of inaccurate financial reporting is that it reflects an incorrect report about your financial position. If an investor finds that the financial position of the company is unstable, he would not invest. This also happens in the case of getting loans from financial institutions. Thus, it affects the future plans of the company. Inaccurate financial statements, therefore, prevents a company from growing further.
Can cost the company
As mentioned earlier, an income which is not received and is recorded in the books shows an increase in profits. Similarly, underestimating profits can lead to penalties when an audit is conducted. Moreover, an error in miscalculating the number of years for depreciation of a fixed assets and expenses can result in payment of more taxes than you need to. Such dangers of inaccurate financial reporting can cost the company profits.
More tax payment
At times, due to inaccurate financial statements, you may not gain certain tax deductions that are applicable. For example, an expense on which tax deduction is applicable is lost in the process or not recorded leads you to payments of more taxes. If you had a professional accountant or an expert accounting firm who maintains your books, then such mistakes are avoided. The deduction may not seem too much, but if you are a small business, then it certainly affects your profitability
Negative brand image
When general public goes through your inaccurate financial statements, then it affects your brand image. Lack of professionalism and poor management are the common perceptions about such companies. Furthermore, people think that your company is manipulating the data and is unethical in its approach.
Affects the cash flows
Another common danger of inaccurate financial reporting is that it affects the cash flow of the business. Without a systematic bookkeeping format, it is difficult to know who owes you what amount. It becomes a time consuming process to organize and send the invoices. As a result, your business may end up receiving the amount at a much later time than the due date of receipt. This eventually affects the cash conversion cycle. So, your business may end up with fewer funds when payment to other parties or payments to your employees are due.
Therefore, now that you know the dangers of inaccurate financial reporting, you should maintain proper records. If you find it difficult or out of time to keep the records by yourself, get in touch with an expert accounting firm. Such firms will take good care of your records and you do not have to many any dangerous consequences.