In this instructional video, Ryan Vaughn outlines common bookkeeping red flags that small‑business owners should monitor to ensure accurate financial records and sound decision‑making. He advises running month‑by‑month profit‑and‑loss (P&L) reports to spot inconsistent expense categorization, such as misclassifying equipment purchases as office supplies. He highlights the importance of correctly tracking loan balances and interest expense, warning that unchanged loan figures across years signal missing interest entries. Vaughn stresses keeping personal credit‑card and personal expense transactions separate from business books, noting that personal items like groceries or a primary‑residence mortgage should never appear on business records. He points out that negative balances on P&L or balance‑sheet accounts are unusual and often indicate mis‑recorded income or expenses. Finally, he emphasizes regular reconciliation—matching bank and credit‑card statements to the accounting software—to catch double‑counted, missing, or incomplete transactions, which can otherwise distort revenue, expenses, cash‑flow forecasts, and profitability assessments. The video concludes with a brief, informal reminder about the IRS.
Chapters
What are some bookkeeping red flags to watch out for? First one, you want to run a profit and loss statement by month. So when you're looking at it, it'll show January, February, March, April, however many months you're looking at in separate columns. You want to notice trends. Inconsistent trends means you're likely not categorizing your expenses consistently the same way. As an example, let's say I purchase supplies on Amazon.com. So it's office supplies. Well, let's then say I buy computer equipment on Amazon. What happens if I book that to office supplies when it really should be equipment? What my books will show is maybe there's one month where office supplies is a lot higher, maybe there's a month where office supplies doesn't exist at all. But inconsistent trends is a flag to look out for because it means you can't make informed business decisions based on the numbers because they're just not in the right spot. On your balance sheet, that's where your loan amounts, if you have any business loans, are listed. If you have the same loan balance from last year to this year, that's a red flag. It means you're not capturing your interest expense properly, which is meaning you're paying more in taxes. It also means you can't see the trend of when that loan will actually be paid off. So loan balances, so 2022 my loan balance is $10,000 and in 2023 it also says $10,000. But I've been making payments the whole time? Likely not. The real outcome, my bookkeeping needs to be updated. If I see a lot of credit cards on a small business owner's books, that's a red flag, because chances are many of those credit cards are really just for personal use, and you want to keep all personal transactions off of your books. I should not have a personal credit card that I'm tracking on my books. I don't need to be tracking my grocery store purchases for my food at my house on my books. I don't need to track my mortgage statement for my primary residence on my books. If you want to keep track of your personal information, that's awesome, but do that in a separate file. Don't commingle your business transactions with your personal transactions. In general, if I see an account that is a negative number on either my profit and loss statement or my balance sheet, that typically is a flag. Very few accounts should be negative. So, for example, if I say have an expense item on my profit and loss statement that's a negative number, what that actually means is that I have some income that I wrapped up in there. Which again then means I can't use my financials to make informed business decisions because they're not accurate. And the last one I'll share, which is a really good way to kind of have a foundational way to avoid a lot of these things I've already talked about, is reconciliation. Now that's a fancy accounts— accounting term that really just means matching. You're going to match what happened in real life on your bank statement and what happened in real life to your— on your credit card statement to what is put into the accounting software. It's literally just a matching process, but I can tell you, we do hundreds and hundreds of books a month. If they're not matching, you have transactions in there that have been double counted, you have transactions that are missing, and if you're using the, like, download transaction feature, Sometimes that feature doesn't get all the data. So again, your books are now not accurate. You aren't able to use the financials the way you should to make informed decisions about the way your business is trending. Maybe you're missing revenue, maybe you're missing expenses. All of those things don't bode well if you're trying to look at the financials to make a decision, to see where you are, if you're hitting your goals, if you're going to be profitable, if your cash flow is going to run short. So doing the reconciliation process, matching what in real life to what's in the software is one of the most critical steps of bookkeeping. So those are the red flags that I wanted to share with you, and remember, the IRS sucks.
