A deviation refers to a discrepancy between your bookkeeping and the actual financial situation of your business.
When deviations happen it’s important to identify the error and fix it. Your accounts should always give an up-to-date and correct picture of the financial situation of your business.
There are many reasons why there might be errors in your bookkeeping: maybe you forgot to enter a transaction, maybe you received an invoice or receipt with the wrong date or amount, maybe you forgot about bank fees, card fees, or interest.
What happens if there are errors in my bookkeeping?
Errors in your bookkeeping can lead you to overestimate or underestimate how your business is doing. It can lead you to make bad financial decisions and give wrong information to employees, investors and stakeholders. It will also make your budgeting worse, since you often look at the financial history of a business to try to predict future costs and income.
Also, when you run a business you’re required to file and pay taxes, and consumption tax, and you can’t file and pay the correct amounts if you have deviations.
How do I find and fix deviations?
Usually deviations occur because you forgot to bookkeep a transaction.
The best way to find and fix these deviations is to do a bank reconciliation. A bank reconciliation consists of three steps:
- Make sure you’ve entered bank and card fees
- Check to see if any amounts on your bank statement matches the discrepancy
- Check for transactions that have been entered wrongly, or duplicate entries
Deviation in payments
Deviations can also occur when a client pays you the wrong amount. Maybe they just entered the wrong amount when doing the bank transfer, maybe you sent an invoice with an error on it, or maybe they’re refusing to pay the full amount.
Make sure to reach out to them to try to rectify the issue.
See also: How to handle outstanding invoices
