Managing your own bookkeeping may seem like a cost-saving decision, but small errors can lead to inaccurate financial reporting, compliance risks, and wasted time fixing mistakes. Here are the top five bookkeeping mistakes we see business owners make—and how to avoid them.

1. Not Reconciling Bank Accounts Regularly

Regular bank reconciliations ensure that the financial records in Xero match actual bank statements. Without this process, errors, discrepancies, or even fraudulent transactions can go undetected.

Why It Matters:

  • Unreconciled transactions can lead to incorrect cash flow reporting.
  • Missed or duplicate entries can distort financial statements.
  • Inaccuracies in bank balances can create issues with BAS reporting.

Best practice: Reconcile bank accounts at least weekly to maintain up-to-date financial records and catch errors early.

External Link: How long does your month-end take?

2. Creating Duplicate Transactions in Bank Reconciliation

One of the most common bookkeeping mistakes in Xero is failing to match transactions correctly when reconciling bank accounts. This often results in duplicate expenses or bill payments, which throw off financial reports and GST calculations.

How This Happens:

  • A business owner manually enters an expense in Xero as an approved Bill or Expense.
  • Later, when reconciling, instead of matching it to the existing transaction, they select “Create” and record the payment again.
  • As a result, the expense is recorded twice, inflating expenses, distorting the bank balance, and causing GST miscalculations.

The Impact:

  • Overstated expenses result in reduced profit figures.
  • GST may be claimed twice, creating compliance risks.
  • Unpaid bills may appear in Accounts Payable, even when they’ve been settled.
  • Bank balances won’t reconcile to bank statements.

Best practice: Always use the “Find & Match” function in Xero’s bank reconciliation to link payments to existing transactions.

External link: Xero Bank Reconciliation Guide

3. Poor Document Oversight Leading to Incorrect GST Claims

Claiming GST incorrectly is a major compliance risk, often caused by poor invoice management.

Common Mistakes:

  • Claiming GST on invoices from suppliers who aren’t registered for GST. Some businesses assume every invoice includes GST, leading to over-claimed credits. However, unregistered suppliers might mistakenly charge GST, either by accident or fraudulently.
  • Claiming GST on GST-free expenses. Certain goods and services, such as basic food, education, and medical expenses, are GST-free. Claiming credits incorrectly on these transactions can trigger ATO audits.
  • Not verifying tax invoices. To claim GST, an invoice must meet ATO requirements, including an ABN and the words ‘Tax Invoice’ for amounts over $82.50 (including GST).
  • Incorrectly treating international supplier invoices. GST cannot be claimed on overseas purchases unless the supplier is registered for Australian GST.

Best practice: Use invoice automation tools like Dext or XBert, check the ABN Lookup tool, and attach source documents in Xero for easy reference before claiming GST.

External link: ATO Claiming GST Credits

4. Misclassifying GST-Free and BAS Excluded Transactions

GST coding mistakes are a common issue that can lead to incorrect BAS lodgments and financial reporting errors, particularly for businesses using the Full BAS Reporting method.

The Most Common Mistakes:

  • GST-Free Sales coded as BAS Excluded – GST-free sales must still be reported on the BAS. If coded as BAS Excluded, they won’t be included in the total sales figure.
  • Personal transactions, loan repayments, and wages coded as GST-Free – These should be BAS Excluded, as they do not impact the BAS.

Why This Matters:

  • Misclassified transactions can lead to ATO compliance issues.
  • Under-reporting total sales may result in audits or incorrect financial records.
  • Businesses using Full BAS Reporting must ensure accurate GST coding to avoid compliance errors.

Best practice: Ensure the correct GST code is used from the outset, and review GST codes before lodging your BAS. Use Xero’s GST Reconciliation Reports to verify figures.

External link: ATO GST Guide

5. Not Locking Periods in Xero

Failing to lock dates in Xero after completing BAS, month-end, or year-end reporting can result in accidental changes to past transactions.

Why It’s a Problem:

  • A transaction that was already reported can be edited or deleted, changing previously lodged GST figures.
  • Financial statements can become inaccurate if reconciled transactions are modified.
  • Accountants and bookkeepers may spend unnecessary time tracking down discrepancies.

Best practice: Lock financial periods in Xero once reports are finalised and restrict user permissions to prevent accidental changes.

External link: Xero Setup or Remove Lock Dates

Final Thoughts

DIY bookkeeping can work if you have the right processes in place and are aware of what you need to know. But small mistakes—like incorrect reconciliations, GST misclassifications, and missing documentation—can quickly add up to compliance risks and financial inaccuracies.

Errors left unaddressed throughout the year can also lead to higher accounting fees at year-end, as accountants need extra time to clean up transactions, correct reporting mistakes, and reconcile discrepancies before tax lodgements.

If you’re unsure whether your bookkeeping is on track, or if you want to streamline your processes, we’re here to help.

Want to keep your bookkeeping in check? Get in touch with us today.