Common Misinterpretations Of Accounting Information

Woman confused about her accounting information
Accounting information is the collected and stored particulars of the financial and accounting data of a business. It is used and processed by the internal users. An accounting system is generally computer based data. Accounting data usually comprises of much more that the financial statements, balance sheets and cash flow charts. It contains data of revenue, expenses, bookkeeping, customer information, data related to tax paid and due, and employee information. It also includes sales orders, purchase receipts, requisitions, invoices, ledgers and such financial statements of this type. 

Inventory is up to date in an accounting information system. Check registers that were previously made on old fashioned registers of paper are now maintained in computerized systems by installing special accounting data using specific software. Using this software makes data interpretation much easier to access and report.

As this accounting data is for company use only and it consists of customer and employee information and other sensitive data, they are highly secured. Security checks are maintained in the accounting information system and hackers and other external sources are prevented from accessing the data.

The data that an accounting information comprises is very important and it must be interpreted correctly. In the case of wrong interpretation, the company can go into loss. Because of this, entrepreneurs must know the basics of accounting data and its elements. They must fully understand their financial statements. While, of course, they can segregate the job to accountants and other personnel, the entrepreneurs must still understand the accounting information on their own. They should be able to access, interpret, and account for the information in both internal meetings and with the outside sources.

Financial mistakes pose an adverse risk to the growth of business and it can damage the reputation with the customers and suppliers.

Common Mistakes made in Interpretation of Accounting Information and How to Avoid Them 

1.  Business owners often mix their personal finances with business expenses. Keeping these two finances separate is of utmost importance. If these two finances (personal and business) are not segregated, it is impossible to know what was intended for business and what was used personally. The amount of profit that was generated out of invested capital cannot be estimated correctly if the two are intertwined.

2.  Entries are not done in time. Getting behind in bookkeeping and the submission of entries of expenses or sales will not yield an up to date picture of the business and will not allow you to make timely decisions. It can lead to a negative balance if the expenses are entered but the income statement is not updated. Invoices to be paid by the company may go unnoticed and it can lead to a bad reputation of the company. It can even end terms with suppliers. Business growth is halted or significantly reduced when you do not enter data in a proper amount of time.

3.  Not setting up a proper software that is needed by the company leads to faulty decision making. Further more, installing the wrong (more complicated than required or lacking crucial functions) software can lead to inappropriate data entry. Sound decisions are hard to make when your company lacks the proper accounting software that it needs.

4.  Failure to double check the reports and statements and, instead, just relying on checking the amount of net profit may lead to many errors or malfunctions in business. Accounting information software is just a tool to use. Decisions must be made after completely checking the reports and interpreting the data. Data interpretation is made by comparing financial statements with the cash flow statements and the balance sheets.

5. Keeping all receipts until all taxes are paid and an audit is conducted is must. Even after that time period, receipts are very important for matching data entries in registers or in software.

6. After a long day of work, there is more of a chance of mathematical or data entry mistakes. Stay focused. One mistake can lead to big errors.

7. Entrepreneurs and business owners must focus on the long term consequences of the decisions they make after getting a full picture of their accounting information. Short term decisions after interpretation of accounts data do not set the business up for long term benefits.  Always focus on the future and the bigger picture.


Correct interpretation of accounting information is the backbone any business. Specifically, focus on accurate bookkeeping practices and be sure to pay attention to every little detail so that you can take that information and make wise decisions for your company.

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