There is more to Bookkeeping than simply recording income and expenses. In order to get the most out of your bookkeeping efforts here are a few best practices for you to follow.
Bookkeeping Best Practice 1
How to sort your records?
While it is common practice to organize your receipts in date order, keeping all of the January dated receipts together (possibly even attached to the bank/credit card statement) this is not necessarily the BEST method for keeping your records together. If you want to streamline your entire accounting process sorting receipts by “category” will ultimately be a better process. You see when we come to file your tax return, the month that you had the expense is irrelevant. What we need to know at that point is “what category do we allocate this expense to?” Because it takes no more effort to organize your receipts by category at the outset, it makes the process more efficient if you are organizing this way to begin with rather than organizing by month and then having to total each month’s worth or receipts for the year end. Some common categories are:
- Meals & Entertainment
- Office expenses
You get the idea. If you are using accounting software you will be able to report based on Date / Supplier / Category and you haven’t lost the option to view your records via date order if that is your personal preference.
**Members** If you are a sole proprietor, ask us for the list of categories available on the tax return to make your process even more efficient.
Bookkeeping Best Practice 2
Break out the tax amounts.
If you are registered for GST/PST/HST you are required to show those amounts separately on your receipts. You are also required to show your GST/PST/HST registration number.
When you purchase items for use in your business the amount of GST that you pay is deductible when you come to file your GST return. The GST amount that you pay is called an ITC (Input Tax Credit). If the amount and GST number is not shown on the receipt, the ICT can be disallowed by the Canada Revenue Agency.
There have been instances where I have contacted a supplier on behalf of a client to ensure that a receipt is either reissued or I have written the GST number on the paperwork to ensure my client will not have those amounts disallowed. YOU don’t want to be the person getting that call and being asked to reissue receipts. It’s not a good use of your time. Ensure your receipts are set up correctly to begin with and have those amounts showing separately and have your GST number on the paperwork.
Bookkeeping Best Practice 3
Accrual v’s Cash
Many people still record their income and expenses based on when they receive funds or when they pay bills rather than when they create the invoice or receive the bill. Recording your transactions based on when money changes hands is called Cash Method of Accounting. The Canada Revenue Agency doesn’t allow this (with a very few number of exceptions before we get inundates with “yeah but…….. messages!).
Now if you genuinely do receive payment for goods as soon as the customer receives them (think store owner who has a point of sale set up) both accrual and cash method of accounting are the same thing. However if you send invoices (even if the terms are Due On Receipt) and receive payment later, you need to record the revenue based on the date of the invoice you are sending. This one is fairly easy to manage particularly if you are using accounting software.
What sometimes get missed are the expenses you incur that are not Point of Sale expenses. Think of the online subscriptions you may have or utility bills you receive. These need to be recorded as an expense based on the date on the bill or receipt rather than the date you paid for them. Again they could be the same date but often they aren’t.
So there you have it my top 3 Bookkeeping Best Practices tips for keeping your whole accounting process efficient and keeping you on the “right side” of the Canada Revenue Agency. As always, as soon as you are in a position to outsource your bookkeeping efforts, we encourage you to do so!
DID YOU KNOW: Connect Now Business Network can now file personal and sole proprietor tax returns!
Donna is the CFO of Connect Now Business Network, a fourth-generation entrepreneur and financial consultant. She has worked with money or cash management for most of her career. What started out collecting fines for the legal system or collecting debts for private enterprise progressed into bookkeeping with an accounting firm. This gave her a solid understanding of what you need to run your business and what you accountant needs to prepare your year-end financials and tax returns. After many years in this field and 2 children later it was time to set up her consulting company Beyond Balanced Books. Donna has a passion for helping business owners understand their financials and how best to utilize their money to grow their business in the quickest way possible. Her unique approach focuses on not only the business cash flow but how personal cash flow affects the business growth as well. She has a way of explaining numbers that makes them less scary. Donna delivers her advice with humourous flare backed up with solid accounting practices.