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Mixing business with personal?

Another bookkeeping tip based on experience…

I can’t stress enough the importance of keeping your business and personal bank accounts and credit cards separate. Over-complicating your bookkeeping system by writing cheques for business expenses from your personal bank account, or using your personal credit card, is not always a straightforward process to record.   

You will also be creating extra time and work for your accountant, or whoever prepares your taxes, at tax time which means a bigger bill for you in the end.  And let’s not forget the very dim view the CRA would take at audit time. 

So do yourself a huge favour if this scenario is all too familiar, and open separate accounts now!

Having a problem reconciling your credit card?

Just recently, I was asked to help someone with reconciling their credit card account in Quick Books.  They had reconciled to the credit card statement as usual, but when they printed off the details, they also had the previous month’s transactions on the report. 

So what had they done wrong?  Simple, they had clicked on the ‘undo last reconciliation’ button by mistake.  So basically they had to reconcile the previous month again, and now everything is correct in their books. 

A bookkeeping tip – look at the transactions listed under your credit card.  If there is a check-mark next to the item, it has been cleared.  If there is this symbol * next to the item, it hasn’t yet been reconciled.  

Why should I reconcile my bank statement?

Any good bookkeeper will tell you that ideally you should reconcile your bank statement on a monthly basis.  Too often, people check their bank balance and don’t realise it’s not an accurate picture of their financial position.  Without bank reconciliation, it’s much harder to know how much cash is available in your account. So by comparing your list of transactions to the bank statement, you can make sure that your records and the bank agree on the transactions that have been processed. 

And let’s not forget, even your Bank can make mistakes, so by reconciling your statement, you can catch any errors quickly and get them sorted!

 

Another reason to have good bookkeeping practices

 

Want to minimise your chances of getting audited?

Many small business owners fail to keep sufficient books and records.  Business owners may not realise it, but this failure alone can be enough reason for you to be audited by the Canada Revenue Agency (CRA).

As well as inadequate bookkeeping, claiming personal expenses as a business deduction is another trigger for the CRA to perform an audit.  So keep your business and personal expenses separate and have separate bank accounts for your business and personal finances.

And don’t forget to file and pay your taxes on time!

Bookkeeping Records

 

Did you know there is a legal requirement for keeping your accounting records? 

Advice from the CRA is that all records such as paper documents and those stored in an electronic format, must be kept in Canada.

Whichever accounting or record-keeping method you use, your records must be permanent and contain a systematic account of your income, deductions, credits, and other information you need to report.

The CRA  also advise that businesses must retain records for six years from the end of the last tax year to which they relate.  However, as a general rule of thumb, most businesses keep their records for 7 years – just to be on the safe side!

A common bookkeeping error

Where to set-up a Credit Card in your Chart of Accounts

A common mistake is to create the company credit card account as an expense account.  It should actually be listed as a liability account and remember to also set-up your credit card provider as a vendor so you can pay your credit card payments correctly.

Small Business Accounting

Never underestimate the requirement for accurate financial statements! 

An example of these are monthly income statements, balance sheets, and cash-flow statements which are all needed when filing your taxes.  These statements will also help you to assess the financial health of your company and to see where you can create improvements. 

A great investment to help you in this area is to purchase accounting software and of course, hiring the skills of a professional bookkeeper!  There’s no point having software to record your transactions if you’re not sure which side of the equation refers to debits or credits!!

How to record your business expenses

You can generally deduct business expenses if you incur them for the sole purpose of producing income. If you claim expenses, you have to be able to back up your claim. You do this by keeping all your business related vouchers and receipts, and recording all your expenses in a journal, a computerized file, or a software accounting program.
The simplest method of recording these expenses is a basic sheet with columns that list the common categories of expenses. At the end of each month, total each column, and then start a new sheet for the next month.

Partial business use of a vehicle

When a vehicle is used partially for business and other purposes, the expenses relating to its use must be apportioned.  The best evidence to support the use of a vehicle is to keep an accurate logbook of business travel maintained for the entire year, showing for each business trip, the destination, the reason for the trip and the distance covered.

Construction workers and WSIB

Don’t forget that the rules have changed for businesses that have WSIB coverage working in the construction industry.  From 1st January 2013, the law changed to include not just the workers, but most business owners too.  For more information, see the following website www.BeRegisteredBeReady.ca

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