“Something here is not right (These Numbers Don’t Make Sense)” are words you don’t want to hear your accountant say when preparing your year-end for filing with CRA. It is an alarm to the accountant and should be to you as the business owner because it means something is amiss in your financial information. Somewhere along the line, the train went off the rails: Was it in the data entry? Or is it a systemic issue that needs to be resolved with the process?
Wherever the issue occurred, you can be sure finding and correcting the error will cost the business owner money. More often than not, the origin of the issue can be found in the bookkeeping.
Bookkeepers do exactly what the name implies—they create and maintain the financial records of the business. They record the daily transactions that come from bills, receipts, invoices and purchase orders.
Good bookkeeping means all financial transactions are coded to the correct account in a timely manner, bank accounts are reconciled, and financial statements are produced regularly. It is the backbone of the business financial picture, around which all financial decisions can be made.
Unfortunately, for many business owners, the importance of keeping excellent records is lost in the day-to-day of doing business. Many business owners learn the hard way.
Don’t try to save money on bookkeeping – it will cost you in the end
Good record-keeping is important for several reasons:
- It can help you plan and make informed decisions for your business by easily tracking cash-flow. Not knowing how much money you have at your disposal can be devastating for a business.
- Good records help you track the GST you have paid, and the tax credits you may be able to claim.
- Good bookkeeping helps the business stay compliant with CRA to avoid audits and costly penalties. If CRA decides to do an audit, accurate records will help support your position.
- And the most important reason of all: Good bookkeeping allows for better tax preparation because it makes the work of the accountant much easier.
Have you seen these top 10 poor bookkeeping examples?
- Transactions impacting taxes (GST & PST) are posted with insufficient or no supporting documents.
- General Ledger account duplications occur when there are multiple accounts for the same expense – for example “Payroll – Wages” and “Wages.”
- Incorrect dates force unnecessary tax adjustment filings when transactions are posted into the incorrect period.
- Non-business-related expenses are recorded as business transactions.
- A business account is used to make personal purchases and are then incorrectly recorded as business expenses.
- Inconsistent use of source document identification leads to duplicated transaction postings.
- Correcting entries are recorded solely to ‘make’ reconciliations balance. No investigation is done to identify the error.
- Tax filing dates are missed because transactions are not recorded in a timely manner.
- Supporting documents for transactions are not managed well. They’re just thrown in a bag or box for the bookkeeper to decipher.
- Entries posted to the shareholder loan OR owner’s contribution/withdrawal accounts with no review with the owner or reconciliation.
The bookkeeper ensures all of the financial transactions are recorded and organized, but it is the accountant who takes the bookkeeper’s work and analyzes it to prepare the financial information for the company.
The more accurate the bookkeeping, the easier it is for the accountant to work with the information and file the year-end with Canada Revenue Agency. In the end, good bookkeeping saves the business owner money, time and worry.