Bookkeeping Catch-Up
Staying up to date on your business’ bookkeeping can feel like an uphill battle; especially while trying to focus on making your business a success. Unkempt books can take a toll on your financial and mental health. As time passes, the paperwork starts to pile up from one month to one year. Although we offer catch up bookkeeping services, we understand that some business owners prefer to handle their own bookkeeping. If this is you, here is a nifty guide to help you get caught up in no time. We are always here if you need us. Now, LET’S DO THIS!
Step 1: Organize your receipts
Start by collecting all your receipts and business-related invoice.
Customer invoices
Review your customer accounts to ensure that you’ve collected all invoices for the tax year. If your business operates using a cash basis accounting method, you only need to send the customer an invoice once they have paid. If your business uses an accrual basis accounting method, you record the amount in your books the moment the sale occurs, even if you haven’t received the cash yet. Under the accrual basis, you recognize income right when it occurs.
Debt collections
Review your customer accounts for any uncollectible invoices. Under an accrual basis, if a customer doesn’t pay you for work completed, you can write this off as a bad debt expense. In order to deduct the bad debt from your tax return, you will need to prove to the CRA that you have taken reasonable steps to collect the debt but have been unable to recover the amount.
Business Expenses
Collect the receipts from every business purchases you have made during the tax year. You can also use this comprehensive list of small business tax deductions to double-check that you’re tracking and claiming every deduction available to your business.
Vendor Accounts
Review your vendor accounts to ensure that you have paid them all in full. Make sure you have a copy of every bill from each vendor activity and, if you don’t, contact the vendor right away and ask them to send you a copy. These include bills for business activities that are still currently operating in your business’s closing period to ensure these expenses will appear on your year-end financial statement.
Step 2: Bank Reconciliation
Reconciling your bank records accomplishes two things:
it ensures you don’t miss any business expenses or important records from Step 1, and
it helps you catch any mistakes your bank may have made.
You can do this by comparing each transaction from your bank statement with the same transaction in your company accounting records. If the transactions don’t match, identify and fix any errors to ensure they balance out.
Handing over any accounts that aren’t properly reconciled to your accountant can be costly. If your accountant has to do extra work to reconcile your accounts and fix your books, you will be charged extra in accounting fees. By reconciling your accounts beforehand, you are saving your accountant and yourself time and money.
Step 3: Separate personal & business expenses
Keeping your personal and business expenses in the same account is known as piercing the corporate veil—which may result in you being held personally liable for your business’s debt and actions. The sooner you separate your business and personal expenses, the better.
Managing personal and business expenses in the same account can result in unnecessary stress when you file your taxes or do your bookkeeping; it takes more time to sort through personal and business expenses when they’re mixed together in the same account.
If you need to separate your business and personal expenses, the sooner you do it, the better. Open a small business bank account and keep your finances separate.
Step 4: Consider Going Paperless
If you haven't already done so, make your life easier by making your business paperless.
As you process your paperwork, create digital records of receipts, important documents, and other paperwork using these tools:
Shoeboxed: scans and organizes your receipts, and automatically creates expense reports from your uploads
FileThis: a smartphone app you can use to photograph and store receipts, statements, bills, and other documents online
Expensify: automatically uploads and stores all scanned documents to Evernote
Step 5: File Government Remittances
If you paid independent contractors and/or employees during the tax year, there’s a good chance you’ll need to file the following forms at tax time:
Independent Contractors: T4A
If you paid an independent contractor for work during the year, you’ll need to issue a T4A.
Employees: T4
You’re required to file a T4 for all employees.
Payroll Remittances: if you had employees during the year, be sure to remit source deductions to the CRA in a timely manner to avoid interest and penalties.
GST/HST Remittances: if your business is registered for sales tax, calculate sales tax collected on income and paid on expenses. You will need to remit the net difference to the CRA. Timeliness is key to avoid interest and penalties.
Step 6: Review Your Books With a Professional
When you’re a small business, doing it yourself is often the least expensive option. But tax professionals can help eliminate errors, help you claim all of the deductions available to your business—which may end up saving you money in the long run—and can also represent you in the event of an audit. Developing a relationship with a financial pro, well before you need their help, will prevent last-minute scrambling and bring you peace of mind that your books are in order.
We hope this guide helps you get your companies finances organized and organized. As always, we are here if you need us.
