Bookkeeping for Small Business Canada: The Basics You Need to Know
As a small business owner in Canada, you have a lot on your plate. You need to focus on running your business and serving your customers. However, bookkeeping is an essential task that cannot be overlooked. Accurate bookkeeping is crucial for making informed decisions about the financial health of your business. In this blog, we will cover the basics of bookkeeping for small businesses in Canada.
What is Bookkeeping?
Bookkeeping is the process of recording all financial transactions of your business. This includes keeping track of income, expenses, and assets. Bookkeeping is a crucial component of accounting, and it lays the foundation for creating financial statements and tax returns.
Why is bookkeeping for small business Important?
Bookkeeping is vital for several reasons. First, it helps you keep track of your finances, so you can make informed decisions about your business. You can see how much money you have coming in and going out, and you can use this information to make adjustments to your business strategy. Second, accurate bookkeeping is essential for tax compliance. You need to keep accurate records to file your taxes correctly and avoid penalties. Finally, bookkeeping is essential for securing funding. If you want to apply for a loan or seek investors, you need to provide accurate financial statements that demonstrate the financial health of your business.
What are the Key Bookkeeping Tasks?
There are several bookkeeping tasks that small business owners need to perform. These include:
- Recording transactions: You need to keep track of all your income and expenses, and record them in a ledger or accounting software. This includes all sales, purchases, and payments.
- Reconciling accounts: You need to reconcile your bank accounts and credit card statements to ensure that all transactions are accurate and accounted for.
- Generating financial statements: You need to create financial statements such as income statements, balance sheets, and cash flow statements. These statements help you understand the financial health of your business.
- Payroll: If you have employees, you need to keep track of their pay and deductions.
- HST/GST: If you are registered for HST/GST, you need to keep track of your input tax credits, output tax owed, and filing deadlines.
How to Get Started with Bookkeeping?
If you are just starting with bookkeeping, here are some steps you can take:
- Choose an accounting system: You can use a spreadsheet or accounting software. There are many accounting software options available in Canada, such as QuickBooks and Xero.
- Set up a chart of accounts: A chart of accounts is a list of all the accounts you will use to record your transactions. This includes income accounts, expense accounts, asset accounts, and liability accounts.
- Record your transactions: You need to record all your transactions, including sales, expenses, and payments. This can be done manually, or you can automate the process using accounting software.
- Reconcile accounts: You need to reconcile your bank accounts and credit card statements to ensure that all transactions are accurate and accounted for.
- Generate financial statements: You need to create financial statements such as income statements, balance sheets, and cash flow statements.
What about audit proofing records?
Audit-proofing your bookkeeping records is an essential aspect of managing your small business finances in Canada. It involves keeping your financial records organized, accurate, and up-to-date, so you can easily provide them to the Canada Revenue Agency (CRA) in the event of an audit.
Here are some tips for audit-proofing your bookkeeping records:
- Keep Accurate Records: It’s crucial to keep accurate records of all your business transactions, including income, expenses, and assets. Ensure that you record all transactions promptly and keep all receipts, invoices, and bank statements.
- Use Cloud Software: Using cloud software such as Dext to manage your bookkeeping can help you keep your records organized and up-to-date. It can also reduce the risk of human error in data entry with it’s scanning capabilities. Plus it keeps a digital record on the cloud.
- Separate Business and Personal Expenses: It’s essential to separate your personal and business expenses. This means having separate bank accounts and credit cards for your business and personal expenses.
- Reconcile Your Accounts: Ensure that you reconcile your bank and credit card statements to ensure that all transactions are accounted for.
- Maintain Proper Documentation: Ensure that you have supporting documentation for all your transactions, such as invoices, receipts, and contracts.
- Have a Backup System: It’s crucial to have a backup system for your bookkeeping records, such as cloud storage or an external hard drive. This can protect you in case of a computer crash, theft, or fire.
- Get Professional Help: Consider working with a bookkeeper or accountant to ensure that your bookkeeping records are accurate and up-to-date. They can help you identify potential problems before they become significant issues. They also know all the trics to automate your accounting and audit proofing your records on the cloud. An experienced accountant can help your small business in Canada get set up correctly right from the get go. This will ensure your business has the foundation to grow and achieve the greatest chance of success. And most importantly, make sure you never lose a CRA audit due to having poor records and documentation.
In conclusion, bookkeeping is an essential task that small business owners in Canada need to perform. It helps you keep track of your finances, comply with tax regulations, and secure funding. By following the basics outlined in this blog, you can get started with bookkeeping and ensure that your business is financially healthy. If you find bookkeeping to be overwhelming, consider hiring a bookkeeper or accountant to assist you.
Contact Argento CPA today if you need help with your bookkeeping.
Our team takes the time to actively listen to your needs and tailor your accounting system to ensure that you comprehend your financial figures and the process involved. As we understand that reliable bookkeeping serves as a cornerstone for success, we value your business just as much as we do our own.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.