Bookkeeping for Your Small Business: The Ultimate Guide

by margento | September 22, 2022

Do you have a small business? Are you looking for a guide on how to do bookkeeping for your small business? Then, you’ve come to the right place! This blog post will discuss everything you need to know about bookkeeping, from setting up your books to tracking expenses and revenue. We’ll also provide tips on how to stay organized and keep your books in order. So whether you’re just starting or running your business for a while, this guide will help you get the most out of your bookkeeping process!

In this guide, we will cover the following:

  1. Why is bookkeeping important?
  2. Bookkeeping systems
  3. Setting up a chart of accounts
  4. Connecting your bank feeds
  5. Categorizing your transactions
  6. Reconciling your bank and credit cards
  7. How to keep accurate records to be 100% CRA compliant
  8. Payroll
  9. Invoicing
  10. Accounts receivable and accounts payable
  11. Automation tips and tricks for the advanced bookkeeper
  12. Common mistakes you must avoid

Let’s get started!

1. Why is bookkeeping important?

Bookkeeping for your small business is essential because it helps you track the financial health of your business. By recording your income and expenses, you can see how much money you’re making and spending, which can help you make better decisions about your business. Additionally, keeping accurate records can help you stay organized and avoid penalties from the Canada Revenue Agency (CRA). Knowing how your business is doing and keeping your books accurate and up-to-date allows you to unlock growth potential. Accounting is the language of business, and numbers don’t lie! Your bookkeeping records tell the story of how your business is doing. You aren’t running a business if you aren’t doing your bookkeeping.

2. Bookkeeping systems

The first step in bookkeeping is to set up your books. You’ll need to create a system for tracking income and expenses, and you’ll also need to choose a method for recording transactions. Many different software programs and accounting methods are available, so research is essential to find the right one.

QuickBooks Online is a popular accounting software program for small businesses. It’s easy to use and has all the features you need to manage your finances.

Alternatively, Xero is another excellent accounting software option. It’s cloud-based so that you can access it from anywhere, and it has a wide range of features to help you run your business.

If you hold off on choosing an accounting platform, an alternative is to use excel to track your income and expenses. This is a fundamental method, but it can work if you don’t have many transactions. It’s a good start for beginners who want to prepare their books.

Once you’ve chosen accounting software, it’s time to set up your chart of accounts so that you can start tracking your income and expenses.

3. Setting up the chart of accounts

The next step is to set up your chart of accounts. This is a list of all the categories you’ll use to track income and expenses.

Create accounts to track all revenue, including sales, interest, and other forms of income. You should also keep track of all expenses, including operational costs, marketing expenses, and taxes.

4. Connecting your bank feeds

The next step is to connect your bank and credit card accounts to your bookkeeping software. This will allow you to import transactions automatically and save time on data entry.

Banks in Canada have recently undergone a major security overhaul, so in some cases, your bank feed connections may break. When this happens, an alternative is to import CSV files of your bank transactions.

5. Categorizing your transactions

It’s essential to keep accurate records of your transactions to quickly see how much money is coming in and where it is going. This will help you make informed decisions about your business finances and control spending. When done correctly, you can create financial forecasts and budgets to help you plan for growth in your business.

To stay organized, create a system for categorizing transactions. This will make understanding your costs and how your business is performing easier. You can create classes in QuickBooks Online or use Xero’s tagging feature to categorize your transactions so that you can track different projects or revenue streams separately. This allows you to break down various departments in your business. Not all revenue streams in your business will carry the same profit margin, so it’s in your best interest to classify your income and expenses so that you can run profit reports to see how each one performs on its own.

6. Reconciling your bank and credit cards

Once you have a system for tracking income and expenses, you’ll need to reconcile your accounts. This means ensuring that the records in your accounting software match the documents in your bank statements.

Reconciling your accounts is critical for bookkeeping because it helps you catch errors and prevent fraud. It’s essential to do this regularly, at least once a month. If you don’t reconcile your books, they will be messy at year-end, and your accountant will have difficulty preparing a tax return for you. The last thing you want is to miss recording expenses which means you will pay more tax than you should. It pays off, in the end, to know that your books are perfectly reconciled.

7. How to keep accurate records to be 100% CRA compliant

We highly suggest automating your bookkeeping function by using a platform such as Dext. This will save you time, money, and a lot of headaches in the long run if you ever go through a CRA audit. Dext connects to your accounting platform and allows you to publish pictures of your expenses into the cloud from your smartphone. You only need to snap a photo of the expense using your phone’s camera, and then it uploads directly into your accounting platform. There is some initial setup to integrate this app properly with your accounting software, so this step gets tricky. For that, we recommend speaking with a professional accountant familiar with the app and how to optimize it for best use. Accountants also get discount rates on the app, so take advantage of that!

If you are not using a platform like Dext, you must keep all of your receipts in an organized fashion in folders. For example, you can categorize expenses by month or vendor.

8. Payroll

If you have employees, you’ll also need to track payroll. This includes keeping records of hours worked, wages paid, and taxes withheld. Payroll can be complex, so it’s crucial to hire a qualified payroll accountant or use payroll software to ensure that you comply with all the rules and regulations. Using a platform like Wagepoint allows you to automate direct deposit payments to staff and CRA and manage compliance requirements such as paystubs and records of employment. Don’t prepare payroll manually! That method is prone to error, and even the slightest variance in your payroll account can lead to reviews or audits with CRA.

Not only do you need to track payroll for your employees, but you also need to track it for yourself if you’re paying yourself a salary. An alternative to salary is dividends, so it’s good to speak with your accountant to find out which method is best for you.

9. Invoicing

You’ll need to generate invoices and track accounts receivable if you’re selling products or services. This means keeping track of who owes you money and when they need to pay it.

Invoicing can be done manually in a word document or with invoicing through your accounting platform. Using an accounting platform is great because you can email the invoices directly to your customers and accept payment by credit card. This makes it easier for both you and your customer!

When invoicing, include all the relevant information, such as your business name, address, contact information, and GST number, if applicable. You can also customize your invoices so that they look professional.

10. Accounts receivable and accounts payable

It would help if you tracked accounts receivable and accounts payable. Accounts receivable is the money that is owed to you by your customers. Accounts payable is the money that you owe to your suppliers.

You can track this information manually or through your accounting software. For example, if you’re using a payment software like Plooto, you can set up recurring payments so that you never miss a payment. This is important because late payments can damage your reputation with vendors or suppliers.

It’s also important to track accounts receivable so you can follow up with customers who haven’t paid their invoices. You don’t want to wait too long to follow up because they may have forgotten, and you don’t want to put yourself in a situation where you are short on cash.

When you receive payments for your invoices, use the receive payment function and mark off your invoices as paid. It must be kept up-to-date because cash flow is critical to your business’s success.

11. Automation tips and tricks for the technical bookkeeper

There is so much automation that you can implement into your accounting process. Here are a few of our favorites.

Accounts receivable: Invoice Sherpa is a great tool that allows you to automate your accounts receivable process. It integrates with QuickBooks and Xero so that you can send invoices directly to your customers and track payments.  This will save you time collecting customer payments and help with cash flow.

Accounts payable: Plooto is a great tool that allows you to automate your accounts payable process. It integrates with QuickBooks and Xero so that you can make payments to your suppliers directly from the software.

Records of expenses: Dext is a great tool that allows you to automate your records of expenses. It integrates with QuickBooks and Xero so that you can track your business expenses and generate reports.

PayrollWagepoint is a great tool that allows you to automate your payroll process. It integrates with QuickBooks and Xero so that you can manage your employee’s payroll and benefits.

Time tracking: TSheets is a great tool for automating your time tracking. It integrates with QuickBooks so that you can track your employee’s time and generate reports.

Zapier: Zapier is a great tool for automating your accounting process by connecting different software applications. Zappier is the glue that connects your apps so that all your apps work off the same data set and there is no manual entry. For example, every business has specific apps for sales, CRM, and data management. Using Zapier, you make sure that you never have to enter the same data again across all platforms manually.

12. Common mistakes you must avoid

The biggest mistake people make when doing bookkeeping for small business is not keeping up with it regularly. This leads to a lot of missed transactions and a lot of headaches down the road trying to figure out what happened. If you track your income and expenses weekly/daily, then you never fall behind, and you know exactly how your business is performing. On the other hand, if you fail to keep up, it means your taxes may be filed late or filed incorrectly. In addition, you can’t make informed decisions on your business if you don’t know where it’s at financially. That is like trying to sail a ship without knowing the direction you are going.

Another mistake that people make is not keeping good records of their expenses. This can lead to problems come tax time or if you ever get audited.  If you can’t show CRA receipts or invoices of your expenses, they can deny your expense claims and demand you to pay tax, interest, and penalties. 

Another mistake is not using automation tools to help with the bookkeeping process. There are so many great tools out there that can save you time and money.

Some of the biggest mistakes in bookkeeping are failing to reconcile accounts, not tracking payroll, and not categorizing transactions correctly.


Bookkeeping is an integral part of running a small business. By tracking your income and expenses, you can make informed decisions about your finances and ensure that your business complies with tax laws.

However, by following these tips, you can avoid these mistakes and set your business up for success!

Thanks for reading, and good luck with bookkeeping for your small business!

If you have any questions, please feel free to contact us.

We’re always happy to help!

Contact Argento CPA today if you have any questions or looking for expert advice.

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.