An Accountant’s Guide to Bookkeeping
We get it – you’d rather do anything other than bookkeeping. It seems like an administrative burden and a time-sink, but it doesn’t have to be! Staying organized and on top of bookkeeping can give you valuable insights into your business and help with decision-making.
Here are some suggestions for our small business owners:
Get on the Cloud
Cloud accounting software can create efficiencies to streamline your bookkeeping. We like Xero because:
- It directly links to your bank and credit cards to import your transactions – no more manual entry!
- Makes bank reconciliations a breeze, with programming or rules. Common transactions are already coded for you.
- Connects easily to other applications, so that the software can communicate other business tools, such as your payment processor or payroll provider.
- Access from anywhere, on any device.
Whatever software you end up choosing, spend the time necessary to get acquainted with all your software’s tools and features.
Most cloud accounting software packages include training through on-line courses and video tutorials. Training is a worthwhile investment and will likely reduce a lot of back-and-forth with your accountants at year-end time.
Set the right chart of accounts
Your chart of accounts is the map to making your financial reports. Essentially, it is a listing of categories for you to record transactions in the books and records (i.e. general ledger).
Our suggestions for setting up your chart of accounts:
- Keep your chart of accounts to the minimum level of detail you would like to see on your balance sheet and income statement. For instance, we prefer to use 1 account for ‘travel’, instead of 4 accounts for ‘gas’, ‘oil changes’, ‘parking’, ‘bus fare’. You can always run separate reports to disaggregate details further if required.
- Use account numbers to create a unique code by which an account can be identified. Keep the first digit to signify if the account is an asset, liability, revenue or expense. For example, if the first digit is a “1” it is an asset, if the first digit is a “2” it is a liability.
- Tailor your accounts to suit your business – every industry and business is unique, and the chart of accounts should be designed with that in mind. Feel free to get a little creative and assign accounts that are meaningful to you. Many examples are available online, as well!
Separate personal and business transactions
It may seem like common sense, but you’d be surprised how many small business owners overlook the need to separate personal versus business transactions.
Why would you want to do this?
- Create legitimacy – others will see your business as more legitimate when paying to or being paid from a business account rather than a personal one.
- You’ll forget transactions that are personal vs. business. If you put off bookkeeping until year-end, it will be much more difficult to separate out expenses that you can claim for your business.
- Lack of separation of transactions paints a target on your back to the Canada Revenue Agency – they will be quick to deny any tax deductions or losses.
- Build up business credit.
Get that business bank account and credit card if you don’t already have one – you’ll thank us later.
Store your receipts immediately
If you’re digging through boxes, drawers, wallets or pockets to find business-related receipts, know that there is a much better way.
Instead, use a program like Receipt Bank. With it you can:
- Snap a picture with your phone and capture and extract all the important data, scrap the paper, and upload it directly to your cloud software.
- Fetch your supplier bills automatically from any supplier that bills from an online portal.
- Auto-forward invoices received from your e-mail. Each Receipt Bank account has a unique e-mail address connected to it. With this, you can either use this e-mail specifically when you sign up with your vendors or set up an Outlook rule to auto-forward to Receipt-Bank!
Trust the (reconciliation) process
In the accounting world, the reconciliation process is your GPS. If you don’t know where your bank or credit card balances are, you don’t know where you are going.
Why? If your bank or credit card balances in your software do not equal your bank statements, you could either be missing or have duplicate transactions. Either way – it is wrong and can create confusion.
Not convinced? Imagine you make a collection call to one of your customers, but some of your customer’s payments aren’t matched to your invoices. You make a collections call, only to have them tell you that you’ve already been paid! How embarrassing…
Import your data and keep it up to date
The ideal time to import your transactions is at the start of your business when there is either none or minimal activity.
When you are starting your bookkeeping, it is best to have a clean start. Go back to a date where you know that your data is accurate (e.g. this may be the last time your accountant assisted with your year end or when you last filed your tax return).
Keep a routine
Just like making your bed or brushing your teeth – everything is better when you have a set routine. This is going to be unique for everyone and, as your company grows, you will want to increase the frequency of bookkeeping.
We hope that this article creates some clarity. Not to brag, but we are pretty good at this stuff – so if you need some help along the way, please reach out to us.
We know bookkeeping can be tedious, we’d like to offer you a Receipt Bank account free of charge. Please e-mail us at email@example.com, and it would be our pleasure to set you up!