ACCOUNTING TIPS For Business Owners November 20, 2014 Tel: 905.862.4166 Website: lisaritchie.ca
Overview Business Owners Are Busy Why Is Accounting Important? Tips for Recordkeeping Account Types Balance Sheet & Income Statement To-Do List Software Options Need Help? Let s Look Online
Business Owners are Busy Business owners are busy every day Many tasks relate directly to your business (meeting with customers, answering emails, and planning a marketing strategy) Other tasks are just part of life (chauffering family members, grocery shopping) Many business owners have accounting on the list of tasks but it is often near the bottom of the list.
Why is Accounting Important? It is important to have accurate and upto-date accounting records for many reasons. Filing returns (tax, HST, payroll, WSIB, etc) Reduce stress But most importantly, to be more successful
Why is Accounting Important? Better decision making Having accurate and current records allows you to review past history, see current balances, make better predictions about the future. How much does Company X owe us? Which jobs were most profitable? How do our expenses compare to last year? This is an often overlooked reason for keeping on top of your accounting Isn t the purpose of running a business to be successful? Good decisions are based on good information
Why is Accounting Important? Cash flow Cash flow is very important to the health and growth of a business. Use your accounting records to assist with forecasting cash flow. Will you run out of cash if customers do not pay on time? Is financing needed? Can you pay suppliers and employees?
Why is Accounting Important? Reporting Requirements HST, income tax, WSIB, payroll deductions, etc. It is of utmost importance that government returns get filed on time and accurately. It is much easier to keep up to date if your books are current. Falling behind with filing and remitting payment for these items can cause much stress, both financially and mentally. Remember: interest and penalties applied on late/unpaid returns is usually not tax deductible.
Why is Accounting Important? Accounts Receivable A good accounting system will keep track of those customers who have not yet paid. When your books are current and accurate it is easy to monitor receivables to ensure that your business gets paid in a timely manner. Important for cash flow and decision making
Why is Accounting Important? Accounts Payable Keep track of who you owe money to, how much and when. Paying your bills on time allows you to reduce interest charges, build goodwill with vendors, and perhaps qualify for early payment discounts. Tracking your payables will also help you to forecast your cash flow.
Tips for Recordkeeping Some ideas that I ve come up with over the years which help business owners stay organized and on the right track with their accounting. Feel free to add any tips which you find helpful. We can all learn from each other!
Tips for Recordkeeping Separate personal and business finances Tip! to keep things organized and simplify your accounting. Open a separate business bank account which is used only for business transactions. Try not to pay for business expenses from your personal bank account or credit card; instead, pay using your business bank account or a credit card used exclusively for business.
Tips for Recordkeeping Record your deposits correctly to ensure that only sales deposits are recorded as revenue. This is important for accurate reporting and to ensure that you are only paying tax on income, not bank loans received or deposits from company owners. Tip! It is impossible to remember what was included in every deposit made to the bank over the course of weeks, months and years, especially if there are multiple items in deposits or customers make identical payments Record the details of every deposit you make in the Deposit Book provided by the bank that way you have a carbon copy to refer to later.
Tips for Recordkeeping Record all of your expenses to ensure your expenses are accurate for reporting and decision-making purposes. And to reduce income taxes because missed expenses means higher taxes! Tip! Pay for all expenses either through the company bank account or a credit card used only for the business. If you are reconciling your bank and credit card accounts monthly, all of these expenses will be caught. If you do use personal funds for a business expense, record it immediately.
Tips for Recordkeeping Keep your receipts and vehicle log in case of review or audit by CRA Tip! Keep your receipts sorted by categories and store by year in a labelled box. Back-up your accounting data and store off-site. Keep a log of kilometers driven for business in case CRA audits your vehicle expense. Choose a method that works for you I like to note the distance travelled in my appointment book because the client is already listed just make sure to keep it for 7 years!
Tips for Recordkeeping Cash Flow Planning It may sound tricky but it is important to be ready for seasonal fluctuations or large future expenditures. Tip! Make a list of major items which you will need to purchase in the next few years, such as new machinery or a computer system upgrade. Document any seasonal fluctuations experienced by your business. In those times when you are flush with cash, review this information so that you don t overspend in the good times, only to be left short of cash in the lean times.
Tips for Recordkeeping Be Ready to Pay Your Taxes to reduce not only your stress levels, but financial hardship. Tip! Put aside funds on a regular basis to pay for taxes such as HST or income tax. Some companies prefer to put aside a certain percentage of revenue, or a set amount monthly. Talk to your accountant to determine the right method for you. To avoid filing returns late, add the due dates to your calendar for the year in advance for payroll source deductions, HST, income tax and instalments.
ACCOUNT TYPES It s important to be able to understand your financial reports. There are 5 different types of accounts to be aware of: Assets Liabilities Equity (Owners, Shareholders, etc.) Revenue Expenses
ACCOUNT TYPES Items you may see on your Balance Sheet ASSETS = LIABILITIES + EQUITY Examples: Examples: Examples: Bank Accounts/Cash Accounts Payable Share Capital (corporation)* Accounts Receivable Credit Cards Payable Partner Capital/Draw (partnership) Inventory Loans from Banks, etc. Owner's Capital/Draw (sole prop.) Prepaid Expenses HST Payable Retained Earnings* Capital Assets (Equipment, etc.) Accumulated Amortization (contra account of Capital Assets) Payroll deductions Payable Shown on the BALANCE SHEET as at a specific date (ie December 31, 2014) *usually only accountant makes entries to these accounts
ACCOUNT TYPES Items you may see on your Income Statement (Statement of Operations) REVENUE - EXPENSES = NET INCOME (LOSS) Examples: Examples: Product Sales Cost of Goods Sold (if applicable): Not an account that you would post Sales of Services Materials entries to Labour Revenue - Expenses = Net Inc (Loss) General & Administrative Expenses: Rent Utilities Office Expense Professional Fees Shown on the INCOME STATEMENT for a specific period of time (ie January 1 to December 31, 2014)
To-Do List Daily or Weekly Record all sales invoices and send to customers by email (easy!) or whichever way suits you. Record all expenses which have already been paid for. Ensure entry matches method of payment bank, credit card, petty cash, or other. Record all bills (items which will be paid for in the future) Note: these are items separate from the expenses entered above. Review Accounts Payable. Pay bills when they are due and record this payment in your system. Ensure entry matches method of payment bank, credit card, other. Monthly Reconcile bank account, this is a MUST! Reconcile credit card accounts, if applicable. Review Trial Balance (or Balance Sheet and Income Statement) using month end date. Do all balances make sense? Review Accounts Receivable (or more often). Send reminders to outstanding accounts. Backup data and move offsite (or more often!) Consider entering a closing date in software after bookkeeping for that month is complete so that transactions can t accidentally be entered into the closed month. Note: Use accounting software such as QuickBooks, etc. This is only a basic list. Revise based on your particular situation. This handout is intended only for brief discussion purposes. Please consult your accountant to determine the best course of action based on the specifics of your situation. Thank you!
Software Options Accounting software is a must! Which works best for you? Test out different products, talk to associates, read blogs, watch YouTube videos Make sure you get the Canadian version Desktop software QuickBooks, Sage, etc Cloud-based software QuickBooks Online, Freshbooks, Wave, etc (basic versions may be free) Although affordability is important, price should not be the sole deciding factor
Let s Look Online QuickBooks Online Canada Wave Apps Canada Canada Revenue Agency YouTube tutorials
Need Help? If you are struggling or overwhelmed by the accounting duties get help. Some ideas: Engage an experienced professional to either assist you with a specific problem or take over the accounting function Take a course or do some training Consult your accountant This handout is intended only for brief discussion purposes. Please consult your accountant to determine the best course of action based on the specifics of your situation. Thank you!