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Here's a list of some commonly asked questions that can provide valuable insight whether you are considering hiring a bookkeeper or are looking to expand your knowledge base to do bookkeeping.
Commonly asked questions:
Bookkeeping involves recording, organizing, and maintaining financial transactions and records for a business. It includes tasks such as tracking income and expenses, managing invoices, and reconciling bank statements
Bookkeeping is essential for accurate financial reporting, ensuring compliance with tax regulations, facilitating business planning and decision-making, and preparing for audits
The basic principles include accuracy, consistency, reliability, and timeliness, so Bookkeepers should ensure that financial records are accurate and complete, maintain consistent methods and practices, rely on trustworthy data, and update records promptly.
Can't I just do this myself?
While small business owners can manage their own bookkeeping with the help of software, hiring a professional bookkeeper can ensure accuracy, save time, and provide expert knowledge, particularly as the business grows.
Popular bookkeeping software in Canada includes QuickBooks, Sage 50, Xero, and FreshBooks. These tools help automate and streamline bookkeeping tasks
Bookkeeping tasks should be performed regularly. Daily tasks might include recording transactions, while weekly tasks might involve reconciling bank accounts. Monthly tasks could include preparing financial statements.
What is the difference between bookkeeping and accounting?
Bookkeeping involves the day-to-day recording of financial transactions. Accounting encompasses a broader scope, including interpreting, classifying, analyzing, reporting, and summarizing financial data.
Common mistakes include failing to keep receipts, mixing personal and business expenses, not reconciling accounts regularly, incorrect categorization of expenses, and not backing up financial data.
According to the Canada Revenue Agency (CRA), businesses must keep financial records for at least six years from the end of the last tax year they relate to. This includes ledgers, journals, bank statements, invoices, and receipts.
A chart of accounts is a list of all the accounts used by a business to record its financial transactions. It includes assets, liabilities, equity, revenue, and expenses.
Bank reconciliation involves comparing the business's internal financial records against the bank statements to ensure they match. This helps identify discrepancies, such as missing transactions or errors.
GST is a value-added tax in Canada. If your business earns over a certain threshold, you are required to register for GST/HST and collect GST on taxable supplies. You'll need to account for GST in your books and remit it to the government.
What expenses can I deduct for tax purposes?
You can generally deduct expenses that are incurred for the purpose of earning income for your business, such as rent, utilities, office supplies, wages, and professional fees. However, there are specific rules and limitations set by the Canada Revenue Agency (CRA).
Cash basis accounting records transactions when cash is received or paid, while accrual basis accounting records transactions when they occur, regardless of when cash is exchanged. Accrual basis accounting is generally preferred for its accuracy in matching expenses with revenue.
Foreign currency transactions should be recorded at the exchange rate on the date of the transaction. Any gains or losses resulting from currency fluctuations should be accounted for in your books.