Tax Tip Thursday

Bookkeeping

In my opinion, businesses do not take their bookkeeping seriously and the truth of the matter, from a financial perspective, it is the foundation of the building!

I saw this definition of an accountant which is pretty interesting.

An accountant.

Someone who does precision guesswork based on unreliable data provided by those of questionable knowledge on the subject.

The Problem

The biggest problem is most businesses do not even do bookkeeping. In some cases, people come to us quite organized, but in the majority of cases not and we are left to try and sort it out for them. They come to us at year end with bank statements (maybe), thinking we can just magically produce a tax return without much work. The reality is, it takes a lot of work/time and if you leave it for a whole year, it takes a lot more time. If you can put some basic processes in place, you can position yourself to focus on your business and not have to worry about paying too much tax or dealing with unfavourable audits.

So to give you an idea of what we are given and trying to deal with a lot of the time:

  • Most people are doing so much business by etransfer and almost everyone is now set up for auto deposit. When on autodeposit, banks do not provide much if any information on the etransfer. So now we have to back to the client and ask about the transactions
  • Many people still write a lot of cheques. Unfortunately – most people are not getting paper statements. When you are not signed up for paper statements, you do not get the cheque copies, so all we have is an amount and a cheque number. So now we have to go back to the client and ask about the transactions
  • Many of the transactions going through your bank account or credit card have company names, but it does not tell us what you bought.
  • If there is a $750 charge going through home depot, is that an air compressor that needs to be capitalized or 20 sticks of lumber that need to be expensed. So now we have to go back to the client and ask about the transactions
  • If there is a deposit into your account, is that a payment on account for a previous sale, or is it a down payment on a new sale. So now we have to go back to the client and ask about the transactions
  • If we do not know who the vendor is on the credit card or bank statement – we cannot even guess on what the expenditure is. So now we have to go back to the client and ask about the transactions
  • Loan payments – if you have not provided documentation on all the loans, then we have numerous transactions, not knowing how to treat them. So now we have to go back to the client and ask about the transactions
  • And there are of course many other situations that cause us to have to go back to the client

What’s the Big Deal?

It creates a lot of work when it eventually catches up with you and you find someone like us to come help:

  1. As you can see, we have to go back to the client for a lot of transactions, but only after spending a lot of time trying to sort through it first
  2. The client RARELY knows what those transactions are as they are often anywhere from 3 months to 15 months old, so now what.
  3. Your income statement and balance sheet will be severely misstated. It could be in your favour or not.
  4. You WILL for sure be over or under paying your tax bill
  5. You will have for sure caused delays in getting your bookkeeping completed and therefore getting your taxes completed
  6. One other big issue is if you pay for anything in cash – none of that will be captured and you will have lost that deduction.
  7. Last but not least – you probably do NOT have all the receipts supporting the bank statements and credit card statements, which means if you get reviewed or audited, you will for sure be paying more money to have someone respond to the CRA after many hours of trying to sort through whatever paperwork you can pull together. AND you will FOR SURE be sending more money to the CRA because you do not have all the supporting documentation.

So, Have You Been Keeping Your Books?

I think we’ve given you enough reasons to want to go catch up on your bookkeeping… Don’t you? If you just don’t have the time, don’t know what to do, or have put it off so long you don’t know where to start, we can help! It might not be pleasant sitting down to go through it all, but it’s better late than never. Get to it before the CRA forces your hand! Book your appointment today.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.