Tax Tip Thursday

Great accounting starts with great bookkeeping!

I know I have talked about bookkeeping before, but this show is dedicated to MY bookkeeper!

I always talk about the importance of having proper bookkeeping done by a qualified bookkeeper. So I am going to make a confession to all of you! I have always subscribed to that strategy for years.  Well almost always!  I have paid a bookkeeper to keep my books.  UNTIL RECENTLY.

Due to various reasons, my bookkeeper left me for about 4 months.  While it was temporary, it was enough time for me to really mess things up!

While I have never professed to be a bookkeeper, I have always believed that I could handle the bookkeeping myself.  After all, I know the accounting and taxes behind it!

NO THIS WAS NOT THE CASE!

It cost me an additional 5 hours in bookkeeping, to get my books straightened out.

That will not happen again!

So following are the top 11 mistakes do it yourself bookkeepers make and I will confess to the ones I messed up!

The Top 11 DIY Errors:

  1. Not understanding the Chart of Accounts

    1. A chart of accounts is whole basis of financial statements.
    2. If you do not understand how it is designed or how it is to be used, how can you expect to bookkeeping properly?

  2. Incorrect assets and liabilities on the Balance Sheet

    1. I see this all the time – people set up accounts in the wrong place.  Many are not very changeable and you end up with what I call an upside down balance sheet.  This means it is pretty well useless as it stands

  3. Not using your bank, Shareholder or inter-company accounts properly

    1. Because of the way my business is structured and the need for Inter-company, USD bank and investment accounts, there are a number of transactions that go between them on a regular basis.
    2. If you don’t get these transactions right, there are all sorts of problems that can unfold.
    3. GUILTY – I managed to do some of them incorrectly causing inter-company transactions to be out of balance distorting my income statement and therefore my HST and taxes.
    4. All is well and fixed, but it cost me more than it needed to.

  4. Not reviewing the numbers

    1. It is important to understand the relationship between accounts and to be able to review accounts for reasonability.  I do this all the time for my clients.  I am often told, that I ask more questions and explain more concepts to people in the 1st 10 minutes than people have been asked to told in 10 years with their accountant

  5. Mixing business and personal funds

    1. This is a far to regular occurrence – simple rule for business owners, business is business and personal is personal – don’t mix them!  And then the problem as a bookkeeper is sorting it out.  I find the diy bookkeepers are very challenged by this

  6. Not tracking credit card transactions correctly

    1. Another tough one.  Not understanding how to do the bookkeeping for your credit card expenses, refunds, payments, late payment charges, use of points for payments, etc….

  7. Entering a bill in QuickBooks but not paying it

    1. There are multiple ways of entering transactions in QuickBooks or your choice of software
    2. There are just as many INCORRECT ways of entering transactions.  A lot of diy don’t understand the transactions available and not knowing how to use the system properly
    3. GUILTY  – using our receipt capture system allowed me to classify transactions as bills instead of receipts causing payments to remain outstanding

  8. Entering an invoice for a customer but not posting the payment correctly

    1. I have trouble with this with my own clients, knowing what payments are for what clients.
    2. This can be very problematic and will undoubtedly cause big problems with the experience to deal with it

  9. Categorize payments to the CRA properly

    1. When the payments come through on your bank statements, they are not always very clear as to what CRA account you were paying.
    2. GUILTY.  I booked my payments to the CRA into the wrong accounts.
    3. This can cause several problems.

  10. You are not able to reconcile to the CRA accounts

  11. The amount you THINK you paid to each of the accounts will not be correct, causing you to possibly underpay your installments and possibly ending up costing yourself interest.

  1. Not reconciling

    1. Number 1 thing that diy bookkeepers don’t do and the number 1 way of costing yourself more taxes!

  2. Not entering everything

    1. This ties directly into reconciling – if you don’t reconcile, you won’t know if you have everything.  And that is another VERY common problem – basing your bookkeeping on the receipts in hand (which are quite often not all of them).

So with all that being said, I want to let everyone know that The Mad Accountant Inc can handle your bookkeeping needs!  AND IT WILL NOT BE ME DOING IT!

I have an amazing bookkeeper again so I do not have to mess up my books and an amazing team of bookkeepers to handle your bookkeeping for you!

In most cases, not only can we save you money in taxes, but we will leave you with more accurate records and leave you prepared should you have to deal with a CRA review or audit.

Professional bookkeeping is so important in running a business. Talk to The Mad Accountant team about our bookkeeping packages! Make An 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.