Accounting and Bookkeeping FAQs
Bookkeeping and accounting are essential parts of running a business. Whether you hire an accountant and/or a bookkeeper, or are comfortable doing it yourself, keeping your books in order will help you understand how your business is performing and enable you to keep track of required records. Here is a short FAQ page to help you figure out your needs.
Hiring an accountant during a small business start-up phase can be advantageous, as he or she can help answer your questions about bookkeeping, ensuring you begin things on track and avoid any unpleasant difficulties later on. As a qualified small business accountant will deal with many companies that face similar challenges to yours, they can be a tremendous resource, offering referrals and guidance in various aspects of small business ownership.
What does an accountant do?
The primary task of accountants, is to prepare and examine financial records. They make sure that records are accurate and that taxes are paid properly and on time. Accountants and auditors also perform overviews of the financial operations of a business in order to help it run efficiently. There are many intricate laws and systems to understand in order to be able to perform the job to a high standard.
What do bookkeepers do?
The role of a bookkeeper can vary tremendously. It is generally a bookkeeper’s job to maintain accurate financial records. In many cases the bookkeeper will take responsibility for day-to-day tasks for their company or for a client, such as handling accounts payable and accounts receivable – paying bills and generating invoices. A good bookkeeper can undertake a lot of work that a qualified accountant often does, but generally does not have the same level of education and understanding of more complex tax and financial matters.
Do I have to keep financial records?
By law, you have to keep records when any of these apply:
- You are carrying on a business in Canada
- You are engaged in a commercial activity in Canada
- You are responsible for collecting tax or other amounts
- You have to file a Goods and Services Tax/Harmonized Sales Tax (GST/HST) return
What are the benefits of keeping organized records?
Good records can help you make decisions that affect the future of your business. The more organized your records are, the more easily accessible information is, so the greater the potential benefit in having them – you have the information on hand to satisfy the government, and to help you make good business decisions. So good records help with, amongst other things, the following:
- Tracking and comparing past and present financial positions
- Planning and forecasting future financial positions
- Satisfying reporting obligations, notably to the Canada Revenue Agency
- Saving time and energy if your business gets audited (which does happen!)
What types of records must I keep?
When you run a business, or engage in any commercial activity – even as a sole proprietor – you need to keep records of various business transactions. The information your records must contain depends upon various factors. At a minimum, the financial records should be permanent, accurate and a complete record of your daily income and expenses. Your records have to give enough details to determine your entitlements and tax obligations. They also have to be supported by documents. These records include:
- Paper or electronic receipts
- Details of expenses and sales
- Payroll details
- Taxes collected and paid
For how long do I need to keep these records?
As a general rule, all records and supporting documents used to determine tax obligations and entitlements should be kept for a period of six years from the end of the last tax year to which they relate.
What styles of bookkeeping are available to me?
For a record keeping system to be most useful it should be simple to use, easy to understand, reliable, accurate, consistent, and can provide you with information on a timely basis. Some businesses are still using paper systems to keep their records, although this is becoming increasingly less common in the digital age. Examples of styles and systems of paper bookkeeping include:
- Single Entry Bookkeeping: This means every dollar transaction is recorded only once, either as income or expense, an asset or a liability.
- Double Entry Bookkeeping: Each transaction is recorded twice, one account is credited with the given dollar amount and a second account is debited by an equal dollar amount.
What are the advantages of computerized bookkeeping?
Bookkeeping using the computer offers speed and versatility and usually gives you the ability to produce daily updated financial statements. Many computer bookkeeping systems are scalable, so you can add on as your business expands. Some programs offer features such as automatic backup to the internet (“cloud” storage), which is a very good idea – along with secondary backups, to external hard drives etc. – to ensure your records are never lost.
Recently, there has been an emergence of entirely cloud-based accounting and bookkeeping. In these systems all of a company’s records are stored on secure servers in the cloud (if you know nothing of “the cloud”, or are confused by internet language, have a look at our glossary here, and read our article on the cloud here).
What are the advantages of cloud accounting software?
Cloud accounting software offers a number of distinct advantages over other options and certainly seems to be the future of bookkeeping. Depending on the software chosen, benefits might include:
Faster reconciliation of records – programs can be securely and safely linked to bank and credit card accounts online; information is fed in automatically, so there is far less need to manually enter it.
Software updates mean that by paying your small monthly fee for the service, you are always ‘up to date’ – unlike other computer systems where you will have to pay each time to adopt the latest version.
Accounts can be accessed (by you) from any device, anywhere, anytime: Just like with internet banking, the information is available to you wherever there’s an internet connection, and is updated instantly.
Some cloud accounting systems integrate with other online business software, creating incredible time- and labor-saving systems, when set up correctly. Many use highly intuitive smart phone apps so that owners, managers and employees can perform administrative tasks from anywhere, with minimal effort. These integrated business solutions can give you, amongst other things:
- Automatic invoice generation
- Automatic bill paying and entry into bookkeeping system
- Automatic fee collection and entry into bookkeeping system
- Accurate, real-time financial monitoring and intelligent business forecasting
- Automated work monitoring, time-clocks, payroll generation
- Expenses monitoring, reporting and entry into bookkeeping system
Should I be afraid of having my accounting in the cloud? What are the risks?
With banking information and much more besides having been online for a while, it appears the general fear of having sensitive information stored elsewhere and accessed via the internet is abating… There’s still a chance you can be frustrated if you are without internet for a period of time – particularly if using a sizable suite of cloud-based solutions to run your business.
However, companies are generally seeing a good return on investments in technology – including cloud accounting and management systems – and remarkable improvements in efficiency. It seems the advantages cloud accounting offers most businesses far outweighs any hiccups and mishaps people are experiencing; if a good consultant is enlisted to help with the choice, setup and implementation, then adoption should be relatively easy and the rewards huge.
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