Bookkeeping is a dreaded territory for most small business owners because of the high need for attention to detail, which also means a high investment of time. Though medium-sized business owners might have their own accounting department in place to help them with their bookkeeping responsibilities, it’s still difficult for them to manage bookkeeping functions since it remains a time-consuming activity. Certain business owners oversee their bookkeeping activities themselves, which is an even-more difficult proposition since they may not have the requisite time or expertise to do justice to the responsibility.
In this post – the first of a three-part ‘Accounting Blunders’ series – we intend to take you through the ramifications of not having a designated bookkeeping department to look over your bookkeeping issues. Let us take you through the common bookkeeping blunders.
No list of common bookkeeping blunders is complete without the fundamental pillar of good bookkeeping – proper record maintenance, which, arguably, is the actual definition of bookkeeping. It’s very easy for a small business to lose receipts for seemingly minor expenses, leading to improper record maintenance. Apart from this, an inadequate filing system is what acts as a major bookkeeping issue that hinders an accurate assessment of a company’s financial position. Why is it important to be regular with the documentation of every dollar spent by the business? It’s because the Canadian Revenue Agency or the CRA conducts audits, where a greater difference between your computed expenses and the real expenses you’ve incurred can lead to significant penalties imposed on your business. It’s important for you to know that the CRA closely monitors businesses with a history of irregularities in their records.
This is a seemingly irrelevant issue for some of the small business owners out there. Some small business owners make the cardinal mistake of making business expenditures from their personal accounts for the sake of sheer convenience. On the other hand, making personal expenditures from your business account is also a potentially risky activity since CRA tax specialists don’t approve of it. Specifics about the movement of money and the nature of transactions are closely monitored by the CRA.
You making such a transaction simply because of the temporary unavailability of funds in your business account qualifies as a definite accounting blunder as the problem could have been solved through a timely transfer of funds to your business account. A professional tax specialist would tell you that certain expenses qualify for a deduction, which may not be not applicable if the transaction is made through a personal account.
We have seen instances where small businesses have months and months’ worth of slips and receipts that they have to sort out. It doesn’t help when business owners pick the worst possible time to finally sit down and sort them – a week or two before the date of the tax audit. Small business owners are not the only ones guilty of the practice; there are also instances of in-house accounting departments slacking with the reconciliation of transactions.
The problem with such irregularity is that it gets harder to be able to detect errors as they accumulate. This is an even greater problem with the rising prevalence of alternative means of making payment. For instance, there have been cases of an irreconcilable account simply because of PayPal transactions that aren’t successfully imported to the company’s bank statement. It’s really important for you to have a designated team of certified bookkeepers working in tandem with professional tax specialists to avail the desired accuracy.
Now we arrive at a common bookkeeping mistake that is a result of an inaccurate understanding of accounting terminologies. Small business owners and amateur accounting personnel often make the mistake of recording payments to self as an expense and that’s a legitimate bookkeeping issue that leads to the shrinking of your overall profit. This distinction is important because an inaccurate reading of your profit directly affects the accuracy and validity of your final statement. On the other hand, in a similar manner, recording your transfers as income is also problematic. Businesses that have multiple accounts often face this problem, where the makeshift accounting software incorrectly reads the transferred money as additional income as the transfer leads to an increase in account balance.
This happens to be the greatest issue associated with bookkeeping. Small business owners often spend too much time looking after bookkeeping activities, not realizing that bookkeeping is an immensely time-consuming activity that needs significant attention to detail. As a business owner, even if you have an understanding of basic accounting terminologies, you might not necessarily have the requisite expertise that you need to ensure that you don’t make any errors that hamper your business interests. For instance, are you certain that you are accurately making note of the expenses that can later be reimbursed? This is an essential part of taxation management that an accounting firm such as Altitude Accounting can help you with.
It doesn’t help your case that the domestic economic policies are subject to flux and it might not always be a makeshift bookkeeper such as you or your accountant to keep up with such changing policies. Furthermore, it must also be said that your time as a business owner is better utilized elsewhere; managing business activities that help your productivity.
We recommend enlisting the services of an accounting firm that is capable of providing you with all-round financial management services. You don’t simply get quality bookkeeping services but you also get assistance with filing your tax returns along with you’ll also get represented in your interactions with the CRA. Our tax shelter accountants ensure that your business interests are always at the forefront. Contact us to know more about the nature of our work and the services that we can extend to you.
Please log in again. The login page will open in a new window. After logging in you can close it and return to this page.