I am behind in my bookkeeping

Behind in your bookkeeping? A CPA's guide to getting caught up.

When you started your business you likely had some really big plans. Provide great customer service make lots of money and have more time to spend with friends and family.

Sometimes things don’t go as planned. Perhaps you ‘fell’ into your business as a result of a great opportunity or maybe you had a plan. In any case you didn’t intend for your accounting to get behind. After all, you aren’t an accountant. Maybe you even had someone helping you but they are long gone.

At first it wasn’t too bad, maybe one GST return was missed. Clients were paying and your suppliers were getting paid, so nothing that caused you worry.

Now fast forward to today and suddenly the books are way behind. You might be getting letters and phone calls from CRA. Maybe you aren’t getting letters and phone calls yet, but you know they will be coming soon.

Where to start?

  1. Set up your CRA online business account to see what has been filed and what is missing.
  2. Collect your business documents and receipts. Click HERE for a list of what you need
  3. Connect with a professional. Make sure who ever you work with is qualified. In Canada this would be a CPA (Chartered Professional Accountant) or a CPB (Certified Professional Bookkeeper).

How long does it take?

The next question on your mind might be how long will it take? Once CRA starts calling there is pressure to have things caught up quickly. A lot of that depends on you and how organized you are and how far behind things are. Getting all of your receipts together and organised BEFORE you connect with an accountant or bookkeeper will speed up the process. At my firm one year of bookkeeping and taxes can be completed in as little as 4 -6 weeks as long as we have all the information.

How much does it cost?

There are a lot of variables that affect the cost of your bookkeeping and taxes.

  • How many years you are behind
  • The state of completeness or organization of your documents
  • The volume of transactions
  • The number of bank and credit cards
  • Are items purchased with cash vs credit/debit cards or PayPal
  • Do you use industry software (BuilderTrend, MindBody etc)
  • Whether the information is provided electronically or via paper
  • Did someone else already do some of the accounting or is it a fresh start?

Can I go to jail?

This question does come up a lot. On occasion taxpayers do end up in jail. It just isn’t going to be the first conversation CRA has with you so be wary of any ‘CRA’ calls that suggest you are going to jail. Please check this link at the Canada Revenue Agency Website . CRA – Slam the scam.

 If you still aren’t sure, call your CPA if you get any suspicious calls from people claiming to be from CRA.

What information do I need to get started?

What information do I need to get started?

This list is a starting point, your specific situation may differ.

Business bank and credit card statements.
  • Many banks and credit companies provide this information online and can go back as far as seven years
  • Copies of cheques (often these are on your bank statements)
  • Listing of e-transfers sent and received
Documents that support your business transactions
  • Invoices that you have sent out to clients
  • Documentation for purchases you have made. Receipts, bills from vendors.
  • Loans that you have in the business name
  • Agreements that you have made that result in a financial obligation.
  • Lease, rental agreements etc.

Business Registration and incorporation documents.

Most recently filed Annual return (this is not your tax return)
Incorporation documents
Including:

  • List of shareholders and directors
  • business articles
  • Share structure and ownership
  • shareholder agreements.
Business registration and incorporation documents will be available from your lawyer.  If you self-incorporated you likely do not have all of these documents.
Previously filed tax and information returns
  • If incorporated your last filed Corporate tax return (T2)
  • If self-employed your last filed personal tax return with the T2125
  • Statement of Business activities.
  • Copies of GST/HST/PST returns filed
  • Copies of T4 Summary and T4s filed if you have payroll
  • Copies of any T5018 (contractor payments) filed
  • Copies of any T5 Summary and T5s filed for shareholder (if incorporated)
  • Copies of any correspondence received from the Canada Revenue Agency
  • Copies of any correspondence received from your province (if you are
  • subject to PST).

Note that some of this information may be available online at CRA or your Province.

It may take a while to collect all of this information, but the best place to start is to connect with a professional who can provide more guidance on what information is required for your situation and what to do if some information is missing.

Bookkeeping – why it’s important

One of the concerns I hear on a regular basis is regarding bookkeeping.  Why do I need it and why is it expensive and can I do anything to reduce my costs?

This article covers bookkeeping for corporations; bookkeeping for sole-proprietors may or may not need to be as rigorous depending on your situation.  To be sure always ask your CPA who can advise you for your specific situation.

So you have a corporation and you have contacted your CPA to get the year end done and the question comes up – is your bookkeeping complete?  What does this actually mean and why do I need it done?

What is bookkeeping?

Bookkeeping allows transactions to be categorized and totalled; it also allows the GST and / or PST to be calculated to be able to prepare the GST/PST returns.  Depending on your situation it may also include preparing payroll for you and your employees.

Who can do my bookkeeping?

Bookkeeping is not currently a regulated field so it can sometimes be difficult to find a quality bookkeeper.  Your CPA likely can do the bookkeeping for you if not will be able to provide you names of a quality bookkeeper.  If you want to find a bookkeeper on your own look for someone with certification from IPBC (Institute of Professional Bookkeepers) or CIB (Canadian Institute of Bookkeeping).  You can do your bookkeeping yourself as well as long as you understand how to do it.  There are courses available that can help.  Most people get a bit lost however when it comes to the GST and/or the PST (in BC).  Some of the rules especially the ones around PST can be quite complex.

Why do I need all the receipts, can’t you just go from Bank or Credit Card statements?

Often the receipts are required to determine how much GST / PST was paid.  This information can’t be obtained from the statements.  Particularly for things like utilities, meals and professional services since the amounts aren’t always standard.

Also the receipts tell us if there is something that is not a business expense purchased — many times we see a pack of cigarettes or gum on the fuel receipt for gas.  The cigarettes and the gum would not be considered a business expense so shouldn’t be included.

Sounds time consuming – how long does this take?

Experience shows that it takes about 1 hour for every full page of bank and/or credit card statements that you have for the company.  If you have a lot of company expenses paid by cash or have personal expenses mixed in with the company bank and credit card accounts, that hour can become two hours quite quickly. Being organized and having all the receipts is the best way to keep the costs down.

Is there any way to make this faster / less expensive?

There are tools in the marketplace that can speed up the bookkeeping, services like HubDoc and ReceiptBank will retrieve information from your scanned in receipts that can be imported in to your bookkeeping file.  The service is not free so you need to balance out the bookkeeping fees with the fees from these services.

Online bookkeeping services like QuickBooks and Wave allow connections to most bank and credit card service providers.  The connection will provide a ‘feed’ into your bookkeeping file taking some of the pain out of the data entry.  While some automation does exist, the transactions need to be reviewed to make sure they are classified correctly.  There is a monthly fee for these services but typically is it less than the cost of the bookkeeping.  The longer you use these services the better the classification of the feed gets – thus reducing your bookkeeping costs over time.

For payroll there are 3rd party products like Ceridian and Payworks and most online services like QuickBooks and Wave provide a payroll feature – again for a fee.

OK so I understand what the bookkeeping is and some of the methods to get it done, why do I need it?

Bookkeeping needs to be done to classify the transactions to prepare your tax returns and to prepare financial statements. Different tax rules apply to different types of transactions so it is important that they are classified properly for taxation purposes.  For example, meals and entertainment are taxed at a different rate than office supplies.  Drawings and / or owners contributions for your incorporated company also need to be properly identified as this is directly connected to the income that you are required to report on your personal tax return.  GST returns depend on income being properly recorded and GST on expenses calculated as this offsets the amount of GST you are required to pay.  PST (BC) rules are industry specific and can sometime be quite complex and even contradictory.  Taxes filed incorrectly can result in penalties and interest and in the worst case scenario a CRA audit.

For more information about bookkeeping and getting your bookkeeping done, please contact us