As a business owner, you are legally obligated to maintain records that are complete and dependable, including supporting documents. You are also required to protect these records (even if they are held by a third party) and maintain a backup.
And, with audit season upon us, if your records are reviewed by the Canada Revenue Agency (CRA), you must also ensure that:
- Records are readily available for the CRA if requested
- The employee or representative who maintains your records is present when they are reviewed
- Your representative is cooperative throughout the examination
- The CRA is able to make copies, or be provided copies, of required documentation
- Lost or damaged records are reported as missing and recreated within a reasonable time frame
But legal obligation isn’t the only reason you should maintain good records.
- Records Show Business Growth
Good record keeping allows you to better track the progress of your business so that you have a stronger understanding of how your company is performing. From determining what items are selling to identify cost savings, good records will help you optimize your business for success.
- Records Allow You To Prepare Accurate Statements
To prepare accurate financial statements you need to have well-managed books. Not only will it help provide a clear picture of your business, they will be critical when working with banks and creditors.
- Records Help You Track Deductible Expenses
Proper record keeping will ensure that you don’t miss deductible expenses that will lower your business income and increase tax savings.
- Record Make Tax Preparation Easy
When filing a business tax return, good recording keeping ensures you optimize your after-tax position.
- Records Take Some of The Stress Out Of An Audit
If you are ever assessed or audited by the Canada Revenue Agency (CRA), knowing you have your records in order will help you feel more relaxed going into the audit. If your records are poorly kept, and you’re unable to supply the necessary supporting documents, the CRA may reassess your return, which could result in you owing additional taxes.
- Records Help You Plan for Payments
Cash flow is king to any business. Maintaining proper records will help ensure you have the money available to cover upcoming expenses. This will minimize late fees and interest and help you maintain strong relationships with your vendors.
Which Records To Keep
When it comes to record keeping, if you aren’t sure whether you will need it, keep it. It’s better to have too much paperwork, then to be missing it when you need it.
Below are some examples of what you should keep, however, this list does not include everything. For a list of documents specific to your business, you should contact a professional.
Income
You must keep track of your business’s gross income, which is the total amount of income earned before you deduct any expenses. You must include the date, transaction amount and source of income.
Documentation that you may be required to hand over to the CRA during a review includes, but is not limited to:
- Invoices
- Cash register tapes
- POS Receipts
- Deposit slips
- Fee statements
- Contracts
Expenses
Whenever you make a purchase, ensure you get a receipt or invoice for your records, which includes the following information:
- Date
- Name of seller
- Seller’s address
- Description of goods and services; if this is not possible (i.e. cash register tape) write a description of the items purchased on the receipt or in your expense journal
- Seller’s business number if they are GST/HST registrants
- Buyer’s address and name if applicable (e.g. will be on an invoice but not a cash register receipt)
A POS receipt is not enough. You must also include a cash register receipt or invoice.
If the seller does not provide you with a receipt, include the above information in your expense journal.
For more information on proper bookkeeping, or for help maintaining your books, contact us today. Koroll & Company are experts in accounting software including QuickBooks, and can help with all aspects of set up, bookkeeping and using the many built-in features.
