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:
But legal obligation isn’t the only reason you should maintain good records.
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.
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.
Proper record keeping will ensure that you don’t miss deductible expenses that will lower your business income and increase tax savings.
When filing a business tax return, good recording keeping ensures you optimize your after-tax position.
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.
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:
Expenses
Whenever you make a purchase, ensure you get a receipt or invoice for your records, which includes the following information:
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.