Accountants analyze data available in records, which are collected and organized by a bookkeeper. Therefore, a bookkeeper’s job is equally important as poor record handling can cause inaccurate accounting reports. A company can use its receipts, taxes, payroll, billing, and invoices to predict future profits, revenues, and estimated costs.
Significance of Bookkeeping
By properly organizing your records, you can claim tax deductions on reasonable expenses and support them with appropriate documentation. Furthermore, you can identify mistakes and rectify them on time. Bookkeeping also forecasts your future operational and financial situation, which enables you to obtain business financing.
Establishing your Bookkeeping Requirements
There are several options depending on bookkeeping level and company size. A Microsoft Excel document or Google sheet would be suitable if you simply want to comply with CRA and manage your records. However, if you want additional features such as invoicing, reporting, automating, or cloud-based bookkeeping, then a computer application/program would be ideal.
How to Store your Bookkeeping Records
Ideally, financial records should be disposed of six years after tax year receipt. While you wait for this period to elapse, keeping them in a secure cabinet, database, or cloud online is better.
How it Works
The conventional bookkeeping method involves entering your transactions on a ledger note or using a Google or Microsoft Excel Sheet the same way. But, many businesses are using cloud-based solutions to update and track their financial records quickly. You can enter records into a digital ledger if you integrate it with online banking. Double entry bookkeeping allows you to track transactions twice as credit and debit.
You should have minimal details without being too specific or broad for better book organization. For example, you can separate products from services. Other categories include:
Accounts Payable vs. Accounts Receivable
Accounts payable (AP) is money owed to suppliers, an expense account. Prepaid expenses such as subscription services or rent are entered before receiving the benefit.
Accounts receivable (AR) is what a customer owes you after a sale or service. It is the amount you expect to receive. When you balance AP and AR, you obtain a net income result. Your profit margin is a division of the net income by net sales.
You should have a payroll schedule and learn the taxes to withhold if you have an employee. Ensure you track the amount you pay as wages, whether they are contractors or employees.