Running a small business takes a lot of work. A business owner has to constantly look for new customers to grow his business, keep up with trends in the industry and keep an eye on the competition, in addition to managing a team of employees.
On top of all this, entrepreneurs of course have to take the time to manage the company's finances, which can become increasingly complex as the business grows. Many business owners therefore turn to a bookkeeping service for support.
But what exactly does a bookkeeping service entail? How can it help your business grow? Find out in this article.
What is bookkeeping?
Bookkeeping involves recording every transaction a business makes in a financial management system such as accounting software or a spreadsheet. This responsibility includes recording various types of transactions, including:
- Sales and other income
- Expenses and other payments
- Asset purchases
- Loan repayments and lease payments
Single-entry bookkeeping is a method of keeping financial records that involves recording a single entry for each transaction. In this type of recordkeeping, the transaction is recorded only once (for example, a capital purchase).
This method does not record all the details of the transaction, such as how it was paid for, (for example, in cash). Although single entry bookkeeping can be used by very small businesses that have few assets or liabilities and deal primarily in cash, this method is generally not recommended as it does not provide sufficient information and cannot be used to produce detailed financial statements.
Double-entry bookkeeping is the most common method of record keeping and is recommended for all businesses, large or small. This method involves recording two entries for each transaction: one in the debit account and one in the credit account, which allows transactions to be cross-checked.
Double-entry bookkeeping also produces detailed financial statements like balance sheets and income statements, which provide valuable information about the financial health of the business. By using double-entry bookkeeping, a company can better understand its cash flows, revenues, expenses, assets and liabilities, which is essential for effective financial management.
How to do bookkeeping
Bookkeeping is a critical process for any business. To ensure that financial data is accurate and reliable, certain principles must be followed:
- Reliability: When keeping the books, it is crucial to record financial data in the right place. Each transaction should be recorded using the double-entry method of accounting, with a corresponding debit and credit for each transaction. This practice ensures that accounting records are accurate and consistent with generally accepted accounting standards.
- Accuracy: Guarantee accuracy by regularly reconciling account balances with bank statements and invoices to ensure that amounts recorded match the supporting documentation. If there is any uncertainty or question, ask for help from a chartered accountant.
- Simplicity: Simplicity is crucial in bookkeeping to minimize the risk of errors and confusion. The simpler the data entry process, the less chance there is of making errors. In addition, entering data multiple times can lead to inconsistencies in the records, which can complicate a company’s financial management.
- Consistency: Consistency is important in bookkeeping. All financial data should be entered consistently and uniformly to avoid confusion or error. This means that all transactions must be recorded in the same way and the same terms and definitions must be used consistently.
- Timeliness: In bookkeeping, entering data promptly is key. If data is entered too late, important details can be missed, which can compromise the accuracy and completeness of financial information.
Bookkeeping activities must comply with transaction recording standards established by the Accounting Standards Board in accordance with Generally Accepted Accounting Principles (GAAP).
For private companies in Quebec and Canada, there are two sets of accounting standards to choose from, either the International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE).
Choosing which set of standards to use will depend on the size and complexity of your business, as well as any applicable regulatory or contractual requirements. Compliance with these standards guarantees the accuracy and reliability of a company's financial statements, which is essential for business decisions and tax liabilities.
What is a ledger?
A ledger is a digital or physical record of a business’ financial transactions. This tool is crucial for accurate bookkeeping and the production of reliable financial statements.
A general ledger typically includes a company's cash receipts and disbursements, as well as categorization information associated with each transaction.
What is accounting daybook?
An accounting daybook is a document where financial transactions are recorded manually as soon as they take place. This information is later transferred to a general ledger and used to generate financial statements.
Accounting daybooks are less common now due to the widespread use of automated accounting software and spreadsheets, which have almost entirely replaced manual bookkeeping processes.
How can a bookkeeping service help your business in Quebec?
Hiring a bookkeeping service for your business can allow you to benefit from many advantages.
Ongoing management of your finances
Managing your corporate accounting can be a real headache, especially if you don’t have much experience. By outsourcing your bookkeeping to a business accounting team, you’ll have the time and energy to run your small business with a clear head!
A professional bookkeeping team is responsible for managing the weekly and monthly finances of your business. Among various accounting tasks they will undertake on your behalf, bookkeeping involves keeping records of all financial transactions so that expenses and revenue are properly categorized. A small business accounting team could also be responsible for your accounts payable and receivable, your business tax returns, managing your payroll and providing treasury services.
Adoption of efficient accounting systems to keep your books up to date
When you rely on a bookkeeping service, the first concrete actions taken are usually systematizing processes and software implementation to make your bookkeeping as efficient as possible.
For example, the accounting team could implement an automatic payroll processing system that automatically calculates the amount to be paid to an employee by counting their recorded hours and directly applying government and union deductions, etc.
Implementing efficient accounting systems reduces the workload of the business owner or manager, allowing them to concentrate on other important administrative tasks.
Production of reports and financial analyses to evaluate your company's performance
Your accounting team will also be tasked with generating reports (weekly or monthly, depending) to provide a clear view of the numbers and to effectively assess where your company's money is going to and coming from.
Among other things, the team will produce an income statement and balance sheet. They will also evaluate cash flow – all with the goal of finding potential problems and fixing them before they occur. A good knowledge of your financial statements will also allow you to seize opportunities that come your way!
Complying with the law
Keeping financial records is an obligation for all incorporated businesses (and also for trusts, non-profit organizations, universities and others), whether they are in Quebec or elsewhere in Canada. In fact, the Canadian tax system is based on self-assessment, which means that the government trusts businesses. Companies must be responsible for declaring their own profits.
Be aware that the government does not trust taxpayers blindly. Businesses must keep an accounting register detailing all financial and accounting transactions made throughout the year. By checking these records, financial authorities can determine whether you have collected GST/HST in accordance with the law. These records also form the basis of a company's financial statements, which are used to issue tax reports.
In addition to keeping their records up to date, businesses are required to retain all supporting documentation for each transaction recorded in the register for a minimum period of 7 years. For example, if you want to prove to an auditor that a $10,000 deposit to your bank account is not from income, but rather a loan, you will need the written contract with your lender that proves it.
Save time in case of a tax audit
Anyone can find themselves subjected to a tax audit, and if you've done your accounting records correctly, there's no reason to panic.
On the contrary, you'll know you're in good standing because you've made regular updates on your company's status. All your extra effort will be rewarded, as properly kept records significantly speed up a tax audit.
Trust T2inc with your bookkeeping
When you hire a bookkeeping service, your business will benefit from more efficient accounting systems, allowing you to focus on other administrative tasks. A professional bookkeeping service will manage your business finances on an ongoing basis and produce frequent reports and analyses so that you can easily consult the state of your finances at any time.
At T2inc, we offer a wide variety of accounting and tax services. Contact us now and entrust your bookkeeping to a team of small business accounting experts!