Bookkeeping consists of maintaining and keeping financial records, both personal and business. Good bookkeeping can help you make the appropriate decisions to grow your business, and, when the time comes, your bookkeeping records and will also help you sell your business or attract new business partners.
Bookkeeping records should track both income and expenses, as well as GST collected and GST paid for input tax credit claims.
Keeping good books is also the law. Business owners are required to keep detailed financial records that track both income and expenses, as well as GST collected and GST paid for input tax credit claims.
Not to mention for the preparation of an accurate and complete tax return, and ensuring you're protected in your dealings with CRA and audit situations.
Good bookkeeping, whether paper or electronic records, will also make it easier for CRA to audit your business. This is actually a good thing as failure to keep records that CRA deems appropriate will work against you in an audit and could possibly result in a fine.
CRA Assumes You're Guilty, Unless Your Bookkeeping and Records Proves You're Innocent
In any tax assessment, CRA is right and you are wrong – unless your records and bookkeeping prove otherwise. If your records are missing or incomplete, CRA can assume your net income was higher if you can’t produce documents to support your income and expense transactions.
What Should Your Bookkeeping and Records Include?
According to CRA, the following items constitute complete records:
- Ledgers, journals, financial statements and accounts, and income tax records
- Source documents, such as sales invoices, purchase receipts, contracts, guarantees, bank deposit slips, cancelled cheques, credit card receipts, purchase orders, work orders, delivery slips, e-mails and general correspondence to support transactions
- If incorporated, minutes of directors and shareholders meetings as well as share ownership and transfer records and special contracts, agreements or other documents needed to understand book and record entries
You must keep business records for six years dating from the end of the last tax year to which they relate. Separate books and records must be kept for each business you operate. Even if a business is wound up or fails, certain records must still be kept.
Bookkeeping and records can be in either paper or electronic format. Electronic format includes documents first produced on paper and later converted to electronic format or documents initially produced and stored on a computer. Electronic documents must be in a standard format and accessible by CRA.
You, the business owner, are responsible for keeping, maintaining and safeguarding your records. This is true even if the bookkeeping and records are left with a third party such as a bookkeeper or accountant.
Should your bookkeeper or accountant undergo a change that might affect your records, you are still responsible for safeguarding those records. Such changes could include software or hardware conversions or upgrades, mergers or acquisitions of the third party, and bankruptcies.
The Right Bookkeeping Solution For You
Whether you just want an online tool to help you with your small business bookkeeping, or you want a hands-off approach and want someone to handle all your record keeping and paperwork, there's a small business bookkeeping solution that will meet your needs.