Better Bookkeeping Creates an Audit Trail

 

When someone coined the term bookkeeping, they could have just as easily called it recordkeeping, because the role is all about keeping records of transactions and ensuring there is a trail and documentation to follow. Having that trail is an essential aspect of running a business because if the Canada Revenue Agency ever has questions, you need to be able to provide answers.

Quickly.

And preferably in a way that produces the least amount of stress for everyone.

This is just one of many reasons to hire someone who has taken a bookkeeping course. Unless you run a bookkeeping firm, you didn’t start your business to learn accounting and that’s understandable. Even though there are a number of great online bookkeeping courses, not everyone wants to take one. Chances are it’s better to hire a professional bookkeeper than to try to manage it “off the side of your desk.”

If you do decide you want more knowledge about the bookkeeping process and want to take a more active role in the accounting for your business, you might consider online bookkeeping courses Canada from Ashton College. However, even if you never take a bookkeeping course, you’ll still want to know how to create the financial trail you need in your business.

Follow the money

You know that saying ‘follow the money?’ Usually it’s in regards to the financial proceeds from crime, but in this case, we’re talking about following trails of money coming into and going out of your business. The most basic bookkeeping course (remember high school accounting?) shows how to follow that money trail.

Collecting receipts is not enough. Tracking individual sales isn’t enough either. A CRA audit will want to see the inflow and outflow of money in regards to each of these types of transactions. One of the easiest ways to manage this is to use your business bank account for all expenses. This way, the receipt for the box of paper bought at Staples will align with the transaction in your bank account.

There should be no personal transactions. Only business transactions that have a receipt to support them. The receipts should also be labelled. While an online bookkeeping course bc will teach you to manage this through accounting software tools (and your bookkeeper may request/appreciate it), you can also manage your receipts with the simple method of writing on them. Note what the expense was, why it was needed and what category (or General Ledger account) it has been allocated to. Even better is to number each expense (put the number on the actual receipt) and number the entry in your ledger book or on the bank statement.

When it comes to income, this too should only be deposited into your business account. No matter if you have cash register receipts or an Excel spreadsheet (or something more advanced) to track your sales or invoicing, these entries should align with the deposits made to the bank account.

If you must make payments by cash, your records are even more important. You’ll need to back-up the expenditure with a receipt and be able to show cash withdrawals from your bank account to prove how the cash “came to be” and is part of your company’s cash flow.

Mistakes are easier to prevent than to correct

Perhaps one of the biggest pieces of advice to prepare your money trail is to be accurate and follow the advice of your bookkeeper. If they have to sort through your paperwork to correct an error it will cost you time and money and if it’s during a CRA audit, well, it isn’t going to be fun for anyone.

If you’ve kept your records accurately and completely, in theory, anyone (including that CRA auditor) should be able to pick them up and know what’s happening in terms of income and outflow. And that, right there, is the key to creating a money trail. Anyone can follow it.