Keep your tax fees down! Use a great bookkeeper.

Businesses that keep excellent records find their tax compliance needs are more affordable and easier to keep up with on a timely basis. If you feel like your business is falling behind and is exposed to tax audits and penalties, it is likely because you aren't adequately staffing, or outsourcing, your administrative needs.

Let's start with a brief difference between a bookkeeping practice and an accounting firm. Your bookkeeper should be continuously involved with your business to ensure that your accounting ledger is updated accurately and timely. Your accountant should be reviewing the documentation prepared by your bookkeeper to ensure it complies with accounting standards such as ASPE as well as the Income Tax Act. Your bookkeeper generally looks after your HST and payroll compliance as a routine business requirement.

An excellent bookkeeper will communicate with your external accountant throughout the year to ensure that any complex matters are resolved timely. They should be ensuring that your monthly financial processes include the following (at a minimum)

Banking and cash

1) Your bank statements are reconciled to the general ledger, stale-dated items are cleared, and outstanding items (i.e cheques and deposits) are properly recorded;

2) Banking and credit agreements are archived for transmission to your accountant;

3) Foreign currencies are properly translated to reporting currencies;

4) Closed accounts are cleared and marked inactive to avoid future errors.

Accounts receivable

1) The A/R Aging Schedule agrees to the general ledger (the trial balance) and there are documented explanations and collection strategies for accounts older than 60 or 90 days;

2) Uncollectible accounts are written off from the A/R subledger and transferred to bad-debts;

3) Net credit notes in the A/R Aging Schedule are transferred to trade payables accounts;

4) Foreign currency-denominated receivables are translated to the reporting currency;

5) Related party balances are transferred out of the A/R Aging Schedule and into intercompany or related party accounts;

6) Discuss the need for an allowance for doubtful accounts with the accountant;

Prepaids

1) Expense accounts are compared against budgets and prior year results to identify and unusual activity and properly expense prepaid items such as rent, property taxes, insurance and software licenses;

2) Prior period prepaid balances are properly transferred into expense accounts

3) A prepaid continuity schedule shows the beginning balance, transfers into and out of the account and support for the calculations;

Security deposits

1) Amounts paid to vendors in advance of a purchase or in order to secure the use of a product or service are properly recorded on the balance sheet and not the income statement;

Inventory

1) Ensure that a periodic inventory count is conducted and document the count procedures, staff, date and any resulting journal entries that adjust the floor-to-sheet count or the sheet-to-floor count

2) Prepare an inventory listing by significant category (i.e. raw materials, work in process, finished goods, perishable items) and discuss the need for an obsolescence or valuation allowance;

3) Agree the listing to the general ledger and make any necessary adjustments to the purchases or valuation allowance accounts;

4) Prepare a continuity account that tracks the amount of inventory transferred to cost of goods sold in the period so that it is available for the accountant;

Long-term investments

1) Ensure that strategic investments are properly accounted for using the cost or equity method and if it's the latter, prepare a schedule for the equity pick-up;

Capital assets

1) Ensure that any capital item additions are properly recorded on the balance sheet and archive the invoice for transmission to the accountant;

2) Ensure that any disposals are properly removed from cost and accumulated amortization accounts by recording the proceeds and gain/(loss) then archive the invoice for transmission to the accountant;

3) Request a forecast of next period's amortization from the accountant so that monthly net income is accurate

4) Inspect the repairs and maintenance accounts to ensure that capital items were not improperly expensed;

5) Check the gain/(loss) account to ensure disposals were not improperly recorded to revenue or expense accounts;

Intangibles

1) Review goodwill, capitalized intangibles (i.e. software development) to ensure that items are properly capitalized;

Bank indebtedness

1) Reconcile the line of credit account and ensure that accrued interest is recorded. Record the interest to a short-term debt interest expense account so a quick reasonableness analysis can be performed;

2) Ensure the credit agreement is current and monitor any reporting obligations or covenants;

Trade payables

1) Review the A/P Aging Schedule and move any net debits to a receivables account;

2) Move government remittances from the A/P Aging Schedule into separate accounts so they're properly presented on the financial statements;

3) Record any accrued liabilities for any services or products received but not yet invoiced by the vendor. This requires a discussion between owners and the bookkeeper;

4) Verify the HST payable to ensure it is accurate and archive the GST44 for future reference;

5) Move any related party balances to dedicated accounts;

Source deduction and wages payable

1) Ensure the income statement is accurate by accruing wages;

2) File payroll remittances timely, ensure payment is made and avoid costly late filing penalties;

3) Complete the PD7A and archive it for transmission to the accountant;

Income taxes payable

1) Remove prior year balances once income taxes have been remitted

2) Review the Notice of Assessment and record any interest received/paid keeping in mind that arrears interest and instalment interest is not tax deductible and should be placed in a separate account. Archive the NOA for transmission to the accountant;

3) Prompt the business owner to make income tax instalments in order to avoid non-deductible interest;

4) Read Canada Revenue Agency correspondence promptly and notify the business owner and the accountant;

Long term debt (and current portion)

1) Prepare and archive any necessary amortization schedule and adjust the current portion account;

2) Archive any lease or long-term debt agreements;

Related party accounts

1) Ensure balances are discussed with owners for accuracy;

2) Accrue any necessary interest;

3) Prepare a continuity and agree it to other companies or related-party ledgers;

Share capital

1) Ensure any shareholder changes are understood and communicated to the external accountant;

Retained earnings

1) Ensure the general ledger balances agrees to the official records provided by the accountant;

2) Close any prior year-dividends;

3) Ensure shareholder draws are posted to shareholder loan accounts and not the dividend accountant so that the accountant can help set dividend policies at the end of the year;

Income statement analysis

1) Review the revenue transactions and growth rate to ensure customer deposits haven't been improperly recorded on the income statement;

2) Conduct a variance analysis of revenue and expense accounts and enquire about any significant variances;

General controls

1) Ensure any industry specific accounts (i.e. lawyer trust accounts) are accurately adjusted and reconciled;

2) Have management sign and review the balance sheet and income statement once you conduct your monthly procedures;

You can use this list to assess the performance of your bookkeeper. If you're not satisfied with your current level of service, please be sure to contact Kit Moore, CPA, CA, CMA at (519) 397-5500.