Bookkeeping / Accounting Seminar Overview

1. Bookkeeping / Accounting Seminar Overview • HST summary • Choosing a bookkeeping method • Organizing your bookkeeping • Bookkeeping Steps • General business information

2. HST Summary • Remit HST that you collect from your sales less HST that you paid on purchases (ITCs) • Need to register if sales plus HST > $30,000 • Need to register to get refund of ITCs • Remit quarterly or annually and coincide with your year end • HST # must be on your invoice • Register via form RC1

3. Three methods to calculate HST to remit – see sample spreadsheets attached • Regular method – remit HST collected less HST paid on purchases • Simplified method – this is an easy method to track HST paid (ITCs). Multiply total amount paid (incl HST) by 13/113 to determine ITCs • Quick method – often good for service businesses if sales level high enough. Must elect. Collect 13% from customers but only remit 8.8%. No ITCs allowed to claim other than on fixed assets plus 1% credit to $300.

5. Why do bookkeeping ? • Help you to become a decision maker • To collect financial information about your business • Produce financial statements and tax returns

6. Definitions • Bookkeeping: • Records your deposits-money coming in • Records your spending-money going out • Accounting: • Transforms bookkeeping into financial statements and various reports for management

7. The accounting cycle • Business transaction • Journalizing • Adjusting • Closing year end • Profit & Loss / Balance sheet

8. Bookkeeping methods – your options Bookkeeping Methods Accounting software Excel spreadsheets Manual spreadsheets / Journals Do nothing Outsource Accounting software automatically accumulates entries and produces excellent financial reports. Spreadsheets add up sales, expenses and other amounts to assist in preparing financial reports. Excel allows for easy manipulation and changes to data.

9. Pros Flexible, can do lots Good editing features on some brands to fix mistakes excellent financial reports QuickBooks / Simply Accounting popular Cons Can be very difficult to grasp, frustrating Time consuming, takes away from business activity Inexperience causes lots of mistakes Accounting software

10. Pros Great for businesses, adds numbers, can keeps track of sales and expenses Flexible, performs lots of financial calculations easier compared to accounting software Accountants like it (or at least I do!) Leads to good reports Nice to know how to use Cons Software can be very difficult to grasp Time consuming Cost Learning new skill Excel Spreadsheets

11. Pros Keeps track of sales and expenses Gets you involved Assists in preparing financial reports Cons Mistakes cause extra work re-adding Not flexible Manual Spreadsheets or Journals

12. Pros Does not take up any of your time Gives you a surprise at year end Cons Do not know where company is financially Many surprises can be unpleasant Leads to disinterest overall Do Nothing

13. Pros accounts are professionally maintained time-saver on-going advice lets you focus on your business Cons Costs loss of control information not always readily available Not all capable Outsourcing bookkeeping ?

14. Double / Single entry system Double entry - this is the proper accounting method as each transaction records a debit and a credit. - Used by accountants and embedded in accounting software - Pretty well required to produce both a balance sheet and an income statement Single entry - Records half the entry (ie) usually sales or expenses. Spreadsheets are an example of a single entry method. - can be used to produce an income statement

15. Accrual / Cash methods Accrual – (CRA everyone must use except – see below – always used by accountants) - transactions are recorded when they occur regardless of when the money is received or paid Cash – (CRA - only farmers & commissioned sales people) • Transactions recorded when money is received or spent

16. Owner’s Monthly review checklist • Compare results to budget • Review bank statements and complete bank reconciliation • Review statements from suppliers • Review accounts receivable - regularly • Take physical inventory – monthly or as needed

17. How to organize your bookkeeping 6 steps • Keep receipts for every transaction • Decide on Chart of Accounts • Decide & Set-up bookkeeping method • Create appropriate files • Record your income & expenditures • Create basic financial statements

18. Heart of the accounting process Benefits Required to complete bookkeeping and financial statements reminds you of deductible expenses required for CRA tax and audit purposes good for future reference Keep receipts for every transaction

19. Decide on “Chart of Accounts”What names to give your accounts • Income statement accounts --- to record revenue and expenses • Balance sheet accounts --- to record assets, liabilities and equity • Choose accounts to suit your business

20. Decide & Set-up bookkeeping method As we have discussed before: • Accounting software • Excel spreadsheets • Manual spreadsheets / Journals • Do nothing • Outsource – hire bookkeeper

21. Create appropriate files • Create files to keep receipts and business documents • Separate file for each of the accounts on the income statement and balance sheet and for government correspondence • Have basket or file to toss receipts and then organize later • After recording into journals place receipts into proper file

22. Record your transactions“do the bookkeeping” • Record your income and expenses into the accounting software or unto your spreadsheets or journals • File receipts into proper files after recording into journals

23. Create basic financial statements Financial statements contain: • Profit / Loss statement (aka Income Statement) • Balance sheet Management reports include: • Forecast & Cash-flow projections based on history, A/R and A/P ageing, inventory

24. Bookkeeping Steps to create Profit & Loss and Balance Sheet • Record your sales and collection of these sales (ie) collection of your accounts receivable • Reconcile bank statement each month which is the backbone of bookkeeping. The bank account in your books should be exactly same as bank statement • Record all business expenses from your credit cards • Record all business expenses paid for by cash (ie) out of pocket expenses • Record Assets that were brought into business for start up purposes (often your own personal assets now being used for business) • Record portion of home office expenses as Rent (just one entry yearly is required) • Record vehicle expenses if not recorded previously

25. Tax Benefits for Small Businesses • All business related expenses can be expensed • Home office on percentage of use basis • Vehicle expenses • Assets brought into business • Losses can offset other income (sole prop) • Incorporation – income splitting via dividends, tax deferment on profits • No tax benefit to incorporate unless profits are more than what you need to take out

26. Remuneration (how you pay yourself) Sole proprietor • you get taxed on your personal tax return on the business profits and can take out whatever cash is available in the business bank account Corporations • Corporation gets taxed on profits at only 16% (small business rate) • Owner must declare on personal tax return money taken out from company. • Three ways to take money out: • Salary – company issues a T4 slip • Dividends – company issues a T5 slip • Management fee – owner records as self employment income on personal tax return (CRA does not like this and can attract penalties)

27. A few Tips • Motherhood - Open separate bank account for you business • Legal requirement is to keep: • a permanent record of daily income & expenses • all deposit slips, bank statements, cancelled cheques • your records for a minimum of 6 years • Do your bookkeeping on regular basis