Top 10 Bookkeeping Tips

Top Ten Bookkeeping Tips

Managing your company’s finances can be challenging. Whether you are an entrepreneur just starting out or a seasoned business professional looking for ways to improve your business processes, here are ten bookkeeping tips to help you.

 

Leave personal expenses out of your business

Sometimes owners don’t know where their business ends and personal life begins. Given the number of hats that they typically wear, it’s hard not blend work with home-life. But when it comes to the income and expense in your company, keeping them separate is key. If you are a newly-formed business, establish a company bank account and corporate credit card as soon as possible for you to make deposits and pay bills that are associated with your company. Keeping personal expenses out of your business will not only make your recordkeeping easier, it can also prevent problems with taxing authorities.

 

Hold onto your petty cash receipts

Be sure to monitor your petty cash and obtain receipts when cash is spent. Even though petty cash is a small balance, they are susceptible to theft since they are cash. Be sure to account for each transaction with documentation and reconcile your petty cash at least once a month. If petty cash transactions occur frequently in your business, reconciliation may need to be done weekly, even daily. This will help you to catch mistakes and may deter theft.

 

Make it a habit to pay bills by check or credit card

Avoid the urge to pay bills in cash. In addition to receipts and invoices, paying bills by check or credit card gives you a second form of documentation and helps you to track where your funds are going.   By paying bills in cash, you run the risk of expenses not being recorded in your accounting records, which can cost you money as it may be a missed deduction.

 

Simplify your chart of accounts

Your chart of accounts is used to categorize your company’s financial transactions. It is a means to group similar transactions together. An effective chart of accounts can help you to quickly pick out unusual or large changes in accounts that you may not have expected.

Most bookkeeping software includes a set of predetermined accounts. Consider using these as a base and adding only those that you need. Consider keeping your list simple, which allows you to quickly see the financial health of your company. A few best practices include;

  • Adding too many accounts can complicate your recordkeeping and make your reporting less effective. Be sure to add only the accounts that you need and have value.
  • Resist the urge to set an account up for each vendor. Rather, consider setting up by function.
  • Check your account classifications. When setting up a new account in your chart of accounts, be sure to pick the right classification, which is either as an asset, liability, equity, income, and expense. Errors in account classification can impact your bottom line if you have expense accounts showing up in the wrong place on your books and records.

 

Automate your recordkeeping

Using bookkeeping software, such as Quickbooks, Xero, and Peachtree, can help you easily keep track of your income and expenses. By entering transactions and paying bills through a software program, it will automatically record this activity into your accounting records. This eliminates the need to keep manual records or spreadsheets, both of which take your time and may be prone to errors.

 

Review and reconcile

On a monthly basis, take the time to review your financial position.   Make sure your bank and credit card accounts are reconciled. If you invoice customers, review your accounts receivable by looking for discrepancies, unposted credits, and finally what’s still due to you. Go through your expenses – perhaps there are ways you can easily cut back and save a little money.

 

It’s all about the documentation – organized documentation

Every payment that is made should be supported by documentation, such as an invoice or receipt. When paying bills by check, it is recommended that you attach part of the check remittance advice or a copy of the check to the invoice. You should also mark the invoice “paid” in order to show that it is no longer due.   This can help to avoid duplicate payments.

Paid and open invoices are often filed alphabetically, making them easier to find   should you need to refer back to an invoice or a receipt. Proper documentation also supports the deductions that you might take on your tax return.   If you are tech-savvy, you can also invest in a scanner and digitize your invoices and receipts. Just be sure that they are organized in a way that you can find them easily.

 

Use time tracking software to monitor and record your employees’ hours.

If you have employees, consider use time-tracking software. Many programs on the market are cloud-based, allowing your employees to clock in and out using a smart phone or computer. Time tracking software automates a portion of your payroll process and can help eliminate clerical hours. It can also save you money as clocking in and out can give a more accurate picture of the hours worked, as opposed to a manual card. Some software packages integrate with bookkeeping software, making your payroll process even more efficient.

 

Monitor your accounts receivable

Staying on top of your accounts receivable will help the cash flow of your business. Customer who pay late can drag a business down, making it difficult to pay bills.   By monitoring your accounts receivable, you can address slow-paying customers before they become collection problems. In some cases, you may need to work out a payment arrangement.

 

If you need professional bookkeeping help – get it

For some people, bookkeeping is just not something that they want to do. Rather than procrastinate, consider using an outside bookkeeping firm. Keeping your records up-to-date is essential to running your business. Using an outside firm that specializes in bookkeeping will free up time for you, but will also ensure that your records are up-to-date.

If you’d prefer to handle the bookkeeping in-house, consider using an accounting software package. Engage the help of a bookkeeper or accountant to assist you with both the setup and training. Knowing how to use your accounting software properly will help you to record your invoices and deposit, pay bills, and classify your expenses correctly.

Running a business is an exciting, but demanding opportunity. As an owner, you are responsible for ensuring that your financial records are complete and accurate. If you need help keeping your records up-to-date, the specialists at Valley Business Centre offer quality bookkeeping and payroll services.

NEW 2019 – BC Employer Health Tax (EHT) and Medical Service Plan (MSP) premiums

Employer Health Tax – Overview

Effective January 1, 2019, the Employer Health Tax (EHT) became effective. Under the EHT, employers will pay a tax on their total payroll, subject to meeting certain thresholds. On January 1, 2018, the B.C. government reduced the Medical Service Plan (MSP) premiums that individuals were required to pay in by 50%, with the intent of fully eliminating MSP by January 1, 2020. As a result, the EHT was implemented to offset this loss in premiums. The EHT is intended to replace the current Medical Service Plan (MSP) in place, starting on January 1, 2020.

When Does the EHT Apply?

Employers with total annual payroll in excess of $500,000 are subject to EHT requirements.

  • Annual payroll of greater than $500,000 and up to $1,500,000 are subject to 2.925% tax, calculated as follows:

(Annual payroll – $500,000 * 2.925%)

  • Annual payroll that $1,500.000.01 or higher is subject to a 1.95% EHT. This tax applies to the entire annual payroll.

Additional considerations for B.C. employers: EHT only applies to wages that are paid when employees report to work at a location within B.C or are paid through a permanent establishment in B.C., even if they work offsite.   Establishments are considered permanent if it is the employer’s primary place of business, the company carries inventory at the location, or a place where substantial amount of machinery or equipment is used, to name a few examples. If you have locations outside of B.C. that are considered permanent establishments that employees report to, payroll that is paid to those employees is not subject to EHT.

Associated employers that meet the threshold to pay EHT are only eligible for one $500,000 exemption across the group, if the total payroll exceeds $500,000, but is no more than $1,500,000. No exemption can be taken if the total payroll is greater than $1,500,000. Employers are considered “associated” if one corporation controls another corporation or if two or more corporate entities are controlled by one person or a group of people. Even if two or more entities are controlled by different people, they may be considered associated employers if those controlling the organizations are related to each other. If two corporations that have no common ownership are related to a third organization, all three can be considered associated employers, even though two of the three entities have no direct relationship with each other. .

EHT is only required to be paid based on compensation paid to or on behalf of employees. Payments made to independent contractors are not subject to EHT.

If you are an owner of a small business or partnership, income that flows through to you is not subject to EHT as it is considered business income.

Income Subject to EHT

Income subject to EHT not only includes salaries and wages, but it also includes benefits as well.   Below is a breakdown of income that EHT will be due on, provided that the company exceeds the annual payroll threshold;

  • Salary and wages, including advances
  • Payments for vacation
  • Bonuses and commissions
  • Gratuities or tips paid through an employer
  • Taxable allowances and benefits
  • Fees paid to directors of corporations
  • Amounts paid by an employer to top up benefits (e.g. top up for maternity or paternity leave)
  • Stock option benefits
  • Employer-paid contributions to an employee’s Registered Retirement Savings Plan
  • Employer-paid group life insurance premiums

Not all income is subject to EHT. The following employer-made contributions are not required to be included in the determination of EHT;

  • Registered pension plan
  • Private health services plan
  • Supplementary unemployment benefit plan
  • Deferred profit sharing plan
  • Retirement compensation arrangement

EHT is only applicable in the year that the remuneration is paid to or on behalf of an employee.

EHT and Non-Profit Employers

Charities and non-profit organizations are subject to EHT. The rules that apply to non-profit and charity employers are as noted below;

  • The threshold for EHT is based on a per location basis in B.C., instead of based on the total B.C. payroll for the entity
  • Charities and non-profits are not required to pay EHT is their total payroll is $1,500,000 or less for that location
  • Payroll that ranges between $1,500,000.01 and $4,500,000, per location, will be subject to a 2.925% EHT, determined as follows;   (Payroll for the location – $1,500,000) x 2.925%
  • Payroll that exceeds $4,500,000, per location, will be subject to a 1.95% of EHT for the entire location
  • Even if they are considered to be associated with another entity, non-profit or other charitable organizations are not required to share the exemption amount

Filing Requirements

Employers who are subject to EHT will be required to file an annual employer EHT return, which will be filed and paid online.

Employers with payroll exceeding $600,000 that is subject to EHT tax will be required to make quarterly installments. Charities and non-profits with payroll that exceeds $1,600,000, per location, that is subject to EHT will be required to make quarterly installments.

Employers who are subject to EHT must register by December 31, 2019. If a company is required to make quarterly installments, it must register by May 15, 2019 and make its first installment by June 15, 2019. The first EHT return is required to be filed by March 31, 2020. Failure to file your return timely and pay taxes at the required time will subject a company to penalties and interest.

Employers that are not subject to EHT are not required to register or file an annual employer EHT return.

MSP Premiums

Medical Service Plan (MSP) premiums were commonly paid by employers on behalf of their employees. Effective January 1, 2020, residents and employers in B.C. will no longer be required to pay these premiums. It should be noted that during this transition period, an employer may be required to pay in both MSP and EHT.

A Final Word

With the change in law, companies of any size should consider both the financial and compliance impact of EHT.