Valley Business Centre Mar 29 2019

Maintaining Proper Documentation for Your Business

One of the most important roles that a bookkeeping department plays in a company is maintaining proper and complete records.   These documents often include evidence of income and expenses, as well as permanent records that evidence business ownership and tax structure, insurance coverage, and company policies.

Keeping a complete set of records can serve many purposes. Proper documentation that evidences income and expenses can help a bookkeeper to determine which account a transaction should be posted against. Documents that support income and expense activity can be crucial to provide proof for your company’s tax return when dealing with a taxing authority. Trying to track down invoices and receipts after the fact is not only time-consuming, it can lead to missed deductions on your tax return.

What types of documents are typically held by a small business?

A company should keep documents to support its business activities. In addition, company records that show ownership, compliance, and coverage should be easily accessible. Such documents include;

Income – Keep documentation of money that you’ve received. This may be making copies of check and attaching the remittance advice to the invoice, emails, or other documentation. It should be clear as to what the funds were for.

Expenses – Invoices and receipts provide evidence to support the expenses that a business incurs. If you are paying bills, a good practice is to attach one part of the check to your invoice to reflect that it has been paid.   Some of the most common forms of documents for business expenses include;

  • Invoices and receipts, original or printed electronic versions
  • Canceled checks, if provided by your bank
  • Petty cash and expense reimbursement requests

In addition to keeping these documents, it is also essential that you file them away. Maintain a filing system that is organized and easy to follow to store both paid bills and receipts, as well as income documentation.

Payroll – If you have employees, your files should include;

  • Personnel file – Each employee should have their own personnel file. This would include such documents as an employee application, tax forms, banking information, as well as copies of any identification that you’ve obtained. It may also include other documents such as vacation requests, employee handbook acknowledgments, and emergency contact information.
  • Wage and tax information – Whether you process payroll internally or use an outside service, payroll registers that list wage and tax information should be kept in a secure location. Other documentation, such as timecards or employee rate changes, should also be kept.

As a general rule, personnel files and payroll reports should be maintained in a filing system that is locked and not accessible by staff that is not authorized to access it.

Month-end information – Bank and corporate credit card accounts should be reconciled each month. Copies of these reconciliations, along with the statements, are kept and filed. In addition, if you make journal entries in your books, keep a copy of the entry. Be sure to attach any documentation necessary to support the entry, such as an invoice or receipt.

Electronic documentation – With much of the business being conducted online, documents may be electronic. Making purchases or paying bills online using credit or debit cards, as well as electronic transfers, result in electronic receipts and emails. Many companies using online banking can access their statements and canceled checks electronically. Payroll reports may also be in an electronic format.

While these documents can be kept in their original electronic form, it is essential that they are saved and organized in a way that you can easily retrieve them. You may consider downloading these and saving them to a group of electronic file folders on your computer or network. If you change banks or payroll providers, you may lose access to these documents if you maintain them on their servers. It is also recommended that you frequently back these up to ensure that they are not lost if your network goes down or you change computers.

Electronic invoices and receipts can be maintained in a similar fashion. Should you keep these electronically, ensure that it is clear who the payment was made to, the amount spent, and what the expense was for. Proof of payment may not be enough to support a tax deduction if its purpose is unclear.

While these items above represent documentation of a company’s daily operations, there are several other documents that a business should maintain.

Corporate documents – If your business is incorporated, these documents reflect the company’s structure. Articles of incorporation, as well as the incorporation agreement, should be kept on file. These documents may be requested if you are seeking a loan or establishing a bank account.

Tax returns – Keep copies of all income tax, provincial sales tax, and GST returns.

Contracts and agreements – Customer or vendor contracts should be easily accessible if needed. This can also include lease agreements for your office or warehouse space or company vehicles.

Loan agreements – If you have borrowed money or obtained a line of credit from a bank or another source, keep copies of the loan agreements, as well as another other documentation, such as loan applications or renewals. Also, maintain copies on file of any automobile or equipment purchases that have been financed.

Insurance policies – Maintain  a current file that includes complete copies of your insurance coverage. This should be updated each year as the policies renew. This may include copies of your general and liability insurance, health insurance, and automobile insurance.

Privacy policy – With companies continuing to embrace technology in their business, concerns have emerged about the safety of client information. If your company maintains a privacy policy, be sure to keep that on file and easily accessible to your employees.

Human resources policies and procedures – Many times, these policies can be found within an employee handbook.   Keep a copy of the handbook, as well as any changes to human resource policies made throughout the year.   These policies may include using social media, media relations, disciplinary actions, compensation, and benefits, as well as anti-discrimination clauses.

Product service agreements and equipment information – Computers, office equipment, and vehicles often come with service agreements and product handbooks. It’s helpful to keep these organized and accessible should an issue arise.

It is crucial to maintain complete books and records for both operational and tax purposes. The ability to quickly gather, document, file, and report keeps a company efficient in its operations and maximize its deductions for tax purposes. Maintaining a complete and organized set of documents is also helpful to a company if they are seeking a loan, need to quickly address an insurance claim, or conduct an employee review.

Valley Business Centre has delivered quality and efficient bookkeeping and payroll services to its clients since 1990. We serve clients located in Whistler, Squamish, the Sea to the Sky corridor, BC, and beyond. If you need help in keeping your books and records current, contact the bookkeeping specialists at Valley Business Centre today.

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