Updated: 4 days ago
It seems like there are certain source documents we find ourselves asking our clients for regularly so we have compiled a list of documents your accountant or bookkeeper are going to need. We've also included why these documents are important and some things you can do to help make bookkeeping more efficient for your company.
When preparing documents for your bookkeeper make sure you include:
Banking, credit card, and investment statements:
A statement is needed for each month of the whole year - fiscal or calendar.
Get into the habit: Either copy or scan paper statements as soon as you receive them and keep them with the rest of your bookkeeping documents.
Why it's important: Having monthly banking statements is paramount for reconciling accounts monthly. Issues can be caught early, while transactions are still fresh in your mind, instead of at the end of the year when you need to remember what you bought at Staples for $590 in January.
These source documents need to detail what the insurance is for, as well as the dates that the insurance covers.
Get into the habit: Copy or scan the insurance policy (especially car insurance) right away and add it to the "for the accountant/bookkeeper" pile, or better yet submit the document digitally. This eliminates having to track it down when asked for it in the future.
Why it's important: Insurance usually does not stop on the first day of the year or even the month. Your bookkeeper or accountant will break down the payment into monthly segments to amortize it. This amount will change year to year, so having the proper start and ending dates for the period the insurance covers helps to ensure that the proper amounts are allocated to the correct period.
Proof is needed for every transaction. Each receipt or invoice should show what company the purchase was from, the date, tax amounts, and the total paid. Always submit the itemized receipt, not the credit or debit card slip, whenever possible. If the source document does not show the total GST paid, GST cannot be claimed.
Get into the habit: Save paper receipts in a safe place and scan/send them to your bookkeeper regularly - depending on the number of transactions you make, this can be done weekly, bi-weekly or monthly.
If you reimburse employees for business-related purchases or travel you'll need to have a system in place for this as well.
BONUS POINTS: Use your smartphone to snap a picture of the receipt as soon as you get it and submit it instantly. We love Hubdoc and Dext for this but there are several apps you can use.
Why it's important: Submitting your source documents as soon as possible eliminates issues with lost, faded, ripped or destroyed receipts. It also ensures accurate bookkeeping, showing where the business is spending the most money.
Another important reason: In the event of an audit, the CRA is going to want to see official proof of everything claimed or they will consider the transaction invalid. Remember, you should keep your documents for at least 7 years after receiving your NOA for the tax year they support.
The deposit into the bank account is often not enough information. Invoices you send to customers should clearly show who the client is, what was sold, or what service was provided, any taxes and the total collected.
*Businesses with large volume sales such as bakeries or grocery stores do not need to list the customer's name.
Get into the habit: When printing paper copies invoices for customers make 2 - One for the client and one for your records. Save them in a safe place and scan/send them in regularly. Again, the regularity of this process will be determined by the volume of documents and you/your bookkeeper's preferences.
BONUS POINTS: Manage your invoices and payments through a payment solution platform like Plooto, or Rotessa which allows you to set clients up with automatic debit. As soon as the payment is processed, your accounting system is automatically updated. This automation of the receivables process makes bookkeeping a breeze.
Why it's important: Just like with expenses, the CRA is going to want to see documentation of all money coming into the business. Submitting documents as soon as possible eliminates the same issues as with expenses. It can also help to show where your business is generating the most income.
Paperwork for home insurance, mortgage interest, and utility bills - heat, phone, hydro, and even your cell phone bill are all included here. Unfortunately, your word is not enough. Your bookkeeper needs to see the documents. *Also, be sure to have clearly and fairly calculated the amount of these expenses you wish to claim. You can't claim your whole hydro bill if you only use one small room in your house as an office. Your accountant or bookkeeper should be able to help you decide what percentage of each bill to claim.*
Get into the habit: No surprise here, the best system to adopt is to submit these documents as soon as you get them. Noting when and how they were paid is also a good practice.
Why it's important: If you use your home to run your business, some of your home expenses are considered a cost of doing business. Maximizing your business's deductions is an excellent way to lower taxes at the end of the year, but remember if you don't have the proof, the CRA will not accept it in an audit.
If you are going to claim mileage for your business, some form of proof is needed. Also, knowing the amount of mileage you put on your vehicle for business use can dictate how much of the vehicle expenses (gas, maintenance and repair) you can claim.
Get into the habit: Keep a notebook in your car so you can track the business km. This should include the date, purpose and total km driven. The CRA would love to see a log for the whole year.
BONUS POINTS: Utilize an app for tracking mileage on your phone. Many will send the data directly to your accounting software so that all you need to do is approve the trip as a business one. If you'd like to read a review of one of these apps, we wrote a review of MILEIQ on our blog.
Why it's important: As always, the main reason for accurately tracking your mileage is so that you can provide proof in the event of an audit. With no proof, you will not be able to claim any expenses related to your vehicle. It's worth noting that some people suspect that claiming vehicle mileage can be targeted as a trigger for an audit. Keeping accurate records can help prevent a deeper audit of the company.
Ways to submit your documents
There are a variety of ways that you can get your source documents to your accountant. The method you choose will depend on the preferences of both you and your tax professional.
Some accountants will still accept the proverbial shoebox full of receipts, but be warned, if they do, you're probably paying someone to scan all of your documents for them.
Another option is to scan all your documents and save them to a thumb drive and drop that off.
Your year-end tax prep doesn't have to be stressful
If you follow our advice and stay on top of keeping and collecting your source documents throughout the year, when your accountant sends you their "Year-end checklist" your first reaction will no longer be panic. Instead, you'll be able to reply with a cool and confident "Way ahead of you!".
You got this!