Basic Bookkeeping

This publication describes a simple, single entry record keeping system suitable for a small business that has a limited number of transactions.

Summary

• Good records will keep you informed about the past and present financial position of your business.
• Good records will keep you in control and give you the information needed to make good business decisions.
• Good records will satisfy Canada Revenue Agency, Canada Pension Plan, Employment Insurance, Department of Finance, Goods and Service Tax, Workers' Compensation Board, etc. and facilitate correct and timely remittances.
• Good record keeping increases a new business’s chances of survival and an established business’s chances of staying in business and earning good profits.

What Record Keeping System Should I Use?
 
A good record keeping system should be simple to use, easy to understand, reliable, accurate, consistent, and designed to provide information on a timely basis.
 
The legal requirement concerning financial records specify only that they be a permanent, accurate, and complete record of your daily income and expenses.  There are many types of record books and bookkeeping systems available.  For example:

• Double Entry System  - this is the system taught in most high school and college bookkeeping and accounting classes.  Each transaction is recorded twice, one account is credited with the given dollar amount and a second account is debited by an equal dollar amount.  This is an excellent system, but often formal training and practice will be needed to understand and master it.
• Commercial Bookkeeping Systems - these are available through stationery outlets and are usually a package system with instructions and forms to use.
• One Write Systems - these are copyrighted systems that are set up using carbon-backed cheques.  As you write the information on a cheque it also transfers the data to a record system.
• Computerized Systems - there are several excellent programs available.  These programs offer the speed and capacity of computers as well as the ability to produce daily updated financial statements.  One should be careful, however, that they are not buying expensive software programs or computer equipment that has more capacity than they need.  Most small businesses grow into the need for a computerized system; usually as a means to control larger volumes of inventory or a larger volume of transactions.
• Single Entry System - a single entry system means every dollar transaction is recorded only once, either as income or expense, an asset or a liability.  All entries are recorded on a one page synoptic journal or also called a revenue and expense journal.  The system is simple, easily understood, and thus requires little training.  This is the system we will be describing in the example that follows.

Setting Up a Record Keeping System
(We are assuming the start of a new small business)

1. Register your business name with the Corporations Branch, Department of Justice.  Obtain a local business license from your municipality and, if required, register for the Goods and Service Tax (GST) and Provincial Sales Tax (PST).  If you have employees, register with Canada Revenue Agency and Saskatchewan Workers' Compensation Board.
2. In order to keep your business separate from your personal affairs, open a separate business account at your local bank.  Order numbered cheques with stubs to record cheque details and obtain a deposit book.  With this type of account, ensure that your bank will be mailing you a statement along with your cancelled cheques every month so that you can perform bank reconciliations.
3. At a stationery store, buy a columnar record book.  These are available in 1 to 36 or more columns.  The number of columns you need will be determined by the number of expense accounts you choose to use.  We are using twelve columnar paper in our example.  (It will not matter if you do not use all the columns).  Also, purchase a generic numbered invoice book and a numbered purchase order book.  You may consider ordering an ink stamp with your company name and address for use in personalizing your invoices, purchase order books, receipts and even your cheques if they are not printed with your business name on them.  Also helpful is a small record book to record vehicle expenses and business travel expenses.
4. Acquire a copy of Canada Revenue Agency's Business and Professional Income Tax Guide, publication T4002.  This guide describes what are eligible business expenses and provides information on depreciation, home-based business expenses, vehicle expenses, etc.  You will also require remittance forms, rates and regulations for G.S.T., income tax, E.I., and workers' compensation. 

1. Cheque # 56 for $121.00 dated May 26 to Bob's Stationery to pay for envelopes and letterhead.
2. Cheque # 57 for $1,536.00 dated May 27 to Provincial Parachute Supply for ten parachutes for inventory and resale.
3. Cheque # 58 for $230.00 dated May 27 to SaskTel for cellular phone bill.
4. Cheque # 59 for $580.00 dated May 28 to All-Sask Insurance for yearly liability insurance coverage.
5. Bank deposit May 28 for $2,796.94 for invoices 36, 37, 38 and cash sales for May 26 to 28.
6. Cheque # 60 for $545.00 dated May 29 to W. Coyote for refund of invoice #37 (defective parachute).
7. Cheque #61 for $26.10 dated May 26 to Joe Acme to pay owner for small petty cash purchases in May.   (Small cash purchases for postage or parking, etc., which do not warrant a cheque should be paid by the owner and the receipts held until the end of the month or until there is a reasonable total to issue a cheque.)
8. The monthly bank statement was received.  A comparison was made of the cheques and deposits listed on the bank statement, and reconciled with the entries we have entered in the revenue and expense columns. A transaction of $15.80 was recorded which is the May bank charges on Acme's business account.

Final Advice
In order to maintain control, business record keeping entries should be completed daily. To ensure their completion, regular time should be set aside for them. In a new business start up, an entrepreneur often wears many 'hats' and sales and customers often take priority over record keeping. This being the case, it may be wise to train a spouse or part-time employee to handle the bookkeeping for your business. Ensure that this task is always done by the same person, for consistency sake.

Hiring an accountant during your business start up may be advantageous as he or she can help answer questions you may have regarding bookkeeping. Some type of Introductory training in accounting is also recommended if you are unfamiliar with accounting processes.

Prepared by: Saskatchewan Regional Economic and Co-operative Development