When it comes to business expenses, we grew up hearing, ‘Save your receipts!’ That’s important, of course but it’s not the only important thing.
A little-known fact: All bookkeeping is driven by how it’s paid.
Many a new business owner has lost hair and sleep as they try to keep track of income and costs. The first and most universal tool for this is the business bank account.
If you’re a corporation, the business bank account is essential. Your corp is an entity separate from yourself, and it must be treated as such. As a sole proprietorship, it’s an excellent tool. So, open that account, and make sure that all of your business transactions go through it, such as receiving money from customers, paying bills, putting your own money into the business and taking it out again.
At the end of the month, have a look at your bank statement. Lo and behold, all your business activity is reflected there! You have a snapshot of what went on in the month and your bookkeeper has an excellent tool to do their job of producing accurate statements for your management. Any bank charges are deductible as well.
If you need to spend personal funds to buy something for the business, here’s a great tip: transfer the money from your personal account into your business account, and then make the purchase. For many, many reasons, this will make your life easier. Especially if you’re incorporated, but even if you are a sole proprietorship.
And on your bookkeeper’s behalf, I beg you not to use the business bank account for personal purchases. If you need to spend company money for personal items, transfer the money to your personal account and then spend it. The business account needs to be as clean as you can make it for not only bookkeeping but also (shudder) CRA audit purposes.
Think of it as separation of church and state. Never the twain shall meet!
While we’re at it, if you use a credit card for business transactions, same thing. Get a card that you only use for the business. You don’t have to apply for a new card if you don’t want to; just get a second card on your existing account. Call it [your name] Expenses. The expenses for the company will be shown separately on your statement.
If you have any questions, please don't hesitate to contact us.