Recordkeeping, Bookkeeping & Accounting
Recordkeeping, bookkeeping and accounting are 3 related activities, each of which is important for any business. Understanding the difference – and how best to get value for money for each – is an important survival skill for any small business.
Over the last 35 years or so, bookkeeping for small business has evolved from an essentially manual function, to an automated system that pulls transaction data from your bank and automatically allocates debits and credits to the appropriate accounts.
No more calculating on your own because most accounting software automatically calculates your financials for you.
from PROS AND CONS TO USING AN ACCOUNTING SOFTWARE – StartupSavant.com
Or at least that is the dream.
There are – in our view – 3 excellent choices of online accounting software for small business:
For most early stage companies any of these would serve adequately. Often startups will ask: Which of these should I use?
From our perspective that is the wrong question.
Generally we prefer XERO or QBO, however WAVE is certainly adequate.
It is always best to identify the person who will be taking on the bookkeeping role first – and then consult with your CPA.
The right question is:
Now that accounting software is pulling the transaction data directly from the bank, the dream is to pull data directly from receipts using artificial intelligence. There are a number of applications that purport to do this.
The first 2 target CPAs who are then expected to recommend this record-keeping software to their small business clients:
By contrast, Expensify targets small businesses directly with monthly subscriptions based upon the number of people filing expense claims.
It’s likely that most CPAs don’t have the capacity to adequately test all of these tools. Certainly I don’t. However my gut instinct tells me that each of these solutions might be somewhat useful, however I typically prefer tools that are more widely applicable. I prefer to ensure that the investment in learning the tool provides opportunities to adapt it more broadly.
The better approach in our view, is to develop the capability to build your record-keeping system using a generic tool like SmartSheet or GOOGLE Forms-
Ideally your CPA firm would assist with the design of record-keeping systems that meet your particular needs. Examples could include documentation for SR&ED technological uncertainties, deposit books (with cheque images attached), expense reporting for staff, timesheets customized for your needs, query sheets and so forth.
The Importance of Receipts
Receipts are important as evidence of what was purchased. Most vendors sell a variety of goods and services. Bookkeepers will assume that – if you buy something at a gas station – it’s probably gas or motor oil. Of course it could be chewing gum and potato chips, which probably isn’t deductible.
So you need to keep receipts as a reference for the bookkeeper and, in case of a tax audit. Similarly, if you pay employees’ travel and telephone expenses you’ll want to be sure they’re not charging you for chewing gum or monthly cable TV costs.
However it’s probably overkill to attach images of receipts to accounting transactions and automatically “scrape” the data from the image to corroborate the classification in your accounting system. It is enough to keep images of the receipts organized so that they can be readily be retrieved if necessary.
A scanner or smart phone with a camera and an online storage account with a service provider like GOOGLE DRIVE, MICROSOFT ONEDRIVE, or DROPBOX is all a small business needs.