Small Business Bookkeeping Basics: Guide for Canadian Entrepreneurs

Small Business Bookkeeping Basics: Guide for Canadian Entrepreneurs


What is Bookkeeping?

Bookkeeping is a method of recording all the financial transactions of your business. At its most basic, it’s the process of keeping track of your income and expenses, but it can involve much more.

No matter what type of bookkeeping system you choose, every financial transaction has to have a corresponding document, such as an invoice, receipt, or purchase order, proving that the transaction took place.

Bookkeeping is an essential process for any business, no matter how big or small. Whether you’re an independent operator selling homemade products or a massive corporation, bookkeeping is the first step in the accounting process.


Table of Contents

Bookkeeping vs. Accounting

Most people tend to confuse bookkeeping and accounting, especially in a small business. Bookkeeping is a smaller part of the larger accounting process. Accountants will use the financial records to summarize, analyze, and interpret the business’s financial situation at the end of the year.

Keeping accurate records during the year makes accounting much easier. If every transaction is already classified and has the supporting documentation, compiling the end-of-year report doesn’t require extensive audits and extra work.

Examples of accounting financial statements include:

  • Balance sheet
  • Income statement
  • Cash-flow statement

Many small businesses only produce these financial statements once a year, but frequent reporting can also help you evaluate your business growth and make adjustments as needed.

Why Bookkeeping is Vital for Your Business

It’s easy to forget to keep books when you run a small business. There are so many things competing for your attention. However, bookkeeping is an essential tool for small business owners and offers plenty of benefits to help your business grow.

Track Profitability

Prepare for Tax Season

Easier Reporting

Improved Financial Management

Operational Benefits

Evaluate Business Performance

What Financial Records Do You Need to Keep?

Important Bookkeeping Considerations

Cash or Accrual

Manual or Online Bookkeeping

Single-Entry or Double-Entry Bookkeeping

Last In, First Out/ First In, First Out

Important Accounting Terms


Generally Accepted Accounting Principles

Accounts Receivable

Accounts Payable

Tax Returns

Having accurate books allows you to get the most out of your annual tax return. Many business expenses are deductible, but small business owners fail to take full advantage of them due to poor small business bookkeeping. Some of the expenses you can claim include:

  • Travel
  • Property tax
  • Entertainment costs
  • Office supplies
  • Insurance fees

The CRA has a page with a complete list of deductible business expenses. It’s a good idea to create specific accounts for each of these expenses, allowing you to file them as soon as they happen. Following this process ensures that you don’t miss any opportunity to claim a business expense.

Another advantage of good bookkeeping is that you can stay ahead of the curve on your tax payments. Having your records on hand means that you can calculate your tax before tax season and prepare accordingly.

When you start paying above a certain threshold for tax, you may have to pay tax in quarterly installments instead of an annual sum. It’s essential to know how much tax you’ll owe to comply with this requirement when you reach the minimum tax threshold. You’ll appreciate having quarterly financial statements that make filing easier.

Small Business Bookkeeping Tips

Small business bookkeeping is all about adopting good habits early. It’s very easy to neglect your financials until the last moment, which can lead to late nights and lots of stress and confusion. These bookkeeping tips can help ensure that your books remain accurate without you having to put in too much effort.

Record Everything

Whether you decide on manual or automated bookkeeping, it’s vital that you record every single transaction. These transactions include any income, no matter the source, as well as all your business expenses. Having a dedicated business account can simplify the process, though you’ll still need to keep records documenting every transaction.

When it comes to business expenses, record every transaction as if you’re about to face an audit. Keep a calendar to record meetings with clients so that you can show why you have a lunch expense on a certain date. If you buy fuel using a business account, make sure to log your mileage and trip history to prove that it was for legitimate business.

Don’t Overdo Your Expense Accounts

When it comes to expenses, it can be easy to over-granulate certain expenses. For instance, you may have four to five separate categories for vehicles, including fuel, repairs, insurance, and parking. However, you’ll need to decide if this information is really that important or whether you can consolidate everything into a single category.

Planning your expense accounts is a delicate balance between having enough information and justifying the effort involved. Every business is different—you should always consider the reason you have a separate account for a particular expense.

Working with an Accountant

As a small business owner, it’s up to you to decide whether you want to manage your books yourself or hire outside help. If you have a small business with a couple of transactions per month, then there’s no reason to pay for an accountant or bookkeeper. However, as your business grows, the need for a dedicated bookkeeper will grow as well.

Having financial records is the foundation of any successful business because, among many other benefits, it allows you to quickly identify areas where you can cut costs, such as business and health insurance. 

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