This is how Canadian GAAP works. These are the rules of the game.

 

 

CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

BUSINESS ENTITY CONCEPT	The accounting for a business should be kept separate and apart from the personal accounting of the owner, or any other business organization.
COST PRINCIPLE	Accounting for purchases should be recorded at their original cost (purchase) price to the purchaser. Furthermore, the cost price of an asset in the books does not change over time.
GOING CONCERN CONCEPT	One should assume that a business will continue to operate indefinitely unless there is ­clear evidence to the contrary. Accordingly, assets should be listed at their cost price (and not their liquidation value) in the books.
PRINCIPLE OF CONSERVATISM (including Lower of Cost or Market [LCM] Principle)	The accounting for a business should be fair and reasonable. Neither profits nor equity should be overstated or understated. Accordingly, the LCM Principle suggests that merchandise inventory should be valued at the lower of its cost (purchase) or market (current replacement/resale) value.
OBJECTIVITY PRINCIPLE	The accounting for a business should be recorded on the basis of objective evidence (i.e., source documents) which includes complete details of each transaction.
REVENUE RECOGNITION PRINCIPLE	Under the accrual basis of accounting, revenues should be recognized (or recorded) in the fiscal period in which the transaction is completed (i.e., when goods/services are/or the bill are delivered to the customer) and not necessarily when payment is ultimately received.
MATCHING PRINCIPLE	Under the accrual basis of accounting, expenses should be recorded in the same fiscal period as the revenues they helped to earn (i.e., when expenses were incurred and/or the bill is received) and not necessarily when payment is ultimately delivered.
TIME PERIOD CONCEPT	Accounting takes place over specified time periods known as fiscal periods. These periods should be of equal length when used to measure the financial progress of the business.
CONSISTENCY PRINCIPLE	A business should use the same accounting methods and procedures from period to period. However, when legitimate changes are necessary, those changes should be clearly disclosed in the financial statements or the notes to those statements.
MATERIALITY PRINCIPLE	Any material (significant) information that has an immediate impact upon a company’s accounts should be included with that company’s financial statements.
FULL DISCLOSURE PRINCIPLE	Any information that one day may have an impact upon a company’s financial performance should be included with that company’s financial statements or the notes to those statements.

 

 

Bookkeeping for small businesses

Bookkeeping for small businesses.

Bookkeeping for small businesses

Bookkeeping is the recording of all the financial transaction for businesses. Timely, correct and complete bookkeeping is vital for any business owner’s decision makers. Keeping a close eye on your business operations can help your company be a success story.

The structure of bookkeeping is the backbone of the company

Every bookkeeping system has similar constant elements. These are some items of what your business requires to ensure that it’s bookkeeping by that meets GAAP requirements:

• Chart of Accounts: All accounts in the bookkeeping systems that hold the records. They are like files in a filing cabinet, and correct decision making on what goes in each account is essential.
• Journals: Where transactions are first entered, called journals because years ago before software programs took care of these items, separate books called journals or ledger books were used to record transactions.
• General Ledger: Where the summaries of all transactions are held. When ledger books were kept, all income and expense transactions were transferred at year end to close our journals to start a new fiscal year.Yes all entries have two sides a debit and a credit. You don’t really enter things twice but make sure that each entry has two sides. In modern software’s for bookkeeping, you shouldn’t be able to make single entries. Assets, expense and owners withdrawals are all debits. To increase a debit you debit that account. For example if you put money in the bank, the bank is increased which is a debit. Your bank account is an asset, so deposit would increase the bank. When you write a cheque from the bank, you decrease the bank account, which would be a credit.How can you tell if your company is profitable? What test is used?Current assets plus Current liabilities equals Current ratio$5,200 divided by $2,200 equals 2.3636 (current ratio)   Bookkeeping Practices to Help You Manage Your Business
• Efficient bookkeeping practices are essential to keep any small business running smoothly. Some l hints to help you make your bookkeeping process simpler:
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• Usually you look for current ratios of 1.2 to 2, so any bank would consider a current ratio of 2.36 excellent. A current ratio lower than 1 is considered a red flag because that indicates that the business doesn’t have enough current assets to pay its current bills.
• The following is an example of a current ratio calculation:
• The current ratio test is used to compare the current assets of a business to its current liabilities. This ratio provides a snapshot of your business’s ability to pay its bills. Use the formula for calculating the current ratio as shown below;
• Liabilities, equity, and income are credits. To increase a credit, you credit that account. So if you had income from work you do, the income is increased. Where is the other side? If you sell things and give time for the person to pay you, the debit side is accounts receivable. If you get cash immediately, the debit side is the bank.
• Certain general ledger accounts have normal state they exist in; like water is normally liquid the following are true;
• Double entry! Say what?

• Use a good chart of accounts that best keeps track of all your bookkeeping information.
• Balance and record daily sales and cash sub ledgers daily.
• Reconcile your bank account (s) and credit cards each month
• Watch closely your accounts receivable from customers and make sure you have someone dedicated to resolving issues and late pays.
• Pay your bills accurately and on time. Some creditors give you discounts for early payment, so take advantage of them. It is surprising how many companies share info on slow payments and trends quickly become apparent.
• Set up sales and revenue goals and monitor your progress closely.
• Budget for all your expenses and compare your performance to budget regularly each month or quarter.
• Watch for unusual changes in sales or expenses using comparative income statements found in most accounting software programs
• Monitor your gross profit closely and make any necessary pricing or purchases decisions. If business grows too quickly for you to handle, increase your prices! If it slows down or other offer better pricing and grab your customers, find ways to cut overhead and reduce prices to meet market prices.
• Take care of slow moving inventory. That’s what sale are for.
• Pay your employee withholding taxes and GST/HST when due to avoid costly audits, penalties and fines. You really don’t want the government at your door each quarter.
• Take physical counts of your inventory and compare to your bookkeeping records on a regular basis. This will show “shrinkage” or even theft.Proper bookkeeping is all about keeping track of where your business’s assets are, to keep everything flowing smoothly. Some things you need to think about with your cash that will eliminate possible mishandling of cash;
• Cash management

• Make sure that the person who accepts cash isn’t also recording and reconciling the transaction.
• Make sure that the person who authorizes a payment isn’t also signing the cheque or paying out cash.
• Don’t put too much trust in one person, unless it’s you. Even counting cash should have more than one person and each signs to acknowledge the amounts are correct.
• Reconciling the bank should be someone who is not handling cash or making bookkeeping entries. Review the reconciliation carefully, and even ask to see the report and sign it if you agree with the report.

My blast from the past.

The middle aged women approached the older women seated in the chair at the beauty parlour.  Nervously she blurted “Didn’t you used to be Gerry Millett?”  Immediately the old woman said “I still am dear. Who are you?” 

Of course it was my oldest friend Kay, who I have known since we were both in elementary school.  Kay always had a way of stating the obvious in moments of stress.  Years ago when mom’s house was on fire, the telephone rang and one of the firemen attending picked up the phone to hear “Are you having a fire, I heard it on the news.”  It was Kay, concerned about our wellbeing. Kay didn’t think much of herself as her childhood was difficult and money was always tight.  She could not have the same things others had, which was hard when you are a teenager. 

As my mother and Kay talked one summer day a few years ago, she talked about our years together and things we did, things that seemed too trivial to bring to parents attention. Mom gave her my number in the city, and then she called me at home to let me know Kay would be calling.

When Kay called, I was delighted to hear from her.  One of the first things she said was that she didn’t think she could have made it through high school if it wasn’t for me.  “Me? What do you mean?  You were the one who was top in the class!”  What she said next rocked me, if it wasn’t for me standing up for her when she was bullied, she didn’t think she would have continued through school. She reminded me of an incident that I had long forgotten. 

When one of the popular girls had made fun of Kay’s clothing, saying that it should be better, more fashionable, I took offence.  Kay’s parents were farm labourers who worked when they could and made do.  Irma the popular girl had parents of means and dressed quite fashionably.  I gathered all the students in our high school together and put a stop to this bullying, making sure Irma knew it was unacceptable and we would not be her friend if she couldn’t treat Kay better. I remember one girl in particular singing “Look I have on my party shoes and my party dress” when Irma was in hearing distance. As Irma valued her status as popular girl, she quickly came into line.  What made it even sweeter was when Irma’s boyfriend Doug started dating Kay.  Kay went on to university and worked raising two kids and was able to support her family when her husband got sick and could not work.  She always was my hero, a strong, independent woman, much like my mother.

When I though back on the incident after this call, I realized that I had not given it any further thought as the incident had been resolved.  Now when I hear about bullying, I can think back to a time when I had a small part in assisting someone, years ago and feel that I did the right thing.

Show me the money!

Now that we have our bookkeeping knowledge started, what happens when we get sales and money?
This is called income and we all want it, need it and seek it. This is why we are in business to make money to pay our bills, staff and living expenses.
When you record a sale in your accounting system you debit your accounts receivable and credit sales. Accounts receivable is an asset account, so when it is increased you debit it. This is something you have, it is valuable and it has to be maintained. Each week, or each month you have to take a look at your accounts receivable report to show who owes you money and if it is over due. If you have work orders, sales orders or quotes you have to look at these to see if you have something that has not been paid. Imagine if you did work for someone and forgot to bill it out! If you had to pay an employee to do a service call then did not invoice the customer, you will quickly lose money.
Your invoices should show date, amount, tax amount, what service or goods provided and who to pay. You can also give your customer terms if you wish.
On the profit and loss your income is shown, then expenses and then the amount of money you made after the expenses are taken away from the income – profit or loss!
When you physically receive a cheque, or cash or credit card payment you have got to record it in whatever system you have. This will clear off outstanding invoices sent to customers. Therefore when you do your aged receivables report, it will only show people who owe you money. Now you can call the ones who did not and ask for money. Simple things like “Do you need a copy of our invoice #1234?” should prompt the customer to give some feedback or pay their bill! Is there a problem with the invoice? Sometimes your sales rep has promised the customer a credit note and not told you. Better you find out now than a couple of months down the road.
Sometimes you get to be so good with the collection calls, the customer ends up calling you before you call them and give you dates when the invoice will be paid. Training pays off! Let’s start training customers early.
Also being in constant contact with your customers speeds up your cash flow and will alert you of any upcoming or existing issues.

Basic Bookkeeping

Let’s begin at the beginning, a very good place to start!

First thing I get people to do with bookkeeping is to understand the terminology. 

What is a debit?  A very good question. A debit when applied to a general ledger account that is normally in a debit balance is an increase.  When a debit is applied to an account that normally is in a credit balance a decrease in that account happens.
Sound confusing doesn’t it?
When we learned how to spell we had the basic rules to follow when learning how to correctly write.
Now we have to learn a new skill, the language of bookkeeping.
In order to understand the basics, you will have to remember the normal status of various accounts.
Here are the basics; an asset is normally in a debit balance, so are expenses.
Accounts that are normally in a credit balance are liabilities and income.
Next question, what is an asset, liability, income and expenses?
An asset is something that is owned, like money in the bank, something you have purchased or something someone owes you.
A liability is something you owe to someone else, like the phone bill, or your mortgage or even your car loan.
Income is what you earn from business, either a service or goods you sell.
Expenses are rent, hydro, phone, things like that.
Ok, so a liability is something you owe like a phone bill, but the phone bill can also be an expense?
Yes this can work because all entries in your accounting system have to have two general ledger accounts, one with a debit one with a credit. So if you enter the phone bill into the accounting system, you have to credit the payable and debit the expense.
This will increase the payables (a liability) and increase the general ledger account telephone (an expense). When you think about these accounts the best way to look at it is what is increased and what is decreased.
When you pay the phone bill, you will credit the bank and debit the payable account.
This entry will credit your bank (c=cheque, c=credit) and debit the payable account (reduce).
Clear as mud, right?
When I travel to clients to train staff to do entries into their accounting system, I send along various documents so they can have a basic knowledge of terminology and my expectations of what they should know.
Because I sent along details like above beforehand it gives the client an opportunity to read the info and email, or call me with questions before hand. It seems to ease the learning curve
For corporate clients, or board of directors, I send an overview of what is going to be done for each session, using their live data in an “in house” setting. This reduces time away from the job and takes into consideration different learning types and helps to eliminate any issues that may come up.
For more information or to contact an experience bookkeeper, contact me at
http://www.helpmewanda.com

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