Bookkeeping Basics for New Small Business Owners in Canada

Oct 2

5 min read

Bookkeeping is the routine of recording every dollar that comes into and goes out of your business. Almost everything else depends on it: your income tax return, your GST/HST returns, any loan or grant application, and everyday decisions about pricing, hiring and spending.

Solid bookkeeping does not require an accounting degree. It takes a simple system and the habit of using it every week. Here are the basics we walk new owners through.

Separate business and personal money

Mixing the two creates extra work, because every personal charge in the business account has to be found and explained later.

Open a dedicated business bank account, even if you are a sole proprietor who could use a personal one.
Use one credit card for business purchases only.
Pay yourself by transferring money from the business account instead of paying personal bills from it.
If you operate as a corporation, it is a separate legal entity, so money moving between you and the company must be recorded properly. Ask your accountant how to treat it.

Know which records to keep

You must keep records of all your business transactions to support the income and expenses you report. That includes:

Income records: sales invoices, receipts, point-of-sale reports, bank deposit records and contracts.
Expense records: a receipt or supplier invoice for every business purchase, plus bank and credit card statements.
GST/HST records: if you are registered, the invoices you issue and receive. To claim input tax credits, a receipt for $100 or more must show the supplier's GST/HST registration number, and purchases of $500 or more need further details, such as your business name and a description of what you bought.
Vehicle records: if you use a vehicle for business, a logbook showing the date, destination, purpose and kilometres of each business trip. After one full year of logging, the CRA lets you keep a three-month sample logbook in later years, as long as business use stays within 10% of that base year.
Payroll records: if you have employees, records of wages paid and amounts withheld.

Store records the way the CRA expects

How and where you keep records matters as much as what you keep.

How long: generally six years from the end of the last tax year they relate to. Some records, such as those about long-term property purchases and sales, must be kept indefinitely.
Where: at your place of business or your home in Canada, unless the CRA gives you written permission to keep them elsewhere. Records held on servers outside Canada and accessed from here do not count as kept in Canada, so if you rely on cloud storage, find out where your data is held and check the CRA's guidance.
Language and format: records must be in English or French, and electronic records must stay in an electronically readable format, even if you print them.
Scanned receipts: the CRA accepts scanned images of paper records, but you can discard the paper originals only if your scanning process meets Canadian General Standards Board (CGSB) standards. If you are unsure, keep the originals.
Backups: back up your files regularly and test that a backup can be restored.

Use simple categories and track what is owed

A chart of accounts is the list of categories you sort transactions into, such as sales, advertising, rent, office supplies and bank fees. A short list used consistently is worth more than a long one used loosely.

If you are self-employed, the CRA encourages you to report business income and expenses on Form T2125, Statement of Business or Professional Activities, so it helps to choose expense categories that line up with that form.
Corporations report financial statement information using the CRA's General Index of Financial Information (GIFI) codes, and your accountant can map your categories to them.
Most self-employed people must use the accrual method: income counts when it is earned and expenses when they are incurred, even if no money has moved yet. Farmers, fishers and self-employed commission agents can choose the cash method instead. In practice, track unpaid customer invoices and unpaid supplier bills, not just bank deposits.

Follow a weekly and monthly routine

Short, regular sessions beat a stressful catch-up at tax time.

Every week

Record sales and expenses, or review what your software imported from the bank.
Photograph or scan new receipts the same day and file them by month.
Send invoices promptly and follow up on any that are overdue.

Every month

Reconcile each bank and credit card account to its statement.
Review who owes you money and whom you owe.
Move the GST/HST you collected into a separate savings account so it is there when the return is due. If you collect Saskatchewan PST, set it aside too and track it separately, since PST returns go to the province, not the CRA.
Read a simple profit and loss statement and compare it with the previous month.

Avoid common mistakes and use free help

Watch for these common problems:

Spending GST/HST you collected as if it were income. The CRA treats GST/HST collected, and amounts withheld from employees' pay, as deemed trust amounts: money you hold for the government, not working capital.
Paying personal costs from the business account without recording them.
Skipping reconciliations, so small errors pile up for months.
Keeping receipts in a shoebox or an email inbox with no system.
Estimating vehicle use at tax time instead of keeping a logbook.

For free guidance on the basics, the CRA's Liaison Officer service offers one-on-one support to small business owners and self-employed people, including general bookkeeping concepts and best practices, in person, by phone or online. As your business grows, a bookkeeper can take over routine entries. For tax returns, financial statements and tax planning, work with a qualified accountant, such as a Chartered Professional Accountant (CPA).

How First Global Citizen can help

We help founders and small-business owners build the systems behind their numbers: a records checklist, a filing structure for receipts and invoices, a weekly and monthly routine, and support choosing and setting up business tools. Our self-paced online courses, including one on managing money and budgets, and our mentoring help you understand your own financial information.

Each engagement is quoted as a fixed fee in a written proposal, so you know the scope and cost before work begins. We do not prepare tax returns or financial statements, or give tax advice; when you need that help, we coordinate with independent licensed professionals. To talk about your setup, book a free consultation.

This article is general information only. It is not legal, tax, accounting or financial advice. Fees and requirements can change, so confirm current details with the relevant government agency or registry. For advice about your situation, consult a qualified professional.