Frequently Asked Questions About Bookkeeping

1. Isn’t accounting and bookkeeping the same thing?

No, they are not. Generally, bookkeepers:

• control and organize source documents,
• classify and record transactions in the General Ledger either through data entry or by creating automated rules in accounting software, and
• perform account reconciliations.

A person does not need a degree or designation to be called a bookkeeper—though bookkeepers can choose to become certified by the Institute of Professional Bookkeepers of Canada (IPBC). Bookkeepers with the Certified Professional Bookkeeper (CPB) designation also:

• review and analyze the General Ledger for accuracy,
• prepare adjustment entries to fix inaccuracies,
• perform year-end procedures to ensure the data is ready for the accountant to produce Notice To Reader Financials or conduct a review engagement or audit, and
• acquire a “big picture” understanding of the bookkeeping process and are familiar with Generally Accepted Accounting Principles (GAAP).

Accountants, on the other hand:

• have an accounting degree as well as the Certified Professional Accountant (CPA) designation,
• generally contract or hire a bookkeeper,
• determine the best setup and internal controls for a business owner’s bookkeeping system,
• monitor the system and interpret the results,
• provide strategic tax planning, and
• have an in-depth knowledge of GAAP as well as the Income Tax Act.

2. Can I write off golfing, gym memberships, car payments, and liquor purchases as business expenses?

That depends…

• If you’re golfing with a potential client or current client, then yes. But be sure to write the name of that prospective or existing client on the receipt. If you are a professional golfer, the answer is definitely “yes,” as this would be a “training expense.” If you simply enjoy golfing as a stress reliever in the middle of your workday, then no, it is a personal expense.
• Gym memberships are usually a personal expense, unless you are a personal trainer or can prove that the membership directly relates to your business activities.
• Car payments are always personal, unless you are incorporated and your corporation purchased the vehicle and the registration is in the corporation’s name. If you are a sole proprietor, you need to track your mileage as well as all your vehicle expenses. You then need to calculate the percentage of your annual mileage that is for business driving then apply that percentage to the total of all your vehicle expenses for the year.
• Liquor purchases are always personal, unless the liquor is purchased with a business meal (to write off an expense as a meal, it must include food). So if you purchase liquor at a restaurant while meeting with a client, supplier, or employee, then that alcohol purchase is a legitimate business expense. Be sure to write the name of the client, supplier, or employee on the receipt.

3. What triggers Canada Revenue Agency (CRA) payroll audits?

The different triggers are as follows:

• You are routinely late when paying your payroll remittances—one of the most common reasons for CRA audits.
• Your T4 totals do not match the amounts you sent in for remittances.
• The CRA sent you a PD4R T4 discrepancy form to fill out, and it is filled out incorrectly or doesn’t match the T4 totals.
• The CRA requested some information to verify your T4 totals, and you ignored their request.

4. Can I write off amounts paid to my dentist?

If you are a sole proprietor, you can include those out-of-pocket expenses on your personal tax return. If you are incorporated (your company name has ‘Inc’ or ‘Ltd’ after it), the answer is no. 

You can write off health premiums paid to an insurance company but not your out-of-pocket amounts paid directly to the health provider. A way around this is to have a separate Health Spending Account, exclusively used to reimburse you for any out-of-pocket health spending. You will need to produce all the statements or receipts from the practitioner that show the amounts withdrawn from your business Health Spending Account.

5. Should I register for GST/HST?
   • If you “provide taxable supplies in Canada,” yes—unless you are a small supplier, as outlined by the CRA. A small supplier has gross earnings of “$30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters.” The CRA requires you to register for GST no more than 29 days after you exceed the $30,000 threshold. Read what the CRA says about registering for GST here. Prior to this threshold, there is no need to register for GST.
6. When do I know I need to hire a professional bookkeeper?

There are different reasons to onboard a professional bookkeeper. Some of them are as follows:

• Your business has grown, and the bookkeeping volume and complexity is more than you can handle.
• Your accountant’s rate keeps increasing each year, and when you ask why, they say they had to correct many bookkeeping mistakes.
• The interim financial reports in your software don’t make sense. For example, your gross income is double what it should be, or your accounting software shows a bank balance that is way too high or too small.
• Your accountant tells you that you need a bookkeeper who understands debits and credits.
• You dislike keeping track of your income and expenses, tracking down invoices, statements, bills, and receipts, and it takes you many days to catch up because you keep putting off doing your bookkeeping on a weekly or monthly basis.
• You’re about to go through a CRA Audit.
• The CRA has frozen your bank account(s) because you haven’t filed your GST or tax returns for years.

7. How do I choose a good bookkeeper?

To find the ideal bookkeeping expert for your needs, you can

• check the Institute of Professional Bookkeepers of Canada (IPBC);
• ask others in your industry for a bookkeeping referral;
• interview a few bookkeepers regarding their knowledge, experience, and education to find out whether they are a member of the IPBC and if they have the Certified Professional Bookkeeper designation;
• find out if they have any bookkeeping packages (as opposed to hourly rates);
• read all of their Google reviews;
• decide what services you think you need, then look for bookkeepers that promote those services on their website. For example, do you prefer using an online accounting software like QuickBooks Online? Do you want to do some of the bookkeeping yourself? Do you want to go paperless? Do you need someone to be in your office weekly, several times a week, or monthly? Do you need payroll services? Do you need to file your GST return?