Business accounting is essential. While many business owners recognize this fact, they fail to invest in it adequately. Business owners are commonly found taking on accounting responsibilities at the beginning of a business’s growth.
However, many business owners do not have experience in accounting, which leads to mistakes. Oftentimes, these errors could be easily avoided if they knew basic accounting principles.
To help you avoid falling into those situations, Peal Accounting & Taxation Services Inc. has put together a list of the most common accounting mistakes business owners make and how to avoid them.
1. Using cash basis of accounting
Most business owners do so because they do not understand that CRA requires every business owner to follow the Accrual Basis of accounting. It is actually a necessary requirement. The recording of transactions should always be done depending on the period for which the transaction was enacted and not when the money is received or disbursed.
2. Throwing away receipts
Receipts and vouchers are to be kept so they can be recollected and input into accounting software. Receipts provide solutions to any mistakes or gaps in bookkeeping records, and many offer supplementary deduction opportunities during tax preparation.
3. Concentrating solely on business
Another common mistake entrepreneurs make is being more interested in operating the business and not being careful about the deadlines or the time period when the tax filing has to be done with CRA. We can confidently say that time is not on the side of the small business proprietor, especially when there may be daily issues to address. So always ensure not to fall behind in accounting tasks.
4. Making payments and receiving without HST
No business owner wants to play the role of a federal tax collector, but if your business generates more than $30,000 in annual revenue, you are required to collect HST. Remember that failure will result in a 1% penalty of the amount owing and 25% of that 1% multiplied by the number of months the return is overdue. If you haven’t filed, you’ll receive a Demand to File, along with a $250 penalty if you don’t follow through with a return.
5. Failing to keep documents of incomes earned
A business will eventually need to conduct an audit, and this is a statutory requirement. During an audit, auditors will scrutinize a company’s financial information to determine whether the financial statements present a true, fair and complete picture of the company. To facilitate auditors in their tasks, businesses will need to be able to provide documentary evidence to support the financial statements. If a company does not have a process to accurately record and file documents, then they risk non-compliance in the event of an audit.
So be careful to keep the documents of incomes earned properly, and especially don’t forget to post the HBP payments to be made for your drawings from RRSP for buying your first home.
6. Hiring the wrong professional
Hiring the wrong professional can create financial problems that go beyond just making uninformed resolutions. Trying to save money by hiring someone, say a tax preparer to perform both bookkeeping as well as tax returns, can lead to financial issues, including audits or penalties. Hiring the wrong person can create problems that haunt your business for many years to come, so take time and invest in your personnel like you would any other company asset.
To avoid these and other mistakes, reach out to the experts at Peal Accounting & Taxation Services Inc. We are a Mississauga accounting, bookkeeping, payroll, and tax service provider specializing in comprehensive solutions for small and medium-sized businesses across Ontario.
We see clients across Mississauga, Markham, Vaughan, Brampton, Hamilton, Toronto, Ajax, Whitby, Oshawa, and surrounding areas.
Get in touch with us today!
To learn more about the services we offer, please click here. To get in touch with us, please click here or call us at (905) 461-2160 or (647) 460-0134, or email us at pealtaxinc@gmail.com.
