Quickbooks is a tool. If you use it well, it will save your time and get the job done well. Based on our experience, there are some key points you need to know while using Quickbooks for your small business bookkeeping.
How to use QuickBooks for your small business bookkeeping
Separate your business account and personal account.
If your business is very small and is run under your personal name, which means you are self-employed, it is OK to use your personal bank account and credit card for your business income and expenses. But you must still separate business and personal income and expense while doing your small business bookkeeping.
If your business is incorporated, you must have a business account for the company. You have to put in your corporation’s name and HST number when invoicing your clients. All business income should be deposited into your business account instead of your personal account.
It is highly recommended to get a business credit card for the corporation so you can pay your business expenses through the business credit card.
When you have invoices to pay for the business expenses, make sure the invoice has your company name on it.
Get business transactions from your business bank account
The easiest way to access business transactions is to link your bank account to Quickbooks. Quickbooks cannot make payments or transfer funds from your bank. It can only retrieve bank transactions for bookkeeping purposes.
You can also download CSV or QBD (Quickbooks files) from your bank and manually upload them to Quickbooks if you don’t feel comfortable linking Quickbooks to your bank account.
The bank may not allow Quickbooks to download transactions older than two months or to retrieve a CSV files. In this case, you must get the PDF files and manually change them to CSV format to upload them.
Set up the sales tax (GST/HST) account
You need to know how GST/HST is applied to your business income and expenses. If you’ve already registered GST/HST with the CRA, you must charge GST/HST to all your Canadian clients. The rate will depend on the location of your clients. For example, for your Ontario clients, you are supposed to charge HST, which is 13 per cent of the sales. For clients in Alberta, the rate should be 5 percent GST. For US clients, it should be zero-rated (no GST/HST charged). Do the same for your business expenses. For most of your purchases in Ontario, the HST will be 13 percent. For overseas purchases, it may be zero-rated. There are also some expenses, such as interest and education, that are tax-exempted. If you are not sure, you can check the receipts to see how the GST/HST is charged.
Put income, expenses and transfers into different categories (chart of accounts)
You need to set up your chart of accounts. The chart of accounts will record your business income, expenses, labilities and equity (dividend to shareholder, retained earning). On your bank records, you only see “received and spent.” If you are new to bookkeeping, you might consider all money received as income and all money spent as expenses. But they may be transferred among bank accounts, credit cards and your personal account, so you need to record them as transfers instead of income or expenses.
Do your bookkeeping regularly
Make it a habit to do your bookkeeping once or twice a month. Don’t delay. The longer you wait, the more difficult it will become because you may not remember what some transactions were for.
Make necessary adjustments
Quickbooks is a tool. If you use it well, it will help you work efficiency. If you don’t understand the logic behind it, it may make a mess. Quickbooks won’t do everything for you, so you will still need to make necessary adjustments to reflect your business’s financial situation. You can edit the journal entries to adjust your business income, expenses, assets, labilities and equity.
In all, you can do your bookkeeping in different ways. As tax preparers, we see people record everything onto pieces of paper, people use an Excel spreadsheet and professional software such as Quickbooks. If your business is quite simple, using spreadsheet is good enough. If your business is getting more transactions and you’d like to be more efficient, Quickbooks can help.
