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Keeping Track of Your Business Expenses Properly

Proper tracking of business expenses is an essential aspect of your bookkeeping process. Not only does it streamline the financial year end process by lessening the burden of any last minute chaotic organization, it also helps keep you, your accountant and your bookkeeper, sane.

Collecting proper documentation is required to justify any business expense.

Let’s talk about what those expenses are and how to properly keep track of them.

The Importance of Tracking Business Expenses

As mentioned, it is essential to ensure that every expenditure in business is accounted for. Not only will it keep you prepared for tax season, but it will improve money management, provide financial awareness in terms of expenditure and cash flow, and help determine how profitable your business is. 

By properly keeping track of expenses in accounting software, you will have access to up-to-date books which ensures your financial goals are being reached and can also ensure your tax bill reflects the true picture. 

Every business owner should be cautious when it comes to properly tracking expenses in their business. Not every expense is a business expense, and business owners should educate themselves in this process when trying to do their own bookkeeping.

What are some legitimate business expenses?

There are many expenses that you are likely to encounter within your business operations. They include:

  • Salaries
  • Rent
  • Lease payments (for business related equipment or vehicles) 
  • Advertising
  • Office supplies
  • Travel (for business)
  • Commissions
  • Bank fees
  • Mileage (for business)
  • Postage and delivery
  • Subscriptions
  • Decals 
  • Telephone

What is not a legitimate business expense? 

  • Mileage of driving to and from work (this is a personal expense)
  • Work Clothing (non uniform) 
  • Large entertainment expenses such as Jets Season Tickets (a portion maybe considered reasonable for entertaining clients/staff) 
  • Hobby related expenses not related to the business type
  • Campers for personal use 
  • Meals outside of business meetings (it’s good practice to have an agenda to justify the expense) 
  • All of your vehicle related expenses (the vehicle needs to be strictly used for work, this does not include an employee driving the vehicle home or using it on the weekends)

Keep in mind that having an accountant or bookkeeper that “allows” or suggests writing these types of expenses off, may not always be the best choice for your business. Without proper documentation proving these expenses are required to carry on business activities, CRA may determine that these expenses were not business related. That responsibility would then land on you, the business owner, and any repercussions would fall on your dollar, not theirs.

Recording your Expenses Properly

One way for small businesses to track their costs is to use accounting software. Businesses with very few expenses can track costs in a simple Excel sheet.

Here are a few tips on how to organize your expenses: 

  1. If you haven’t already, open a business exclusive bank account and a business exclusive credit card (this means for business purposes ONLY).
    🚩Ensure the account you open with a bank is for business purposes!🚩
  2. Use an appropriate accounting system – we recommend Sage 50, QuickBooks, or Xero!
  3. Manage your receipts; upload copies of your receipts to an online drive folder so you can share with your accountant and/or bookkeeper.
    (Want us to show you how? Sign up for our newsletter for a how-to video on how to properly digitize your receipts coming on July 15th!)
  4. Promptly record all your expenses because in 6 months you likely won’t remember what you bought at Walmart for your business!
  5. Link your financial institutions with your accounting software.

Whether you are just beginning or well-experienced in business, it is essential (did we mention that?) that you track your business expenses.

Consider hiring a trusted bookkeeper to do it for you. At Indigo Bookkeeping Services, quality bookkeeping is our business. 

We are committed to helping you when it comes to the costs of running your business. Book a call now!

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