Bookkeeping plays a significant role in running a business. It consists of recording different types of transactions such as sales, revenue, expenses, purchases and many more.

 Expenses are an important part of a business due to which they need to be recorded accurately and error-free. Recording all these important things can be overwhelming and time-consuming if you decide to do this yourself instead of hiring a professional accountant.

To make this aggravating process a little easier, we have made this article, which consists of several ways to help you perform bookkeeping efficiently.

Set-Up a Filing System

A system should be established for bookkeeping. This should help you keep track of all the receipts, transactions, expenses, and revenues. The system should then be updated consistently so that the books are up to date and you don’t lack behind.  This can be accomplished manually or by using accounting software such as QuickBooks.

Separation of Business and Private Finances: –

Business expenses should be kept separate from personal expenses. This provides a more accurate record of transactions made for business. This plays an important role in taxes. There are many ways to achieve this, such as getting a business credit card and keeping receipts sorted.

Avoid cash: –

We suggest using credit cards over cash. It is often hard to keep track of cash transactions. When a credit card is used, all the transactions can be easily retrieved from the credit-card statements. This will save much time during bookkeeping since all the transactions are in one place.

Store Receipts

Receipts are necessary as they validate transactions on a company’s books. These can serve as proof in the future for audits and tax purposes. Storing all the receipts can also make the bookkeeping process easier as you can compare the records with the receipts if an error arises.

Accuracy The bookkeeping process should be done precisely to avoid negative consequences in the future. Accuracy can be achieved by carefully recording all the transactions and reviewing them, so they are error-free.

Many of us lend money to our friends and family if they are in need. We often don’t consider the tax consequences associated with it if the loan is not repaid.  The information below briefly consists of several ways to approach this situation if you are a money lender or provided a loan to a corporate/small business.

Capital Loss Election
Suppose you are within the money-lending business and are treating the loan to your friends/family professionally. In that case, you have rights as a creditor to receive a loan repayment is taken into account a capital property. If a loan becomes uncollectible, you can consider it to dispose of for nil proceeds hence triggering a financial loss on your taxes. You can then use that loss to offset any capital gains you earned either within the same taxation year or in any future year.

     To preserve your ability to claim a capital loss on a loan to your family/friends, the loan must be interest bearing. The rate of interest is often nominal, and report the interest earned on your tax return.

Loan to a Corporation
If you lent money to a family/friend’s company, which is a Canadian-controlled private corporation also known as a small business corporation (where 90% or more of its assets are measured by fair market price are used principally in a lively business carried on primarily in Canada), and the loan wasn’t repaid, the financial loss would be considered a business investment loss. In this case, half of the loss could be deducted against the debtor’s income from any source, including capital gains.

The rules here require that either the debtor is a small business corporation at the time election is formed in respect of the loan receivable or at any time within the 12 months before the disposition. Therefore, you should consider the debtor’s corporation’s status to correctly claim the losses on your tax return.

Summary

The above information consists of different ways through which you can recover from the loss. But most of us are not money lenders or did not pay attention to the status of the debtor’s company. This is why it is essential to consult a professional tax accountant and lawyer while lending money to avoid negative consequences. We can provide you with in-depth consultation and solutions that can prevent problems that might arise in the future and save you on taxes.