Record-Keeping

(Accounting’s Country Cousin)

Over the last 35 years or so, bookkeeping for small business has evolved from an essentially manual function, to an automated system that pulls transaction data from your bank and “automatically” allocates debits and credits to the appropriate accounts.

No more calculating on your own because most accounting software automatically calculates your financials for you.

from PROS AND CONS TO USING AN ACCOUNTING SOFTWARE – StartupSavant.com

Or at least that is the dream. The automation is based upon developing assumptions by matching “patterns” identified by the user. Inevitably there are exceptions to the pattern. If the user doesn’t understand accounting, this approach may not work at all.

Records as Evidence

Evidence.jpg

There is a hierarchy of records in terms of their quality as evidence. If a single person creates a record and also records the “transaction” it refers to, there is a weakness in your businesses’ system of internal controls.

For a sole proprietor preparing his or her taxes, that isn’t a terribly important issue – except that the tax department may refuse to accept the proprietor’s version of events.

The Quality of Records

The more independent entities or people “touching” a record, the higher the quality of the record. A cheque is paid to an independent third party and processed by your bank and the recipient’s bank.

It answers the questions:

1. Did you pay?
2. Who did you pay?
3 How much did you pay?

But it doesn’t answer the question:
4. What did you pay for?

For example let’s say that you paid the local electrician to string network and telephone cable in your office. If you were to pay him with an e-transfer, your bank would likely show the name of the electrician and the amount. However you would also need the electrician’s invoice to show that it was indeed a business expense and not a personal one.

Similarly you may write whatever you want on a cheque stub. As long as the amount agrees to what is shown on the bank statement, no one can tell for certain who was paid – without looking at the cheque image. In this case the existence of a vendor’s invoice would help substantiate that the cheque stub accurately reflects who was paid and what it was paid for.

In the case of a tax audit or a financial statement audit, the auditor should first test the “internal controls” in your system. Once they are comfortable with these controls, they should rely on these to reduce the amount of audit work. That is the theory. Of course in reality the CRA is centralizing their operations and hiring unskilled staff to perform audit functions – in effort to reduce their costs.

This isn’t a partisan issue. Conservatives and Liberals are equally bad. They each pay lip service to evidence-based policies but push the costs down to small businesses who are poorly represented politically and allow career civil servants to call the shots. For their part civil servants live in a “don’t rock the boat” environment where the greatest sin is to “embarrass your boss”.

Record-Keeping Software and Apps

As we move more and more to electronic records, software developers are attempting to build applications that “automate” record-keeping functions. Now that accounting software is “automatically” pulling the transaction data directly from the bank, the dream is to pull data directly from paper receipts using artificial intelligence. There are a number of applications that purport to do this.

ReceiptBank

Record-Keeping

Receipt-Bank targets CPAs to recommend to their small business clients

 

Receipt Bank Sole Trader
Receipt Bank Sole Trader

 

HubDoc

While both ReceiptBank and HubDoc target CPAs who are expected to recommend this record-keeping software to their small business clients, HubDoc seems a little more fully-featured.

Expensify

By contrast, Expensify targets small businesses directly with monthly subscriptions based upon the number of people filing expense claims.

Expensify Plans

While Expensify “may not suck” – it will cost  $60 USD per year per user.

Monefy

By contrast Monefy is free for the standard version – with a $3 fee for the “pro” version. However it doesn’t offer attached photos. Also I couldn’t figure out how to synchronize to my GOOGLE DRIVE account although I was able to upload a CSV file to my GOOGLE DRIVE. So the $3 for the Pro version may be a waste of money.

Wave Accounting

Wave Accounting have recently added a “Receipts” app to extend the capability of their accounting application.

The most interesting feature is that the receipts will be stored alongside accounting data. This should make it more convenient for outsourced accountants to refer to receipts when doing the books.

Image File Uploaded to Wave Using Wave "Receipts" App

However, while they make claims about using AI to pull the data from the image file, I ended up supplying all of the actual intelligence and had to type in the values, based upon a look at the image file.

There are undoubtedly a great number of apps out there and it is likely that most CPAs don’t have the capacity to adequately test all of these tools. Certainly I don’t. However my gut instinct tells me that each of these solutions might be somewhat useful.

However I typically prefer tools that are more widely applicable. I like to ensure that the investment in learning the tool provides opportunities to adapt it for use more broadly – in a variety of circumstances. I also prefer not to be used to “pimp” someone else’s product.

In spite of this, I could see myself recommending these offerings:

  1. HubDoc
  2. Monefy
  3. Wave Accounting (receipts component)

General Purpose Tools

GOOGLE FORMS

The better approach in our view, is to develop the capability to build your record-keeping system using a generic tool like SmartSheet or GOOGLE Forms-

GOOGLE FORMS

Smartsheet

SmartSheet

Ideally the CPA firm would assist with the design of record-keeping systems that meet the particular needs of a specific business. Examples could include documentation for SR&ED technological uncertainties, deposit books (with cheque images attached), expense reporting for staff, timesheets customized for your needs, query sheets and so forth.

Using Your Smart Phone

As we’ll discuss later on, you can use your smart phone quite effectively to send photos pretty much anywhere that make sense. And don’t actually an “app” – other than your smart phone’s camera – to make that happen.