For most business owners, bookkeeping is a means to an end to stay compliant with the Canada Revenue Agency and the Ministry of Finance. As Bookkeepers, we file Goods and Services Tax (GST), Provincial Sales Tax (PST), Employer Health Tax (EHT), Worksafe BC Reports (WCB) and a myriad of other industry specific reports.

Bookkeeping, as we know it today, was first presented in the late 15th century by Frater Luca Pacioli, an Italian mathematician. Pacioli described our current double entry accounting system. For every debit there is an equal credit.  He has been described as the Father of modern Bookkeeping.

The system of journals and ledgers that Pacioli described are used to complete the compliancy requirements noted above. But from the journals and ledgers, there is story just waiting to be told. The business owner with the help of their bookkeeper can read the story in great detail each month. This is the reason for regularly processed data that can be extrapolated into a financial story that allows the business owner to see where they are, where they are going and where they want to be.

Let’s break it down into statements …

The Balance Sheet

Do you play cards? I liken the Balance Sheet to the face cards. The King, Queen and Jack. This is the overseer of the statements and a snapshot of a moment in time. From the balance sheet we can tell if there is cash, who owes us money (accounts receivable), who we owe money to (accounts payable) and if there is enough cash and receivables to pay the payables within the next thirty to ninety days. What business owner wants to fly blind not knowing what is on the horizon and if there are enough funds to meet obligations?

The Balance Sheet also tells the business owner what they have invested in the capital assets of the business. This could include tangible items such as land, buildings, equipment and intangible items such as trademarks and goodwill. Each year these assets are written down or depreciated to reflect their useful life to the business. A Bookkeeper will maintain a capital asset ledger that a business owner along with the Bookkeeper can plan out a replacement plan for three, five or ten years.

Also of note is the long term liabilities of the business. When looking at the story the Balance Sheet tells, the Bookkeeper will review the agreements of these debts to determine what the payment obligations are over the term of the liability.

Accounts Receivable and Accounts Payable

You’ve heard the term ‘cash is king.’ Well this is where cash management starts. Reviewing the amounts owed to you on a regular basis and following up on collections will ensure you have the funds available to meet you outstanding vendor invoices and payroll.

The Income Statement

This is the meat and potatoes of the financial story. This statement tells the tale of the operations of the business.  How many sales were made, what it cost to make those sales in labour and materials and what were the overheads incurred to make the business sing!

From this statement, pricing can be analyzed to ensure the price charged for the service or product is adequate to recover costs and make a profit. The business owner should also pay particular attention to the overheads. Is the advertising and marketing campaign generating the leads and sales expected? Are those lunches eating into your bottom line? Should you consider a different internet or cell phone provider? These questions can lead to open discussions on improving your bottom line.

My personal favourite is the comparative income statement. This statement compares your current period, year or month, to that same period the year before. The story this tells, is how much have your sales grown, is it costing more to generate these sales in materials and labour or are your utility costs double. I find this statement fascinating and one I look at each time we complete the monthly bookkeeping for our clients. This statement will often lead to conversations about where the business is going.

The oversight of the Business Owner in reviewing these statements will allow for course corrections quickly. If you leave your bookkeeping until the end of the year, it is too late to make a correction.

Talk to us about how we can help to provide you with the statements and advice you need to steer your business.

Give us your books – take back your life! ®

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