Bookkeeping for SMEs: A Complete Guide

What is bookkeeping and why does it matter?

Bookkeeping is the systematic and continuous recording of all a business's financial transactions: sales, purchases, expenses, payroll, and taxes collected and paid. It's the raw data layer upon which your financial statements, tax returns, and business decisions are based. Without it, you can't know if you're profitable.

In practical terms, keeping good books means that every dollar coming in and going out is recorded, filed, and supported by documentation. In Quebec, this rigor is doubly important: you must track the GST and QST you collect and pay, file your returns with the CRA and Revenu Québec, and be prepared in case of an audit.

• Less tax paid in excess: no deductible expenses forgotten.
• Informed decisions: you see your margin, cash flow and customer accounts in real time.
• Stress-free compliance: VAT returns and advance payments produced on time, without penalties.
• Easier financing: banks and investors demand clean figures.

Good to know: Bankeo is not an accounting firm. If accounting is too much for you, you can be matched free of charge with an accountant or bookkeeper suited to your specific needs, usually within 48 hours.

Bookkeeping or accounting: what's the difference?

Accounting involves recording day-to-day transactions; accounting interprets this data to produce financial statements, optimize taxation, and provide advice. The accountant enters and files data; the accountant analyzes and plans. The two often work together, but they do not address the same needs or require the same level of expertise.

• Bookkeeping: continuously recording and classifying transactions, starting from the first dollar. Deliverables: general ledger, bank reconciliation, GST/QST tracking. Performed by you, an accountant, or using software.
• Accounting: periodic analysis, financial statement preparation, and advisory services. Deliverables: financial statements, T1/TP1 and T2/CO-17 tax returns, and tax planning. Performed by an accountant or tax specialist.

In practice, many small businesses do their own bookkeeping (or outsource it to an accountant) and then hire an accountant at the end of the year for tax returns and strategy. The more your business grows, the more your accountant relies on impeccable bookkeeping to save you money.

How to do your own bookkeeping

Doing your own accounting is realistic for a small business with few transactions. Equip yourself with accounting software, separate your personal and business accounts, record each transaction promptly, reconcile your bank account monthly, and track VAT collected and paid. The key is consistency, not accounting perfection.

1. Open a separate business bank account. Mixing personal and business finances is the primary source of errors.
2. Choose a software. QuickBooks, Xero, Sage or a solution tailored to your volume.
3. Record each transaction promptly. Aim for weekly entries to avoid falling behind.
4. Keep all your supporting documents. Scan your receipts; a lost receipt is an expense you won't be able to deduct.
5. Reconcile your account every month. Compare your transactions to your bank statement.
6. Track GST and QST. Separate the tax collected from your customers from the tax paid on your purchases.

Note: VAT collection generally becomes mandatory once your taxable income exceeds $30,000 for four consecutive quarters. Below this threshold, you can voluntarily register to reclaim the tax paid on your purchases.

When to hand over the reins: if you are spending more time on it than on your job, if you are no longer sure of your figures, or if you are hiring and have to manage payroll and DAS, it is time to delegate.

What supporting documents should be kept and for how long?

You must keep all documents that support an income or expense: sales and purchase invoices, receipts, bank and card statements, contracts, pay stubs, and tax returns. The IRS's general rule is to keep these records for at least six years after the end of the relevant tax year. Scan everything: a lost receipt is a lost deduction.

• Revenue: sales invoices, contracts, deposit statements, cash reports.
• Expenses: supplier invoices, receipts, proof of payment.
• Taxes: VAT returns, calculations of tax collected and paid.
• Payroll: stubs, summaries of source deductions (DAS: tax, CNSS, RRQ, unemployment insurance), employment records.
• Banking: account statements, company bank card statements.
• Assets: purchase invoices for equipment (for depreciation and capital cost allowance).

The standard retention period is at least six years from the end of the last tax year to which the records relate. If in doubt, keep them longer: digital storage space is cheaper than an audit.

Good to know: scanned documents are accepted if they are legible and complete. Organizing your digital files by year and month will save you hours during the audit.

The most common bookkeeping errors

The most common mistakes are mixing personal and business accounts, accumulating a backlog of data entry, forgetting to track VAT separately, losing receipts, and never reconciling bank accounts. Each one is costly: overpaid taxes, penalties, or wasted time. The good news: all are avoidable with a simple routine.

• Mixing personal and professional finances. Without a separate business account, you're missing out on deductions.
• Letting the backlog accumulate. Trying to cram in six months at once multiplies the mistakes.
• Improperly tracking GST and QST. Confusing tax collected with tax paid leads to false declarations.
• Losing or failing to file receipts. No receipt, no deduction.
• Never reconcile your bank account. Discrepancies go unnoticed until the end of the year.
• Improperly categorizing expenses. An expense in the wrong category skews your financial statements.
• Forget about provisional payments. If your taxes exceed the thresholds, you must pay installments during the year.

An isolated error can be corrected. The real risk is accumulation: an untreated delay becomes a costly catch-up and a source of stress during tax season.

Do your own accounting or outsource it

Faites votre tenue de livres vous-même si vous avez peu de transactions, du temps et de l'aisance avec un logiciel. Externalisez-la dès que le volume augmente, que la TPS/TVQ et la paie se compliquent, ou que votre temps vaut plus que le coût d'un teneur de livres. L'externalisation réduit les erreurs, libère vos heures et vous donne des chiffres prêts pour votre comptable. Pour chiffrer la décision, le Baromètre Bankeo situe la médiane des honoraires comptables autour de 3 000 $ par année, dans une fourchette de 500 $ à 6 000 $ selon le secteur.

• Do-it-yourself: low direct cost (software), high time investment, higher risk of error. Ideal for very small businesses with few transactions. Bonus: total control, learning opportunity.
• Outsourcing: monthly or hourly fees, low time investment, lower risk of error. Ideal for growing volumes, payroll, and multiple taxes. Bonus: figures ready for tax returns, advice.

Outsourcing does not mean giving up everything: many entrepreneurs keep day-to-day data entry and entrust reconciliation, tax returns and year-end to a professional.

Good to know: Bankeo is not a company and does not provide bookkeeping services. We support you free of charge with an accountant or audited accountant from our network, and we remain available should your needs change.

Bookkeeping for self-employed individuals

Self-employed individuals must keep books even without an incorporated business: their business income and expenses are reported on their personal tax return (T1 federally, using form T2125; TP1 in Quebec). They must separate their accounts, track their deductible expenses, manage VAT above the €30,000 threshold, and plan their taxes, often through estimated tax payments.

• No automatic deductions. Set aside a portion of each income for taxes and duties.
• Deductible expenses properly tracked. Home office, vehicle, tools, professional fees.
• VAT beyond the threshold. Above $30,000 of taxable income over four consecutive quarters.
• Provisional tax payments. If your tax balance exceeds the thresholds of the CRA and Revenu Québec.
• Contributions. Quebec Pension Plan (QPP) and, where applicable, Quebec Parental Insurance Plan (QPP).

When done properly, this follow-up transforms tax season into a simple formality. An accountant experienced with freelancers often saves you more than their fees.

Catching up on a missed bookkeeping assignment

To catch up on backlogged accounting, gather all your statements and receipts for the year, reconstruct the transactions month by month, reconcile each bank account, and then correct any affected VAT returns. For delays of several months or years, an accountant will be able to work much faster and minimize penalties. The important thing is to act before the next deadline.

1. Gather your documents : bank and card statements, invoices, receipts, declarations already filed.
2. Reconstruct by period : year by year, month by month.
3. Reconcile the accounts : each entry corresponds to an actual transaction.
4. Recalculate taxes : VAT collected and paid for each period.
5. Correct what needs to be corrected : produce or amend late declarations.
6. Establish a routine : a regular pace prevents you from falling behind again.

A delay isn't inevitable, but it worsens over time: interest, penalties, and an increased risk of audit. The sooner you act, the lower the bill will be.

Good to know: catching up on several years' worth of work is a specialized task. Partner with an accountant experienced in these situations rather than spending your evenings on it.

Combien de temps faut-il conserver ses pièces comptables au Canada?

The IRS's general rule is to keep your records and supporting documents for at least six years after the end of the relevant tax year. Certain situations require longer retention. If in doubt, keep your documents longer: a well-organized digital file is inexpensive and protects you in case of an audit.

Do I need an accountant or bookkeeper for my accounting?

Not necessarily. A small business with few transactions can manage its own accounting using software. However, as soon as volume increases, VAT and payroll become more complex, or your time becomes valuable, delegating becomes cost-effective. The accountant enters and files data; the accountant analyzes and prepares your tax returns. Bankeo connects you with the right professional for free.

When do I need to register for VAT?

Registration and collection generally become mandatory once your taxable income exceeds $30,000 over four consecutive calendar quarters. Below this threshold, you can voluntarily register to reclaim the tax paid on your purchases. Confirm your situation with the IRS, the tax authorities, or an accountant before deciding.

How to catch up on several months of bookkeeping that's behind schedule?

Gather all your statements and receipts, reconstruct transactions year by year and month by month, reconcile each bank account, and then correct any affected VAT returns. For delays of several months or years, an accountant will be able to expedite the process and minimize interest and penalties. Take action before the next deadline.

What's the difference between bookkeeping and accounting?

Accounting records daily transactions: sales, expenses, taxes, payroll. Accounting interprets this data to produce financial statements, optimize tax strategies, and provide advice. The accountant enters the data; the accountant analyzes and plans. The two are complementary.

Does a self-employed person really have to keep records?

Yes. Even without an incorporated business, self-employed individuals report their income and expenses on their personal tax return (T1 federally, TP1 in Quebec). Keeping records allows you to track deductible expenses, manage GST/QST exceeding $30,000, plan your tax installments, and avoid spring stress.