Archive for Accounting Best Practice

Key Internal Controls for Small Business Owners

Written by on November 7, 2008 | Accounting Best Practice

  1. Open all the mail!  This is often a quickly relinquished responsibility and it really shouldn’t be!  Awareness of key documents include tax notices, tax assessments, payables, bank statements, cleared cheques, customer payments and legal notices… all need the attention of the owner even for 5 seconds!   Tax notices highlight late payments which might be an indicator of untimely bookkeeping, cleared cheques should be checked to ensure they are all valid, bills need to be inspected for fraud or errors, and customer payments or lack thereof need to be monitored for deposit prioritization or follow up.  You don’t need to spend a lot of time- just open, check and hand off to bookkeeper… or scan/fax using QCDocs of course.  Also consider using QCMail services whereby you receive your mail by email… kills several birds with one stone.
  2. Sign all the cheques!   This is rarely not in effect as it is pretty obvious.  I would point out that you should make a habit of requiring the back up documents to support cheques which is often skipped (ideally the voucher – PO, Packingslip, Invoice).  Also note that dual signatures is always the best unless you are the sole owner/shareholder!  What if you’re out of the office a lot… then get QCDocs Systems so you can do all this online!  
  3. Monitor online bank accounts and general business activities.   Monitoring controls are very important as they ensure that you are aware of unusual transactions and unusual behaviors.  Trust in your accounting/bookkeeping staff is tremendously important and you should hire accordingly but it isn’t a control!  Fraud occurs when owners are just so trusting that opportunities arrise and we hear about those stories every so often in the press.  Monitoring controls… ie. just taking an interest, requesting reports, reviewing documents, inspecting files on occassion is key to shutting those opportunities down!
  4. Segregation and access controls-  Control of cheque stock is critically important. Do not place reliance on your signature and the bank review.  You need preventable measures to watch for fraud and identity theft these days so control your cheque stock.  Also monitor online bank accounts and make sure you can identify transactions- EFT’s (“Electronic Funds Transfers/online payments, etc) are being coming more and more common but they don’t provide enough information to understand nature of payments sometimes.  Also control access to payroll systems (ADP control pretty much gives person ability to write a cheque to themselves by creating and paying a fictitious employee) so monitor this closely.  Those big lump sum autowithdrawals need to be monitored for unusual fluctuations and tied out to payroll reports. 
  5. Timely, involved review of monthly financial statements and bank reconciliations.  This one is rarely done and poorly understood.   On the 15th of every month you should have received a 3 month trended balance sheet, 3 month trended  P&L, a budget to actual, a G/L for the the month, bank recs, AP, AR and fixed assets listing .  Get them if they are “ready” or not! and get some perspective on where you’re numbers are at.  If you don’t understand them go through them with your accountant and get them to give you some perspectives on them and what you should be looking for specifically- or I’ll save that for another blog.

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Understanding the Sales Cycle: CRM to Deposit Slip

Written by on October 12, 2008 | Accounting Best Practice, QCDocs Best Practice

Okay here it is- end to end CRM to bank deposit slip!  Understanding how to optimize your sales starts with understanding the paperflow and process best practices- so here it is as I see it!  I so look forward to hearing from the sales guys out there to correct the accountant!!

  1. Leads – They’re everywhere (Yellow pages to Cards gathered at a tradeshow to LinkedIn) you just need to prioritize and record them somewhere so you can go after them! Word, Excel, Maximizer, ACT!, Salesforce.com
  2. Accounts- Now that you have your huge list of leads you start the process of going after them and you move them into Accounts- you start recording more information about them and strategize about how you’re going to sell to them.  Accounts are at the Corporate level.
  3. Contacts- Are all the people within the “account” that you can talk to, email, etc. that can influence or influence purchasing decisions within your Account/client.
  4. Opportunities- Opportunities arise from communicating with your Contacts and they consist of the “please send us a quote, or you should be aware of this RFP (request for proposal) that we’ve got, or we want to add what your selling to next years budget, etc.”
  5. Quotes/Proposals- This is where documents start to take over- These consist of all the materials and communications that help you convince your potential customer to buy!  
  6. Signed Quotes/Engagements/Purchase Orders- I highlight this one, which is really an extension of 5 as it is the first key document that must interface with accounting!  ie. This is when QCDocs connects with the CRM to takeover to ensure Sales connects to Accounting and Engineering/Production!   Signed quotes and Purchase Orders form your Backlog!  
  7. Credit application form- Okay now you’ve landed the sale, and for most you may have figured this out in the CRM but you should get signed credit application on file so collections can monitor and maintain customer records properly.
  8. Work Orders/Pick lists/engagement plans/Time sheets etc.  – This is where production personnel document the inventory items or work items that need to be assembled for delivery.  Sometimes this can involve several layers of subassemblies which are different forms of inventory processing (See Inventory flows).  This step can also consist of time sheets used to record time spent on delivering services.  Unbilled Work Orders are called WIP and are an asset recorded at cost.
  9. Shipping Documents/Packing Slips/Service slips- This is where the products are boxed up and shipped and accounting spits out a packing slip (best practice) is to correspond to a customer invoice (see 9).  The packing slip has no financial information but references the customer PO # above and details the items being delivered.  Sometimes short shipments are made (see Inventory flows) which details on the packing slip what was order and what was actually shipped.   Service delivery slips can be used for one-off field services.
  10. Customer Invoice.  As mentioned, customer invoice should be prepared at the same time as the packing slip.  Accounting applications generally record revenue at this stage so important revenue recognition considerations at this point to consider worthy of stand alone blog.
  11. Customer Statements- Okay, customer is past their 30 day credit terms so you send  them out a customer statement.  Practices differ significantly here- some do this only with problem accounts others with good collections practices do this as a matter of course.  Interest charges on late payments are an interest discussion which I’ll preserve for another blog.
  12. Customer Cheque/Check-This is a critical document for obvious reasons in accounting because you really only get a chance to record this right once and they can get screwed up easily if you have multiple cheques on one deposit or short payments, etc.   Best practice- scan your customer cheques into QCDocs before depositing and/or keep a really orderly deposit book- see 13!
  13. Deposit Slip-  Deposit slips serve to document who paid you and are especially important if you deposit more then one cheque in a day.  Trick for ATM deposits- deposit one at a time but waste of envelopes…makes accounting for deposits really easy though!!  Key rules- no outstanding deposits at month end (lazy accountant!) and messy month end close!  Credit card deposits 2-3 day lag unavoidable.

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Understanding Payroll Systems

Written by on October 1, 2008 | Accounting Best Practice

Canadian payroll is so simple!  You just need to know a few key rules and your set!  Five options as I see it-

1. Do it yourself- definitely the cheapest!  https://apps.cra-arc.gc.ca/ebci/rhpd/startLanguage.do?lang=English

Go to this site, fill out the online form, print out the paystub, grab your chequebook, fill out the cheque and the stub of course with the gross amount, the net pay, the CPP, the EI and to help your bookkeeper put a quick note and calculate the business expense portion which is the CPP + 1.4* the EI amount! example 2,500 pay.  If you are doing it yourself I recommend that you pay out the statutory 4% vacation.  Hit your EI and CPP maximum’s (http://www.payworks.ca/Info/Resources/Guide/CPPEI.asp) and you stop withholding them and stop paying the Company portion!  Pretty simple eh!  

Other hints- avoid group MSP- Medical Services plan as it complicates everything and doesn’t really end up helping employee out that much- just pay them more hourly/salary and let them pay their own!  Reiburse for cellphone use for work!  Definite early pre-tax expense!

You withhold the taxes and company CPP and EI each paycheque (this all goes into Payroll liabilities account) and then you pay it out by the 15th of the following month.  You should make sure that the payroll liabilities account is clearing out regularly.  Payroll remittance payments can be done using online banking (easiest!) but you need to process generally one day in advance of the due date- ie. process on the 14th.  If you miss this cut a cheque and drop at your bank or CRA office along with a copy of the PD7A.  

Example PD7A

Example PD7A

 

 

G/L best practices- don’t get insane with all the G/L line items -ie. EI expense, CPP Expense, EI withholdings, CPP witholdings, Tax withholdings is as bad is can get.  2 does the job!  Payroll tax expense (CPP & EI) and Payroll liabilities!  Just make sure the payroll liabilities are clearing out each month.  You can setup a Payroll tax expense for each Department.

2.  Use Quickbooks or Simply!  These are pretty easy to use applications and great if you’re doing the bookkeeping at the same time!  Ideally you have your bookkeeper crank out the payroll for you – plug for Tandem Accounting of course!  There are few tricks to help you get your payroll to flow into chart of accounts nicely by department and by employee for so really nice reporting capabilities.  You need to pay the annual fee for payroll tables.  These track payroll withholdings, CPP, EI nicely as well as vacation, taxable benefits, etc.  They print nice paycheques or paystubs!  I recommend www.hyperwallet.com for direct deposit even though they don’t advertise it and don’t count on much support.  It is dead simple and only 0.75/paycheque and clears in like 2 days if you process in morning.  If you use Telpay (the QB’s default) get ready for a serious learning curve and a GUI from hell!

3. Payworks

Slick and very cost effective.  Quickly has become our payroll provider of choice in Canada.   When you grow beyond super cash management you want to hook this up to simplify payroll process and year end T4’s.  You’ll still need QCDocs to help with hourly employees or vacation/sick day tracking.  Big issue with payroll providers is you’ve got to fund 100% of your payroll each payday… they make some money presumably on the remittance timing to the following mid month date!?

4. Ceridian- close second to Payworks.  Works well but a few extra hoops to jump through and marginally more expensive then Payworks.

5. ADP- Oh why, why can’t you be more like your big brother software from the USA!?  I was shocked to move back to Canada and immediately started using ADP assuming it would be the same as the US software- big mistake.  I’m not sure they’ve upgraded this application in 15 years?  I still don’t get it… see point 1!?

Where does QCDocs fit in- whatever payroll system you use you will distribute paystubs and archive payroll reports- QCDocs does just this.  Also hourly employees or billable hours need to be recorded by employees- QCDocs streamlines this right into accounting applications or aggregates it for entry into payroll system.  It also trackes vacation and sick days as well!

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Top 10 Reasons to use Quickbooks over Simply Accounting

Written by on September 17, 2008 | Accounting Best Practice, QCDocs Best Practice

I get asked about bookkeeping applications a lot!  I’d say I’ve pretty much mastered three- Quickbooks, Simply Accounting and Peachtree (or at least Peachtree 2004 – haven’t used it since then).  Peachtree and Simply are very similer products and I guess this is why Sage (owner of both Simply and Peachtree) has decided to discontinuing developing Simply Accounting in the US…

Simply Accounting is very popular in Canada, I suspect because Sage has gotten Simply Accounting into all the educational programs… clever, clever!  See a QCDocs virtual Company stocked with demo documents coming to a school near you in the future!

Once you use Quickbooks; however, there’s no going back!  Which brings me to my top 10 list.

  1. The most common complaint I’ve heard about Quickbooks is that it lacks an “audit trail” ie. you can change anything and people will screw it up!  This isn’t actually true as you can turn on an audit trail that runs behind the scenes.  What it doesn’t do is clutter your General Ledger with all your mistakes- hurray!   Despite SOX, bookkeeping is still an art!  Getting it just right takes time and you need a system that allows you to aggressively pursue financial reports that really work well for your business.  Having to reverse corrective entries and repost is a disaster!  It makes the General Ledger look an absolute mess and sure you can retrace your steps but you’ve created a maze that no one can follow!  The Key- Good financial Close processes and lock down your month and QB’s does just that and QCDocs helps guide the process!
  2. Speed, speed, speed… everywhere from opening the program to navigating the program to report creation, Quickbooks does it in about half the time as Simply!  
  3. Period close processes.   I may need to retract my Simply expertise hat here as I still don’t fully get why they make this so complex… enough said!?
  4. Chart of Account Management and Merge- Quickbooks this is slick!  You can whip together a great set of financials with subtotalling managed entirely by indenting of accounts (watch out for posting to headers…a wee pet peeve of mine that produces ” ….- Other” accounts!  Merging redundant accounts accidentally thrown in there…see point 10!  S..t happens in accounting…give me tools to fix it fast!
  5. Stability… In 8 years of using Quickbooks almost every day I’ve only seen one legitimate crash.  Still recovered just fine so just by pure volume I have to give the nod to QB’s here!
  6. Multicurrency- Nice job here Intuit although it takes some getting use to as this is my number one area of Quickbooks training- Home Currency Adjustments!  I think Intuit Canada is still suffering from the bombardment of QB’s 2008 without a multicurrency version… well at least for a couple of weeks until “2008-Multicurrency showed up- ie. QuickBooks 2007 with 2008 payroll tables! LOL’s but thanks anyway as 90% of our Canadian clients do business in the States.
  7. Subledger integration- This a common accounting application problem that haunts auditors everywhere- why doesn’t the subledger tie into the General Ledger?  Accountants call it a reconciliation- I call it an “f-up”. Quickbooks is the first accounting application that I’ve seen that makes it almost impossible to have this problem occur… a few multi-currency issues in there that still cause it grief but superior to others by a long shot.
  8. Customer invoicing- Time and reimburseable expense flow through.  Combine what QB’s does with this and what QCDocs does with tying the time reporting and reimburseable bills and receipts together and you have customer billing heavan!
  9. Reporting- Quickbooks produces some amazing reports- my favorite are trended P&L and Bal Sh (would like to see improvements in cash flow reports but this is tricky for GAAP).  I like collapse to show a crisp R&D, S&M, G&A and Facilities for my tech companies to match public companies peers (facilities to be allocated accordingly).  Fast clean A/P, A/R and detailed P&L.  
  10.  Integration with third party software… was there any doubt- batch upload from QCDocs of bills and expense reports into Quickbooks is a thing of pure beauty and joy to every bookkeeper… Simply Accounting not so much…!?  It still works but there must be an easier way to do it… Quickbooks did it!? iif!  Time batch entry as well- slick!   I actually like how QCDocs syncs with Simply a bit better but I have to give the nod to Quickbooks!

Big forewarning– I’ve seen bookkeepers butcher QuickBooks too!  Good processes are key to any accounting application and this is where QCDocs comes in.  QCDocs forces good bookkeeping practices by driving Bill association with Bill entries (ie. robust subledgering and proper accrual accounting!) and same goes with customer invoicing!  Accounting applications should use AP and AR subledgers and minimize the use of General Journal entries and cash entries… and all will be well!

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BC Technology Startup in Journal Entries!

Written by on September 14, 2008 | Accounting Best Practice, Technology Startups

 
Note: All numbers & GST calcs are approximations and tax issues should be discussed with a qualified professional tax advisor!

Incorporate Business 
Dr. Incorporation Costs $1,000
Cr. Accrued Accounts Payable $1,000

Open bank and put in consideration for founder’s shares and some working capital
Dr. Bank $5,000
Cr. Shareholder’s loan 4,999
Cr. Common shares 1
 
Go to NCIX or Apple World and buy shwanky computer on credit card.  Go home and sign up for 30 day free QCDocs and crank out your first expense report using CSV download- Hey nice policy it reminded me to get my mileage and parking in there!!)
Dr. Computer assets $3,745
Dr. GST receivable 210
Cr. Shareholder payables $3955
Dr. Mileage & Parking expense $33.65
Dr. GST receivable 1.35
Cr. Shareholder payables $35
 
Few weeks later the legal bill for incorporation shows up… dam they never mentioned those Ministry of Finance charges and PST… what’s up with that… lawyers in the States don’t have to put up with that!?
Dr. Incorpation costs $250
Dr. Accrued Accounts Payable 1,000
Dr. GST receivable 119
Cr. Accounts payable $1,369
 
Set yourself up with payroll and bootstrap doing SR&ED eligible work for a while making monthly payroll remittances only.
Dr. R&D wages $5,000
Dr. Payroll expenses (just CPP if you own more then 40%)) 233
Cr. Shareholder payable $3,782
Cr. Due to Receiver General 1,451
 
Cut a cheque by the 15th of the next month to pay the Receiver General and pay the lawyers tab
Dr. Due to Receiver General $1,451
Dr. Accounts payable 1,369
Cr. Bank Account $1,451
Cr. Bank Account 1,369
 
Oh no cash running low better go convince Family, Friends or Angel you met at Bootup Labs to finance your build.
Dr. Cash $50,000
Cr.  Common Shares or Convertible Note (See Top 10 list)? $50,000
 
Carry on doing development only taking out what you need to live and file your tax return with SR&ED.  Remember to use QCDocs to track your time for SR&ED and bills/etc. along route so you can get Tandem Accounting to crank out some QB’s financials in a flash and shoot to Rolfe Bensen, Entrust or Strategix to crank out a T2 and T661for you.  Might call Ed Levinson who sits across from me at Bootup or Nick Arden somewhere along the line to tee up S
R&ED writeup!
Dr. SR&ED Receivable $22,825 (or there abouts)
Cr. Research and Development contra expense $22,825

Get a cheque up to 6 months later if you clear audits, etc. if applicable.
Dr. Bank Account  $22,825
Cr.  Cr. Sr&ED Receivalbe $22,825

Note: if you raise more money and do other stuff like marketing, business planning, etc. you will get the full benefit of the Proxy method for SR&ED and get even more money back!  Investors will be impressed that you can get extra mileage out of their investments and recommend you to their richer friends and you get more money.

Eventually you build some skookum tech and you get aquired by Google for obseen cash and you and your investors each walk away with at least the minimum $750,000 tax free capital gain for having developed such a successful qualifying small business corporation.

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