This time around I’d like to tackle a topic that is somewhat near and dear to my heart… or at least the heart of my business. It has to do with the whole topic of paper in business. Some of this overlaps into our personal world as well.
When I talk about paper, I’m referring to documents generated in the course of business. In our world we deal mainly with the paperwork that supports the bookkeeping and accounting functions. It can also mean other documents like legal paperwork, contracts, drawings and the like. I’ll concentrate on financial documentation and how it impacts on the accounting.
We like to think that we are making strides towards a paperless society but this is not necessarily the case. At least not yet. That said, we have come a long way towards a more digital world but we still have a ways to go. A lot of banking and the exchange of money can be done online and we have the choice of whether to print out paper records of the transactions. Invoices and other documentation can be sent online as well, usually in PDF format. Whether it is printed or handled digitally at the other end is up to the recipient. Storage of information and documentation in the cloud is a topic all unto itself.
All this said, when it comes to the financial end of businesses, much is still done and supported by actual paper documentation. This is important when it comes to the books. Revenue Canada still requires proof of business activity, especially when it comes to the recording of revenues and expenses – and the tax implications involved. Companies that have undergone audits with Revenue Canada have had expenses rolled back because of lack of proof, paper or digital, as well as eligibility. This often leads to penalties and interest over and above any monies owing.
It gets better. Think about it. If the Earnings Statement is off, then the HST may be off. If this impacts a closed fiscal year, then the corporate or owner taxes may be off. Expenses without proper documentation may be disallowed and rolled into shareholder loan accounts. Now it becomes personal. More chance for additional audits at the business and personal level – and the potential for extra penalties and interest.
It all comes back to accurate bookkeeping often supported by the paperwork. Auditors are keen to see this kind of proof. As bookkeepers, we need to see it as well in order to be able to record it accurately. We still haven’t perfected that clairvoyance thing yet. Statements do not always suffice. Auditors are often looking for original documentation. Better to be safe than sorry. The moral of this story: paperwork still counts.
Most of you know that financial paperwork for a business must be stored and accessible for 7 years. Take this to heart. After that it is safe to dispose of this paper and keep the mountain under control. Is it possible and allowable to scan and store the paperwork in digital format? Yes it is. The caveat from Revenue Canada is that it must be in a format that is readily retrievable for the 7 years I mentioned. With the speed at which hardware develops, keep this in mind. Try finding a floppy disk reader in this day and age.
We’re always ready to discuss the paper challenges with our clients and how we can make life easier for all of us. You need only connect.