3 peculiarities of bookkeeping

Unlike employees, self-employed workers are required to keep accounts. They are also subject to the payment of installments, to the Québec Parental Insurance Plan, sometimes to the Health Services Fund, and to the filing of an income tax return. Here are three features of self-employed bookkeeping.

Accrual or cash accounting

Most self-employed people must keep cash accounts, just like a business. This means that they declare income and expenses for the accounting year, regardless of whether payment has been made.

Self-employed workers who receive commissions can also opt for cash compatibility: they draw up a declaration of income and expenses for the financial year during which the payments are made. This means that each transaction is recorded only once in an income and expense journal, unlike businesses.

Record keeping

The self-employed worker keeps his accounting entries in the form of a register for monthly and cumulative income and expenses (which may be a synoptic cash register or accounting software). This register must reflect the supporting documents to be kept:

·       sales and purchase invoices

·       bank statements

·       the checks

·       commission statements or deposit slips, and more generally any document likely to justify a professional expense.

The documents justifying the entries appearing in the accounting book must be classified by month or by supplier, and kept for 6 years for the purposes of possible accounting checks.

Deductible expenses

Expenses entered in the book must be incurred for the purpose of earning business income, be reasonable, necessary and verifiable by supporting documents.

Part of the expenses incurred personally can be included in the entries provided that these criteria are met. Among these charges:

·       A 2nd line of telephone at home

·       Part of the cell phone bill proportional to professional use

·       Vehicle costs up to the percentage of use for business with keeping of a business mileage register mentioning dates, places, object and kilometers traveled (gasoline costs, rental costs, parking, maintenance invoice, insurance invoice in proportion of business use of the vehicle)

·       home office costs in proportion to the area used in relation to the total area. This space must also be the main place of business: fraction of maintenance and repair bills, home insurance bill, interest on mortgage or rent in case of rental, property taxes, utility bills, etc. electricity or heating.

The self-employed person can also transfer personal property to the company based on its fair market value, for example a computer.

Self-employed workers and businesses must still respect a few common principles for keeping their accounts:

·       filing of documents into relevant categories and segregating each significant amount

·       the use of clear language and the application of GAAP, in other words generally accepted accounting principles.

However, the bookkeeping of the self-employed worker differs from that of businesses because it is often established in cash accounting, and largely includes expenses incurred on a personal basis.

Struggling with bookkeeping tasks? Let our expert Accounting Bookkeeping Outsourcing Services in Melbourne handle it for you! Our experienced team can efficiently manage your books, ensure accuracy, and help you stay compliant. Say goodbye to bookkeeping headaches and focus on growing your business!

The benefits of an accountant for your tax