Can Accounting Records Be Kept Electronically?

Accounting records are the lifeblood of any business and good accounting records are vital. Why? Because true information can only be found from these records.

The fact is that no one knows a business like the person who created it and moving forward, that business is expected to grow and growing a business requires that decisions be made.

Successful businesses require the right decisions to be made and this cannot happen if there are no accounting records available to support and guide these decisions.

It is accounting records that let business owners, at a glance, see whether their business is making or losing money. Invoices, statements, quotations, estimates, incomings, outgoings, year to year comparisons, tax paid and taxable income – all this information and more tell the successful business owner where the business is headed.

What Does the Law Say?

The law requires all businesses, from sole traders and small businesses to multi-million conglomerates to compile and keep up-to-date true and accurate records for both accounting and tax purposes. The law however, does not require these records to be maintained on paper. So the short answer to any business owner concerned as to whether the government will accept an electronically compiled set of accounts is: YES!

Coordination is Key

Problems may arise when information is received from outside sources: for example from customers, suppliers, transporter, contractor, tax office, local council, government departments and bank arrive in hard-copy format which has then to be scanned into the business’ electronic accounting system before either being shredded or filed.

A point worth noting here is that there are some documents which are required to be made available for inspection such as the Company Register which is the document which details the shareholders, directors and company secretary. This, and other such documents including a valid insurance certificate could be retained in hard-copy format for ease of usage as well as being held electronically.

Is Special Accounting Records Software Required?

Business accounting requirements should always be reviewed at regular intervals and the book-keeping procedures should always keep in step with the growing needs of the business. Even if the business is small; a sole trader or employing up to 5 people it’s always good for a business to pay $20 – $50 a month for the software to avoid the human error and automate as much of it where possible.

When the business begins to grow, and employs more people and has additional accounting requirements then it may be time to consider the purchase of specialized accounting record software. Points to consider before taking such a step would include:

• If the businesses deals in various currencies
• If stock is garnered from more than one country
• If customers are afforded a credit option? If so, how are debts controlled?
• Size of supply chain?
• What employee benefits does the company provide (health insurance/maternity care/annual leave etc.)

If any or all of the above apply then the business will benefit from purchasing or subscribing to accounting software.

Self-assessment tax returns for all businesses can be submitted electronically. Business owners are not required to use a tax advisor or accountant specialist in order to complete the self-assessment although, if the business accounting records are complex or the owner is unfamiliar with the process, it may be prudent to do so.

What Electronic Accounting Records to Keep

It is essential to have the following 3 points of information and it must be true, accurate and kept up-to-date:

a)    Company records

b)    Financial records

c)     Accounting records

If a business owner is unsure of how to keep accurate accounting records, a qualified accountant or bookkeeper who specializes in tax can be hired. Governments can check the records at any time for any businesses to ensure the correct amount of tax is being collected and paid.

All businesses must retain records of:

• The Company Register (directors, shareholders and company secretary information)
• The outcome of shareholder vote and resolutions
• Promissory information for the repayment of loans (debentures)
• Promissory information if repayment falls through (indemnities)
• Information when an individual purchases share in the company
• Loans and/or mortgages secured against company assets

A Register of People with Significant Control (PSC) is also required now with the passing of recent regulations in Canada. The Register must include:

• The details of any individual who has > 25% shares or voting rights in the company
• Information of a person who can appoint/remove a majority of directors
• Any person who can influence/control the company

The PSC Record must be retained even if there is no person with significant control currently.

Accounting Records

It is essential to retain accounting records to include the following:

All money incoming and how this money has been spent

• Cash
• Check
• Bank transfer

Details on all assets owned by the company

Debts

• Owed by the company
• Owed to the company
• Stock owned at the end of the financial year
• Stocktaking used to arrive at the stock number
• All goods purchased and sold
• Details of purchasers and buyers (unless the business is retail)

Other accounting records required to prepare and file accounts annually include records on money spent by the company – this means retaining receipts, petty cash stubs, orders, and delivery notes. Also, there is money received which will include the invoice and contractual payments, sales books and till rolls.  Of course, bank statements will require to be kept and if there is correspondence from the bank that too will be required.

Typically, this is the type of paperwork required to be scanned into the electronic accounting records.

Generally, these records should be retained for 7 years from the end of the company’s financial year to which they relate. Longer if the information covers an item expected to last more than 7 years; such as machinery or factory equipment.

The Advantages of Electronic Accounting Records

Compliance and reference: In terms of compliance, many electronic systems offer a built-in audit trail that tracks the actions of both the user and the system, helping companies with routine compliance.  Electronic document retrieval can be carried out more efficiently than hand-sorting through files making it more useful for referencing purposes although in some instances paper copies will be required of certain documents as previously stated.

Space and time: With office space at a premium for many small to medium businesses, electronic storage means there is less need for bulky filing cabinets and cupboard space to house paperwork, allowing for a modern, streamlined office look. Locating information digitally frees up employees’ time from shredding and disposing of paperwork and stops information being lost, left around or disposed of in error.

Security: Electronic files are more secure and can be automatically backed up each night, to a different location which can be a satellite office location or a data management center. This system keeps company accounting records protected in the event of a disaster such as fire, flood or break-in.

Keep your business up to date with the right bookkeeping software

If you want to improve your business’ bookkeeping, consider investing in one of the latest software programs available on the market. There are a number to choose from, all offering slightly different services that can be tailored to any company, no matter their focus or size. If you don’t know where to start, check out our recent blog post about bookkeeping software that we recommend using.

Here at Centrosome, we can also help you transform your business with our bookkeeping services. Whether you need ongoing support because you are looking to outsource your bookkeeping, or you need one-off help to prepare your taxes, we are here. Our experienced team can provide you with the advice you need to grow your business, maximize your potential and let you focus on other parts of your business that need your attention.

Book a time to talk to one of our professionals to get help with your business.