Catching Up on Bookkeeping and Bank Reconciliation

If your books are a year or two behind, the fix is nearly always the same. Get the paper together, then work through each account a month at a time until it agrees with the statements. It's slow, but it's not mysterious.

What catching up involves

Start by gathering everything for the months you're missing:

• Bank and credit card statements for every account the business used, every month.
• Sales invoices, deposit slips and any record of cash sales.
• Receipts and bills for what you bought.
• Loan statements, and paperwork for any equipment or vehicles you bought or sold.
• Payroll records, if you had employees.

Each transaction then gets entered and sorted into income or a type of expense, and personal spending that went through the business account gets pulled out. If you're registered for GST, the GST you charged on sales and the GST you paid on business purchases (which you claim back as input tax credits) are tracked separately, since both feed your GST returns.

What bank reconciliation means

Reconciling is checking your books against the bank's statement for the same month. Every deposit and payment in the books should match one on the statement, and the ending balances should agree once you allow for timing, like a cheque written on the 30th that didn't clear until the next month. When they don't agree, something is missing, doubled up or sitting in the wrong month, and you find it now instead of at tax time.

It gets done for every bank account and every credit card, month by month and in order, because each month's closing balance is the next month's starting point.

What the CRA expects you to keep

Anyone who has to file a tax return, carries on a business or has to file a GST/HST return is required by law to keep records. The CRA's list includes ledgers, invoices, receipts, bank statements, cancelled cheques, contracts, and the emails that back up your transactions. Records have to be reliable and complete, supported by documents, and kept in English or French.

• Purchase receipts should show the date, the seller's name and address, your name and address, and what you bought. If the seller is a GST/HST registrant and the purchase is $100 or more before tax, their business number should be on it too.
• Income records need the date, amount and source of each payment, backed by originals like sales invoices, receipts and deposit slips.
• Where: at your place of business or your home in Canada, unless the CRA gives you written permission to keep them somewhere else.

Generally, you keep records for six years from the end of the last tax year they relate to. For individuals that's the calendar year; for a corporation it's its fiscal period. A few exceptions matter when you're catching up. If you file an income tax return late, the six years run from the day you file it. Records about long-term property purchases and sales, or a corporation's share registry, have to be kept indefinitely. And a GST/HST return that was never filed still has to be filed, with the records to support it, even if the period ended more than six years ago.

Paper and electronic records

Records that started out electronic have to be kept in an electronic format the CRA can read, even if you also print them. You can scan paper, but the image has to be an accurate copy that shows the same information clearly. The paper only becomes safe to throw out if your scanning meets the Canadian General Standards Board standard the CRA refers to, and the CRA suggests getting legal advice if you have any doubt. Keep backup copies, preferably at a site in Canada away from your business. If software or a third party holds your records, you're still the one responsible for producing them when the CRA asks.

Returns that are waiting on the books

Behind books usually means returns that couldn't be filed. A sole proprietor reports business income and expenses on Form T2125, Statement of Business or Professional Activities, with their personal return. Almost every corporation resident in Canada has to file a T2 return for every tax year, even if it owes no tax or was inactive, within six months of the end of that tax year.

If you're registered for GST/HST, you must file a return for each reporting period, even with no transactions and nothing to remit (a nil return). Returns for periods ending in 2024 and later generally have to be filed electronically. Catching up is also when unclaimed input tax credits turn up. For most registrants, they can still be claimed on a later return, up to the due date of the return for the last reporting period that ends within four years after the end of the period in which you could first have claimed them. Our posts on filing GST returns and catching up on unfiled back taxes go into more detail. Once you're current, year-end bookkeeping is the next step.

How we help

Catch-up and clean-up of prior years is part of our bookkeeping work, along with matching your books to your bank, sales tax filings and year-end prep. We work in QuickBooks Online, Xero, Wave and our own in-house cloud software, and if you're on something else we'll meet you where you are or help you move. If you'd rather keep the books yourself once they're caught up, we also offer teaching and tutorial sessions for you and your team.