Receipts, invoices, contracts—each business interaction produces a vital document for bookkeeping purposes.
Yet, whether you're constantly traveling as an entrepreneur or just immersed in managing your business, maintaining organization with these records can prove to be quite a challenge.
The most effective method for managing receipts is through a dedicated, dependable system designed for storing and monitoring your paperwork.
What Makes Organizing Receipts so Crucial?
Small business proprietors must adhere to legal mandates to document their business transactions.
Maintaining organization of business receipts and other financial documents facilitates:
Submit your annual tax returns
Manage the audit procedure
Prevent fines from the CRA (Canada Revenue Agency) due to inadequate presentation of necessary supporting documents.
Gathering documentation for each transaction, regardless of its perceived size or significance, is advisable.
Creating a comprehensive paper trail becomes simpler when you refrain from using cash for expenses such as office supplies, meals, and entertainment, opting instead for a dedicated business credit card or bank account.
The Optimal Method for Managing Receipts in your Business
The CRA mandates the retention of all business records and supporting documents for a duration of six years following the conclusion of the relevant tax year.
When it comes to filing receipts, there are two alternatives.
You have the option to:
Store documents physically in paper file folders
Organize your receipts electronically using online accounting software or digital folders
Deciding the most effective method for managing receipts will partly hinge on whether you favor storing paper or digital documents.
Keeping Receipts in a Physical Format
If you have a natural inclination towards organization, you might prefer storing paper receipts and invoices. However, when utilizing physical files for organizing stored receipts, it's essential to establish a routine and consistently maintain it.
Below are three essential steps for managing your receipts in a physical format:
1. Arrange Receipts According to Account
Organizing business expenses by account (such as meals and entertainment, advertising expense, supplies expense) not only simplifies their recording but also enables quicker reference to individual transactions during tax season—eliminating the need to search through a shoebox of paper.
2. Arrange Receipts in Chronological Order
Given that most businesses conduct their bookkeeping chronologically, it's logical to organize your source documents accordingly. This ensures that when you need to verify a specific receipt or transaction, you can readily locate it based on the month it took place.
3. Add Annotations to Receipts
Ideally, receipts should be filed as soon as they are received. However, if you're frequently on the move without daily access to your filing system, adding brief notes on the backs of receipts can facilitate easier filing when you have the opportunity. Ensure that your notes clearly indicate the purpose or category of the expense.
Managing Receipts Digitally
Due to the susceptibility of physical storage to theft, fire, flooding, and natural disasters, depending solely on paper receipts can pose risks. Thankfully, automating your receipt organization can not only save time but also eliminate the risk of physical loss.
Below are two methods for electronically storing your source documents:
1. Employing Document Management Software
Applications such as Dext Prepare, HubDoc, and Expensify enable you and your team to effortlessly store receipts and invoices in the cloud. Utilizing your phone, you capture images of your physical documents, which are then uploaded to a mobile app. These apps extract all relevant data, including vendor information, dates, items, and amounts.
As these tools are compatible with the majority of cloud accounting software, you can:
Review the data prior to uploading
Drastically decrease manual bookkeeping entries
Receipt-tracking software serves as an excellent method to maintain organization while on the move, ensuring that images of your receipts are securely stored in the cloud for easy access during an audit.
2. Utilize Electronic Directories
If you're not prepared to invest in software, another option is to photograph or scan receipts and then upload them to a digital folder such as Google Drive or Dropbox. Similar to physical storage systems, you can categorize these folders by expense type and date.
Overall, it's advisable to reduce dependence on physical paperwork when opting to store receipts and invoices electronically.
Requesting vendors to furnish digital copies of documents whenever feasible can eliminate the need for taking photos and uploading data entirely. Additionally, many cloud accounting software platforms allow for the digital importation of bank statements and credit card statements.
Inculcate the Habit of Organizing Receipts
Once you've determined the optimal method for managing receipts, it's crucial to maintain consistency in your approach.
If you lack the time to uphold a meticulous document storage system, contemplate delegating the task to someone such as a bookkeeper, receptionist, or another administrative staff member to set up and oversee it on your behalf.
Though organizing your receipts may consume time, in the end, it will:
Streamline your bookkeeping procedures
Facilitate better tracking of your expenses (particularly for tax purposes)
Assist in avoiding fines from the CRA
Interested in minimizing paper accumulation and transitioning to a digital receipt storage system? Bluemount is here to assist.
Get in touch with us to discover how we've combined technology-driven accounting practices with seasoned professionals to provide dependable bookkeeping services for businesses throughout Canada.
Our Process for Selecting and Assessing Our Recommended Software
We conduct extensive research and testing on the applications incorporated into our routine workflow for client bookkeeping services. After establishing criteria for evaluating the software and conducting thorough research on the app, we undergo testing, meticulously noting its strengths and weaknesses. Subsequently, we engage with the app for a minimum of several weeks before determining whether to endorse it to our audience. Throughout this process, we utilize the software according to its intended functionalities. For a comprehensive overview of our software selection and evaluation methodology, please refer to the detailed breakdown of our process.
Bluemount does not receive any form of compensation or consideration from software publishers for featuring their products in our blog articles.