As a small business owner, it’s important to track your expenses accurately to make sure your cash flow covers expenses. Organizing your expenses also helps you to be prepared when tax time arrives. QuickBooks can help you with everything from creating an expense report to dealing with a Canada Revenue Agency (CRA) audit.
In this guide to expenses, you’ll find everything you need to know about recording, tracking, and managing expenses so you’re able to keep more of what you earn.
The Tax Benefits of Tracking Expenses
Expenses are the main way you can reduce your tax bill. Different types of expenses are applied differently when it comes to taxes, so it’s important to monitor what you spend. Keeping track of expenses will help greatly come tax time—on average business owners who track their expenses with QuickBooks save $500 per year.
Types of Expenses: Expense Definitions
Need quick answers? Find the most common types of expenses defined here, plus an explanation of expense reports. Click the links below to go even more in-depth.
An accrued expense is an expense your business incurs or is subject to before you actually pay for it. This can include rent, utilities, salaries payable, and some taxes. You should log them on your balance sheet even when you haven’t yet paid these expenses.
A convention expense is an expense you incur while attending a business convention. The CRA allows businesses to deduct expenses from up to two business-related conventions per year. Food, drink, and entertainment costs are generally not eligible. Costs like entry costs, booth fees, transportation, and lodging usually fall into this category.
An expense report is a list of all the expenses your business incurs during a specific period of time. Tracking your expenses on such a report is crucial, as the CRA allows you to deduct almost all business-related expenses.
Indirect costs are expenses that don’t relate directly to a single project, product or service. These expenses often include rent, internet or office supplies. It’s important to allocate these indirect costs to your products or services so there’s enough cash to cover them – not just the raw materials needed to make an item.
A miscellaneous expense is an expense that doesn’t fit into a specific category. Common miscellaneous expenses include legal and accounting fees, advertising costs, and interest and bank charges. It’s important to be diligent about tracking these types of expenses, so as not to trigger a CRA audit.
Tax credits are reductions in your tax bill: If you qualify for a tax credit, it’ll be subtracted from the taxes you ultimately owe.
The Best Methods to Track Expenses: A Guide to Managing Your Finances
As a small-business owner, it’s essential to record, track and manage your company’s expenses. Not only will you keep more of what you earn come tax time, but you can also make sure nothing in your books is amiss and keep adequate cash flow. Mobile expense tracking apps like QuickBooks Online make managing expense on the go a breeze.
Watch the QuickBooks Tutorial on tracking expenses to learn how you can sync your credit card, debit card, and PayPal to the app, so your transactions are automatically imported, and sorted.
There are many benefits to using an expense tracker—from automatically tracking your spending to organizing your finances, an expense tracker helps you manage your financial health.
Tracking expenses on the go can be a lifesaver in industries such as sales or construction, where you’re not necessarily always at the office.
If you drive for work, it’s important to track your mileage daily to ensure you can take the maximum deduction when filing taxes. Most quality accounting software apps like QuickBooks Self-employed can track your mileage automatically.
Note: It is important to be scrupulous when tracking receipts. In fact, you should keep track of all your small business’ expenses daily to make sure nothing is missed.
Since the CRA requires you to keep all receipts related to your business, by law, it’s a good idea to perform internal audits. Consider implementing a periodic review of business expenses to make sure everything is on track, such as examining and verifying employee receipts.
Budgeting for Small Business Owners
Tracking expenses helps you stay on budget, which is key for any small-business owner. By setting a budget for certain projects or time periods, you can effectively allocate your resources to where your company needs them. This also enables you to keep track of how your business is performing and identify any areas where you’re overspending or not bringing in enough business. Budgeting also gives you a plan that helps you manage your company’s expenses and identify any problem areas right away – and correct them.
To learn more about budgeting, read Small Business Budget Tips. By managing your expenses effectively, you can ensure your company remains solvent and improve your decision making to plan for the future. With positive cash flow, you can drive profits and—ultimately—growth, all thanks to budgeting and keeping track of expenses.
This year make the most of your business budget by meticulously tracking your expenses in QuickBooks.