Every financial transaction is accounted for
Pro Vision Bookkeeping’s primary objective is to ensure that every financial transaction is properly accounted for and to enhance the efficiency of transaction records management. However, when untrained and inexperienced individuals record financial transactions in small businesses, they may make various errors. These errors can vary depending on the industry and the “creativity” of the person involved.
Unfortunately, they often lead to the same outcome – financial losses. These losses may range from penalties and interest for noncompliance with the CRA to income overstatement resulting from transaction duplications, vendor overpayments, or lost records that were not reported for billing, among other issues. The following real-life business story illustrates the importance of proper transaction records management.
Real Business Stories: Bookkeeping Case Study
Pro Vision Bookkeeping is a reliable partner for local business owners across various industries.
Our services are designed to meet the unique needs and situations of each business, with a focus on two key outcomes: improving efficiency and ensuring accurate accounting for every financial transaction.
To illustrate the types of challenges we help businesses overcome, consider a real-world bookkeeping story from a local construction company.
When we began working with them, their bookkeeping was seriously behind. However, with our help, they were able to get back on track and achieve the kind of results that you, too, can expect when you partner with Pro Vision Bookkeeping to manage your business’s books.
The Problem Discovered
Pro Vision Bookkeeping once came across a growing company called Reliable Construction (not its real name).
However, the owner had entrusted bookkeeping responsibilities to a receptionist who had only received minimal training in bookkeeping.
As a result, the receptionist could not maintain accurate records of the business transactions, leading to incomplete and outdated bookkeeping or, in simpler terms, a disaster.
The owner was primarily focused on production and was always present at the job site. He had no knowledge of bookkeeping and could not even open Quickbooks. On the surface, everything looked good. He was content with the cash coming into the bank and assumed that his business was doing well.
This, in turn, caused significant issues that we need to address regarding Reliable Construction:
- No HST has been filed for almost two years.
- The previous corporation income tax returns have not been filed.
- Not filling out HST and Income tax returns resulted in about $60,000 in penalties and interest.
- The owner used personal credit cards for business purposes.
- Some expenses from personal credit cards for business purposes were accounted for as a total balance per type of expense without vendor names per each transaction instead of posting each transaction as per the source document separately. It made it impossible to see each transaction individually and actual costs per vendor.
- Most of the receipts from personal credit cards for business purposes were not provided for accounting purposes. The owner withdrew the amount he spent for business purposes from the business account and assumed it would somehow create expenses for business purchases.
- The funds withdrawn from the business bank account were accounted for as a shareholder’s loan. No business expenses were recorded since no receipts for business purchases were provided. Thus, the resulting withdrawn funds must be returned to the company, or it will create an income for the owner he does not have. Income was overstated for the company since no business expenses were recorded for receipts that had not been accounted for.
HST amount was not calculated for receipts not accounted for. The amount withdrawn was about $80,000 without providing receipts to expense…
- Accounts receivables had numerous unpaid and significantly aged invoices. Some were duplicates, and others were no longer relevant. Those invoices overstated income, as well as HST and income tax due.
- Vendors had many duplicated bills and payments that applied to incorrect bills. As a result, some unpaid bills were actually paid, but payments were applied to different bills. The vendors’ open balance showed unpaid bills, but Reliable Construction’s records showed they paid.
- The undeposited funds account had some old unclear transactions, which can be a sign of duplicated income in a company.
- Company bank and credit card accounts have not been reconciled.
- In Reliable Construction, we found another significant issue with customers’ billing. The company installed various items to bill at the end of the month to their customers, but records of many of them were simply lost and not reported for billing.
Many other services needed to be reported for billing but ended up unreported. Revenue was produced but simply lost on the way to billing. Some billing paperwork was simply lost in piles of various documents or not delivered by operators to a project manager.
The Solution
Our main goal was to clean up and catch up on bookkeeping records to bring the books up-to-date.
We checked through each transaction in each trial balance account for almost two years. Soon, we realized that we needed to re-enter all transactions.
Here is how we solved each problem mentioned above:
Problem Discovered:
The owner used personal credit cards for business purposes.
Some expenses from personal credit cards for business purposes were accounted for as a total balance per type of expense without vendor names per each transaction instead of posting each transaction as per the source document separately. It made it impossible to see each transaction individually and actual costs per vendor.
Most of the receipts from personal credit cards for business purposes were not provided for accounting purposes. The owner withdrew the amount he spent for business purposes from the business account and assumed it would somehow create expenses for business purchases.
The funds withdrawn from the business bank account were accounted for as a shareholder’s loan. No business expenses were recorded since no receipts for business purchases were provided. Thus, the resulting withdrawn funds must be returned to the company, or it will create an income for the owner he does not have. Income was overstated for the company since no business expenses were recorded for receipts that had not been accounted for.
Solution provided:
Pro Vision Bookkeeping requested the company owner’s credit card statements for the relevant period.
We asked the owner to mark all personal expenses separately from business expenses.
We then posted all transactions that were marked as business expenses individually per vendor as per the received records.
We manually reconciled all transactions from personal credit cards used for business purposes to ensure that all were posted.
To keep things organized, we created a vendors folder in the customer’s computer and listed all vendors’ folders.
We digitized all receipts that we received and attached them to the posted transactions and vendors folders in the customer’s computer.
We created a report of all missing receipts for posted transactions per the statement and provided it to the business owner. All receipts were sorted by credit card and period used and filed accordingly.
We also cleaned up the shareholder account and applied funds that were withdrawn to business expenses paid by the owner’s personal credit cards.
Problem Discovered:
Solution provided:
Pro Vision Bookkeeping requested statements from the company’s customers for the relevant period.
We carefully verified each posted invoice with the corresponding customer statement.
We reposted transactions with attached source documents to each transaction whenever necessary, and payments were applied. After reviewing all transactions in question that we did not find on customers’ statements with the owner, we fixed the duplicate transactions and all others that were no longer relevant.
To reduce income tax due, Pro Vision Bookkeeping created an Allowance for Bad Debt account and posted significantly aged invoices there.
Additionally, we created a WIP (Work in Progress) account that allowed Reliable Construction to differ the HST and income tax due for unpaid invoices for the work that the city has not yet approved.
In summary, Pro Vision Bookkeeping not only cleaned up and caught up on customer account records but also reduced and differed HST and income tax due by fixing the above-mentioned issues.
Problem Discovered:
Vendors had many duplicated bills and payments that applied to incorrect bills. As a result, some unpaid bills were actually paid, but payments were applied to different bills. The vendors’ open balance showed unpaid bills, but Reliable Construction’s records showed they paid.
Solution provided:
Pro Vision Bookkeeping requested statements from the vendors in question for the relevant period.
We reposted transactions with attached source documents to each transaction whenever necessary and properly applied payments.
After thoroughly reviewing all the transactions that were in question and not found on the vendors’ statements with the owner, we fixed the duplicate transactions and all others that were no longer relevant.
In summary, Pro Vision Bookkeeping cleaned up and updated the vendors’ accounts, thus resolving the issue mentioned above.
Problem Discovered:
The Undeposited funds account had some unclear transactions from the past, indicating possible duplicate income.
Solution provided:
Pro Vision Bookkeeping discovered an incorrect workflow that led to revenue duplication.
This was caused by deposits being entered directly into income without being properly applied to invoices. As a result, some payments were applied to invoices, and the corresponding checks were deposited into the undeposited funds account. Later, those same checks were posted directly into income, leading to revenue duplication.
To fix the problem, Pro Vision Bookkeeping identified the checks that had been posted directly into income, reversed those transactions, and deposited the checks from the undeposited funds account into the bank account.
These actions resolved the issues with the undeposited funds account and the duplicate income.
Problem Discovered:
Company bank and credit card accounts have not been reconciled.
Solution provided:
After updating and cleaning up the accounts mentioned above, we reconciled the company’s bank and credit card accounts, successfully resolving the issue.
Problem Discovered:
No HST has been filed for almost two years, and the previous corporation income tax returns have not been filed yet.
Solution provided:
Pro Vision Bookkeeping conducted a thorough review of all accounts and prepared year-end working papers for the company accountant.
We also prepared all HST return reports, filled out HST returns, posted them in QuickBooks, and made HST payments.
By doing so, Pro Vision Bookkeeping resolved the HST and income tax returns issue and prevented any further charges of interest and penalties for non-compliance with CRA requirements. Therefore, we were able to successfully resolve the issue mentioned above.
Problem Discovered:
In Reliable Construction, we found another significant issue with customers’ billing. The company installed various items to bill at the end of the month to their customers, but records of many of them were simply lost and not reported for billing.
Many other services needed to be reported for billing but ended up unreported. Revenue was produced but simply lost on the way to billing. Some billing paperwork was simply lost in piles of various documents or not delivered by operators to a project manager.
Solution provided:
Pro Vision Bookkeeping has developed and implemented a tracking system that monitored each item installed based on the daily reports provided by the project coordinator.
This system helped us to track each item installed by date, location, job, customer, vendor, and invoice for any period.
We were able to create a detailed report for any item, including when it was installed, how it was invoiced, and more.
We also developed a system to reconcile work orders received with actual work orders completed to reduce the chance of operators not delivering completed work orders for billing purposes.
The results of our efforts exceeded the client’s expectations.
By tracking all the items and reconciling the work orders, Pro Vision Bookkeeping was able to identify and resolve the issue of revenue being lost due to non-reporting to the accounting department.
This successful resolution of the issue ensured that all the revenue produced was accurately reported and accounted for, resulting in a positive outcome for the client.
Problem Discovered:
Inaccurate financial records keeping.
Solution provided:
Pro Vision Bookkeeping has designed and executed the client’s paperless, digital, and conventional filing systems. Every transaction that was recorded has source documents attached to it, which allows for easy verification in a matter of seconds.
This system also helps to reduce the risk of losing or not returning critical source documents, which can happen with paper-based records.
In summary, Pro Vision Bookkeeping resolved the initial issues, resulting in accurate reporting and accounting of all revenue produced and proper transaction records management for the client.
The above Bookkeeping Case Study demonstrates problems some business owners could encounter due to improper transaction records management and their consequences and how Pro Vision Bookkeeping can help resolve these issues.