Dealing with Incomplete Documentation

by Anne
(Vancouver, BC)

A Frustrated Bookkeeper ... With Good Reason

I currently have a client who is so disorganized that they want me to post their transactions based on bank and credit card statements mainly.

I am finding discrepancies in their bank reconciliations.

The balance on one of their loans in the books doesn't match what the bank says their loans should be at.

I've requested invoices, but I'm not getting all the invoices I should be according to their statements

I've been at it for 6 months. I am worried that I am being put in financial and business risk because of their disorganization.

Tax season is quickly coming, and I'm starting to really worry. Is this a reasonable feeling and what are the next steps you recommend I should consider taking?

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Hi Anne,

First thing to do is .... breathe. Next, get a cup of tea ... because this chat is going to be a bit long winded. :0)

Second thing to remember is that business owners can delegate responsibility, but they can't abdicate it.

In Canada's tax system, the burden of proof lies with the taxpayer not CRA. This means the taxpayer is guilty until proven innocent. The best defense is due diligence through accurate and honest bookkeeping. Audit trails and original source documents go a long way to proving this.

So it is the business owner's responsibility to provide true, complete and accurate information to their bookkeeper so they can act according to the law.

As I am aware of third party civil penalties, I am a stickler when it comes to booking expenses ... no receipt means no deduction.

I have a current asset balance sheet account that is called "No Receipt No Deduction".

Every time I book an expense that does not have an adequate paper trail, I book it to this account. When the business owner brings me the receipt, I transfer the item to the appropriate expense account.

At the end of the year, anything left in this account (i.e. no receipt was produced) gets reclassified to Owner's Draw.

Why do I do this? Because you need proof of purchase and proof of payment to claim a tax deduction.

But that doesn't really help you get everything booked when the records are disorganized, at least not without touching the piece of paper two or three times as you manually try to match things up.

If you are doing the books after the fact ... by that I mean you are not doing the bookkeeping in real time ... utilize your accounts payable ledger.

I book outstanding invoices to accounts payable. I use it as an internal control to ensure I don't record an expense twice ... i.e. the owner submits an debit receipt for gas one month and the actual gas receipt in the following month.

If it is clear how the expense was paid on the receipt, I will book the expense without utilizing the A/P account. But I'm sure you have run across those bills that have been paid ... you can see on the Telus bill for example that they made a payment ... but you have no idea how they made the payment.

I book that type of invoice to A/P. As I record and reconcile the bank statement and credit card statements, I usually end up finding the match. But what if I don't find a match here?

When I do my vendor reconciliations ... for example Telus and BC Hydro have carry forward balances on them, so I reconcile to these every month ... and a match for the payment didn't come from the bank or credit card statement ... I will apply the amount specified on the invoice from the Owed to Owner account.

The reason I use the Owed to Owner account instead of the Owner's Draw account ... is so I can reconcile it on a regular basis ... and reimburse the owner for legitimate business expenses paid with personal funds. I may or may not clear this account to Owner's Draw at year-end. It depends on the activity that has been going through the account.

One of the things you need to do is develop an instruction letter for your clients explaining how they need to organize their records to reduce their bookkeeping costs. You may want to teach them how to do this over a number of weeks or months ... so they don't get overwhelmed.

If you have taken on a client that never "learns", and you do not enjoy doing their books or find it stressful for the reasons you have stated, then just remember this ...

You are self-employed. You are not an employee. You are in control. Perhaps you need to let this client go.

Take the time to sit down and write down on paper .... Brian Tracy has drilled it into my head "Think on Paper. Think on Paper. Think on Paper."

... write down on paper what you want your ideal client to be or look like. Every time you interview a potential client, compare it to your "ideal" client ... and make your decision.

That said. If you start working with a client that is disorganized ... and teach them how to organize their paperwork to give you ... then over time you teach them how to read their finanacial statements so you can review the results with them each month ... it feels good.

I hope what I've said helps ... and that I didn't lose you. But if I did, post back using the link below to get clarification.

Also take some time to relax and poke around this site ... I've scattered tips throughout that should help you do your bookkeeping. I'm a big fan of learning a bit here and a bit there ... instead of in one big chunk.

I tend to retain more when I'm relaxed and not overwhelmed. The site kind of reflects how my mind works ... scary thought I know!

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.