Bookkeeping for Small Business in Canada: A Practical Guide to the Basics
Quick answer: Bookkeeping for a small business means recording every dollar that comes in and goes out, keeping the document behind each entry, and…
Quick answer: Bookkeeping for a small business means recording every dollar that comes in and goes out, keeping the document behind each entry, and checking your records against your bank every month. In practice: open a separate business bank account, set up a short list of income and expense categories, record each transaction with its date, amount, category and any GST/HST, keep the receipt or invoice, reconcile to your bank statement monthly, and hand clean records to your accountant at year end. The CRA generally requires you to keep business records for six years from the end of the last tax year they relate to (CRA).
Last reviewed 14 November 2026. Educational information only, not tax or accounting advice. Confirm your own situation with the CRA, Revenu Québec or an accountant.
Table of contents
- What bookkeeping is (and what it isn't)
- Single-entry vs. double-entry bookkeeping
- Cash vs. accrual: when income and expenses count
- Setting up a chart of accounts
- Separating business and personal money
- Recording income and expenses: a worked month
- Receipts and record retention (CRA rules)
- Tracking GST/HST and QST
- Reconciling your bank statement
- Monthly bookkeeping checklist
- Year-end routine and working with an accountant
- DIY vs. bookkeeper vs. software
- 30/60/90-day setup plan
- A brief USA note
- FAQ
- Related resources
What bookkeeping is (and what it isn't)
Bookkeeping is the routine, ongoing work of recording a business's financial transactions and keeping the evidence for them. Every sale, every purchase, every bank fee and every owner withdrawal becomes an entry with a date, an amount, a description and a category.
Accounting is what happens on top of that record: preparing financial statements, making year-end adjustments, planning for tax and filing returns. Many owners do their own bookkeeping and pay an accountant for the accounting. The quality of the second depends almost entirely on the first.
The CRA's own starting instruction is simple: keep a record of your daily income and expenses, and support income entries with original documents such as sales invoices, receipts and deposit slips (CRA: Business records). Everything else in this guide is a way to do that consistently.
Single-entry vs. double-entry bookkeeping
There are two broad systems for recording transactions.
Single-entry bookkeeping
Single-entry bookkeeping records each transaction once, as income or as an expense, in a running list. It looks much like a well-kept spreadsheet: date, description, category, amount, sales tax. It answers "what did I earn, what did I spend, what is my profit, and how much GST/HST did I collect and pay?"
It is fast to learn and suits many owner-operators whose main assets are a bank account and some equipment.
Double-entry bookkeeping
Double-entry bookkeeping records every transaction in at least two accounts, as a debit to one and a credit to another, so that assets always equal liabilities plus equity. Buying a $2,000 laptop on a credit card, for example, increases an equipment account and increases a credit card liability by the same amount.
That structure is what produces a balance sheet and makes errors easier to detect, because the books must balance. It is the system accountants generally use to prepare financial statements.
Which one do you need?
| Question | Single-entry is often enough | Double-entry is usually needed |
|---|---|---|
| Business structure | Sole proprietor or freelancer | Corporation, partnership with several partners |
| Transactions per month | Dozens | Hundreds, or complex ones |
| Assets and liabilities | Bank account, a few tools | Loans, inventory, equipment, receivables at scale |
| Who reads the books | You and your accountant | Lenders, investors, a board |
| Reports required | Profit and loss, sales-tax totals | Balance sheet, full financial statements |
Many small businesses keep single-entry records and let their accountant produce double-entry statements at year end. Ask your accountant which they prefer.
Cash vs. accrual: when income and expenses count
The accounting method decides when a transaction counts, which is a separate question from how it is recorded.
- Cash method: income counts when you receive the money, and expenses count when you pay them.
- Accrual method: income counts when you earn it (usually when you invoice), and expenses count when you incur them, whether or not money has moved yet.
What the CRA requires
For income tax, the CRA says self-employed income must be reported using the accrual method, with an exception: farmers, fishers and self-employed commission agents can choose the cash method or the accrual method (CRA: Accounting methods). Under accrual, you report income in the fiscal period you earn it and deduct expenses in the fiscal period you incur them.
That does not stop you from tracking cash day to day. Many owners record transactions as money moves and keep a separate list of unpaid invoices and unpaid bills, which their accountant uses to make accrual adjustments at year end.
Cash vs. accrual compared
| Cash method | Accrual method | |
|---|---|---|
| Income recorded when | Payment is received | Work is invoiced or earned |
| Expenses recorded when | Bill is paid | Bill is incurred |
| Shows what's in the bank | Closely | Less directly |
| Shows true profit for the period | Less accurately | More accurately |
| Effort to maintain | Lower | Higher: track receivables and payables |
| CRA income tax reporting | Farmers, fishers, commission agents only | Required for other self-employed income |
A one-invoice example
Fictional Maplecroft Design Co. invoices a client $650.00 plus HST on 28 October and is paid on 12 November.
- Cash view: the $650.00 is November income.
- Accrual view: the $650.00 is October income, and October ends with a $734.50 receivable (the $650.00 plus $84.50 HST).
The amount is the same; only the period changes, which matters most at fiscal year end.
Setting up a chart of accounts
A chart of accounts is the list of categories you sort every transaction into. Keep it short enough to use consistently and detailed enough to support your tax return.
Start from the tax form
Sole proprietors report business income and expenses on Form T2125, Statement of Business or Professional Activities (CRA: T2125). Building your expense categories around the lines on that form means your year-end totals map directly to the return. Corporations file differently, so ask your accountant for their preferred category list.
A starter chart for a service business
Income
- Sales or fees (before sales tax)
- Other income (interest, refunds received, one-off items)
Expenses
- Advertising and marketing
- Bank and payment processing fees
- Contractors and subcontractors
- Insurance
- Meals and entertainment (kept separate, so your accountant can review them)
- Office supplies and small equipment
- Professional fees (accountant, lawyer)
- Rent
- Software and subscriptions
- Telephone and internet
- Travel
- Motor vehicle expenses (supported by a logbook; see below)
- Business-use-of-home expenses (if you qualify; see below)
Balance sheet items (if you use double-entry, or as separate lists)
- Business bank account
- Credit card
- GST/HST payable
- Owner contributions and owner draws
- Equipment and other capital purchases
Rules that keep categories useful
- One meaning per category. If you use "Software," don't also put subscriptions under "Office."
- Record sales tax separately from the amount. GST/HST you collect is not your income, and GST/HST you pay may be recoverable. Keeping it out of income and expense totals keeps profit accurate.
- Keep capital purchases apart. Equipment and vehicles can need different tax treatment from everyday expenses. Record them separately and let your accountant handle the treatment.
Separating business and personal money
The CRA asks you to keep separate records for each business you run and to keep duplicate deposit slips, bank statements and cancelled cheques (CRA: Business records). The simplest way to keep business records separate is to keep business money separate.
A sole proprietorship is not legally required to have a business bank account, but most accountants recommend one. For a corporation, mixing business and personal money creates more serious complications; speak to your accountant if that has happened.
How to handle owner money in and out
- Owner contribution: when you move personal money into the business account, record it as a contribution, not as income.
- Owner draw: when a sole proprietor moves money from the business to themselves, record it as a draw, not as an expense. Draws do not reduce business profit.
- A personal card used for a business expense: record the expense in the books with its receipt and note that you paid personally, then either reimburse yourself from the business account or record it as a contribution.
- A business card used for a personal purchase: record it as an owner draw, not an expense.
Mixed-use costs: home and vehicle
Two expense types sit between business and personal and need extra records.
Business use of home. The CRA allows a deduction for a work space in your home if it is your main place of business, or if you use it only to earn business income and on a regular and ongoing basis to meet clients, customers or patients. The business portion must be calculated on a reasonable basis, such as the work space's area as a share of the home's total area (CRA: Running a business from your home). Bookkeeping implication: keep the full-year household bills (utilities, rent or mortgage interest, insurance) and a note of how you measured the work space.
Motor vehicles. If you use a vehicle for both business and personal driving, the CRA expects a logbook that records, for each business trip, the date, destination, purpose and kilometres driven, along with the odometer reading at the start and end of the fiscal period. After a full 12-month base year, a three-month sample logbook can be used in later years if the result stays within 10 percentage points of the base year (CRA: Motor vehicle records). Bookkeeping implication: record fuel, insurance, maintenance and similar costs in full during the year, keep the log, and apply the business-use percentage at year end.
Recording income and expenses: a worked month
Every entry needs the same core fields. The CRA says income records must include the date, amount and source of the income, and that receipts should show the date, the seller, and a description of what was bought (CRA: Business records).
A practical entry includes:
- Date
- Payee or customer
- Description
- Category
- Amount before sales tax
- GST/HST (or QST) amount
- Payment method or account
- A link to, or reference for, the receipt or invoice
Sample month: Maplecroft Design Co. (fictional)
Maplecroft Design Co. is a fictional sole proprietorship in Ontario, registered for GST/HST. Ontario's HST rate is 13% (CRA: GST/HST rates). Here is October 2026.
Income
| Date | Customer | Description | Amount before tax | HST (13%) | Total |
|---|---|---|---|---|---|
| Oct 3 | Client A | Invoice #1041, brand identity | $2,400.00 | $312.00 | $2,712.00 |
| Oct 15 | Client B | Invoice #1042, website design | $1,800.00 | $234.00 | $2,034.00 |
| Oct 28 | Client C | Invoice #1043, brochure layout | $650.00 | $84.50 | $734.50 |
| Total | $4,850.00 | $630.50 | $5,480.50 |
Expenses
| Date | Payee | Category | Amount before tax | HST paid | Total |
|---|---|---|---|---|---|
| Oct 1 | Design software vendor | Software and subscriptions | $120.00 | $15.60 | $135.60 |
| Oct 9 | Office supply store | Office supplies | $85.00 | $11.05 | $96.05 |
| Oct 20 | Freelance illustrator (HST-registered) | Contractors | $900.00 | $117.00 | $1,017.00 |
| Oct 24 | Online ad platform | Advertising | $300.00 | $39.00 | $339.00 |
| Oct 31 | Bank | Bank fees (no HST shown) | $25.00 | $0.00 | $25.00 |
| Total | $1,430.00 | $182.65 | $1,612.65 |
The month's profit and loss
| Amount | |
|---|---|
| Revenue (before HST) | $4,850.00 |
| Less: expenses (before HST) | $1,430.00 |
| Net profit for October | $3,420.00 |
| Profit margin ($3,420.00 ÷ $4,850.00) | 70.5% |
Notice that HST appears in neither the revenue nor the expense line. It is tracked separately, which is the next section. If you want to test margins on other figures, the profit margin calculator does the arithmetic.
Recording invoices
Most service businesses start their income records with the invoice. What an invoice must show depends on the size of the sale, with more detail required as the amount rises. Our guide to GST/HST invoice requirements covers the details, and our Canadian invoice template guide shows a layout that includes them. Number invoices sequentially and never reuse a number.
Receipts and record retention (CRA rules)
What to keep
The CRA says to always get receipts or other vouchers when you buy something for your business. If a seller doesn't give you one, record the seller's name and address, the amount, the date and the details of the purchase in your records (CRA: Business records).
For GST/HST, keep sales and purchase invoices and all other records about your business operations and GST/HST. If you file electronically, you don't send receipts with the return, but you must keep them in case the CRA asks (CRA: GST/HST records to keep). Supplier invoices need the correct information on them to support input tax credit claims, so check them when they arrive, not at year end.
How long to keep it
The CRA says you must keep required records and supporting documents for six years from the end of the last tax year they relate to. Some records must be kept longer: for example, records about long-term property and the share registry are kept indefinitely, and the six years runs from the filing date if a return is filed late (CRA: Where to keep your records, for how long).
Where to keep it
The same CRA page says records must be kept at your place of business or residence in Canada unless the CRA gives written permission otherwise, and that electronic records kept outside Canada and accessed from Canada are not considered kept in Canada. If you store receipts in a cloud app, check where your provider stores data, keep a backup copy, and confirm you can export everything if you change tools.
Tracking GST/HST and QST
Do you need to register?
You are a small supplier, and do not have to register for GST/HST, if your taxable revenues do not exceed $30,000 over four consecutive calendar quarters. If you exceed $30,000 in a single calendar quarter, you stop being a small supplier and must charge GST/HST on the sale that took you over. Small suppliers can also choose to register voluntarily (CRA: When to register for and start charging the GST/HST).
Even before you register, track your revenue by calendar quarter so you can see the threshold coming.
Quebec: QST alongside GST
In Quebec, businesses deal with Revenu Québec for the QST. Revenu Québec says small suppliers are not required to register for or collect the GST/HST and the QST, and that a business registering for the QST must also register for the GST (Revenu Québec: Small suppliers). Keep QST in its own column, separate from GST, because the two are reported separately.
Collected vs. paid: the net amount
Bookkeeping for sales tax comes down to two running totals:
- Tax collected: the GST/HST (and QST) you charged on sales. This is money you hold for the government.
- Tax paid: the GST/HST you paid on business purchases, which you may be able to claim back as input tax credits (ITCs), subject to CRA rules and proper supplier invoices.
The difference is roughly what you remit (or are refunded) for the period. Using Maplecroft's October figures:
| Amount | |
|---|---|
| HST collected on sales | $630.50 |
| Less: HST paid on purchases (potential ITCs) | $182.65 |
| Net HST for October | $447.85 |
Unless Maplecroft files monthly, October's figures roll into its quarterly or annual return; tracking them monthly lets it set the money aside as it goes.
Reporting periods and deadlines
The CRA assigns a GST/HST reporting period based on annual taxable supplies: annual for $1,500,000 or less, quarterly for more than $1,500,000 up to $6,000,000, and monthly above $6,000,000. You can elect to file more often (CRA: Make changes to your GST/HST account).
Monthly and quarterly filers are due one month after the end of the period. Annual filers are generally due three months after fiscal year end. Individuals with business income and a December 31 fiscal year end have a June 15 filing deadline, but any balance owing is still due April 30 (CRA: Reporting requirements and deadlines).
Provincial sales tax
British Columbia, Manitoba and Saskatchewan charge a separate PST alongside the 5% GST (CRA: GST/HST rates). If you sell in those provinces, keep PST in its own column, separate from GST, and check that province's rules.
Reconciling your bank statement
Bank reconciliation is the process of matching your books to your bank statement and explaining every difference. It is the single most effective check on whether your records are complete. Do it monthly, as soon as the statement is available.
How to reconcile, step by step
- Get the statement for the month and note the closing balance.
- Tick off matches. Go through each statement line and find the matching entry in your books.
- Add what's missing from your books. Bank fees, interest and automatic payments are commonly missed. Record them with the statement as support.
- List timing differences. Deposits you've recorded that the bank hasn't processed yet (deposits in transit), and payments you've recorded that haven't cleared (outstanding payments).
- Compare the adjusted balances. Bank balance, plus deposits in transit, minus outstanding payments, should equal your books' balance.
- Investigate anything left over. A remaining difference means a missing, duplicated or mistyped entry.
Worked example
At 31 October, Maplecroft's books show a business account balance of $8,210.40. The bank statement shows $8,492.90. Two items explain the gap: a $734.50 customer cheque deposited on 31 October that the bank had not yet processed, and the $1,017.00 payment to the illustrator, sent on 31 October, that had not yet cleared.
| Amount | |
|---|---|
| Balance per bank statement | $8,492.90 |
| Add: deposit in transit | +$734.50 |
| Less: outstanding payment | −$1,017.00 |
| Adjusted bank balance | $8,210.40 |
| Balance per books | $8,210.40 |
| Difference | $0.00 |
Reconcile credit cards the same way, and still reconcile if you import a bank CSV: an import can skip or duplicate rows.
Monthly bookkeeping checklist
Set a recurring date, such as the fifth business day of each month, and work through this list.
Income
- Every invoice issued this month is recorded, numbered and saved
- Payments received are matched to their invoices
- Unpaid invoices are listed, with follow-ups sent on overdue ones
- Non-invoice income (platform payouts, interest) is recorded
Expenses
- Every business purchase is recorded with its category
- Each entry has a receipt or invoice attached or referenced
- Supplier invoices show what you need to claim ITCs
- Personal purchases on business accounts are recorded as owner draws
- Business purchases on personal cards are recorded and reimbursed or noted
Sales tax
- GST/HST (and QST, PST if applicable) collected is totalled
- GST/HST paid on purchases is totalled
- The net amount is set aside in a separate account
- Revenue for the calendar quarter is checked against the $30,000 small-supplier threshold, if you are not yet registered
Reconciliation and review
- Bank account reconciled to the statement
- Credit card reconciled to the statement
- Profit and loss reviewed against last month
- Any unusual figure investigated now rather than at year end
- Vehicle logbook up to date, if applicable
- Data backed up or exported
Year-end routine and working with an accountant
Year-end checklist
- All twelve months reconciled for every bank and card account
- Unpaid customer invoices and unpaid bills at year end listed (needed for accrual reporting)
- Equipment and other capital purchases listed with dates and costs
- Vehicle logbook totals: business kilometres and total kilometres
- Home-office measurements and full-year household costs, if claiming
- GST/HST returns filed for the year, with working papers
- Owner contributions and draws totalled
- Inventory counted, if you hold stock
- A full export of transactions, invoices and receipts saved
Sole proprietors report the results on Form T2125 with their personal return (CRA: T2125). Corporations file a corporate return, usually prepared by an accountant.
What an accountant needs from you
A useful handover includes:
- A profit and loss for the year by category
- The transaction list as a spreadsheet or CSV
- Bank and card reconciliations for each month
- Sales-tax collected and paid totals by period
- Lists of receivables, payables and capital purchases
- Supporting documents, or access to them
- A short note of anything unusual: a new vehicle, a large one-off contract, a loan, a change of business
DIY vs. bookkeeper vs. software
There are three common ways to get the work done, and many businesses combine them: software for recording, the owner for monthly upkeep, and an accountant at year end.
| DIY with a spreadsheet | Bookkeeping software | Hiring a bookkeeper | |
|---|---|---|---|
| Direct cost | Lowest | Monthly subscription | Hourly or monthly fee |
| Your time | Highest | Moderate | Lowest |
| Error checking | Manual | Built-in totals and reports | Professional review |
| Sales-tax totals | Formulas you build | Usually calculated | Prepared for you |
| Receipt storage | Separate folders | Often attached to entries | Varies by bookkeeper |
| Suits | Very low volume, simple businesses | Most owner-operators | Higher volume, payroll, or owners with little time |
| Main risk | Formula errors, lost receipts | Choosing a tool that doesn't fit | Less day-to-day familiarity with your numbers |
Choosing software
Products differ on bank feeds, payroll, double-entry, provincial sales-tax reports and price. Our Canadian bookkeeping software comparison compares Wave, QuickBooks Online, Xero, FreshBooks, Zoho Books and BankDeMark Command feature by feature.
BankDeMark Command is one option for owner-operators who do their own books. It records income and expenses (typed in, pasted in bulk or imported from a bank CSV), keeps receipts attached to entries, sends invoices, and reports profit and loss and GST/HST and QST collected and paid, across one or several businesses. Its limits matter for some businesses: it is single-entry, not double-entry, so there is no balance sheet; it has no bank feeds, so transactions come in by CSV import, paste or manual entry; receipts are stored but not scanned; it has no payroll; reports export as CSV or ZIP; PST and US sales tax are not in its reports; and it does not file taxes. See BankDeMark Command for details. If you only need to send invoices, BankDeMark Invoice is the standalone invoicing app.
30/60/90-day setup plan
Days 1–30: foundations
- Open a separate business bank account and, if you use one, a business credit card.
- Decide on your method of recording: spreadsheet, software or bookkeeper.
- Set up a chart of accounts based on the T2125 expense lines, or your accountant's list.
- Check whether you are registered for GST/HST (and QST in Quebec) and, if not, start tracking revenue by calendar quarter.
- Create a receipts folder structure and a file-naming rule.
- Record every transaction from the start of the current month.
Days 31–60: first full cycle
- Record a full month of income and expenses with receipts attached.
- Complete your first bank and credit card reconciliation.
- Produce your first monthly profit and loss and sales-tax totals.
- Open a separate savings account for sales tax and income tax, and move the month's net GST/HST into it.
- If you have mixed-use costs, start a vehicle logbook and measure your home work space.
- Catch up any earlier months of the fiscal year you haven't recorded.
Days 61–90: make it routine
- Run the monthly checklist on a fixed date for the second time.
- Compare month one and month two: are categories used consistently?
- Book a short call with an accountant to confirm your categories, method and year-end package.
- Note your GST/HST filing deadline and the income tax deadlines in your calendar.
- Set up a backup or export routine.
- Decide whether the time you spend justifies software or a bookkeeper.
A brief USA note
If you also have US tax obligations, the rules differ. The IRS says to keep records generally for three years, with longer periods in specific cases: for example, seven years for a claim for a bad debt deduction or a loss from worthless securities, six years if you don't report income that you should have and it is more than 25% of the gross income shown on the return, and at least four years for employment tax records (IRS: How long should I keep records?). If you sell into the United States, sales-tax obligations work differently and need separate advice.
FAQ
How do I do bookkeeping for a small business?
Open a separate business bank account, set up income and expense categories, record every transaction with its date, amount, category and sales tax, keep the receipt or invoice for each, reconcile to your bank statement monthly, and review your profit and loss. At year end, give your accountant the reconciled records and supporting documents.
Can I do my own bookkeeping in Canada?
Yes. There is no requirement to hire a bookkeeper. The CRA's requirement is that your records are complete, supported by documents and kept for the required period, generally six years from the end of the last tax year they relate to (CRA).
Should a small business use cash or accrual accounting?
For income tax, the CRA says self-employed income must be reported using the accrual method, except that farmers, fishers and self-employed commission agents may use the cash method (CRA: Accounting methods). Many owners track cash day to day and keep lists of unpaid invoices and bills so their accountant can make accrual adjustments.
How long do I need to keep receipts in Canada?
Generally six years from the end of the last tax year they relate to, with some records kept longer, according to the CRA.
Do I need a separate bank account for my business?
A sole proprietor is not legally required to have one, but it is strongly recommended because it keeps business records separate and makes reconciliation far easier. The CRA asks you to keep separate records for each business you run. A corporation should always keep its money separate from the owner's.
When do I have to start charging GST/HST?
When you are no longer a small supplier: if your taxable revenues exceed $30,000 over four consecutive calendar quarters, or in a single calendar quarter. You can also register voluntarily before then. See the CRA's registration page for the exact timing rules.
Related resources
- Bookkeeping software in Canada compared
- GST/HST invoice requirements in Canada
- Invoice template for Canada
- Small-business financial metrics
- Profit margin calculator
- BankDeMark Command: bookkeeping for small-business owners
- BankDeMark Invoice: invoicing with GST/HST and QST
- Business credit pillar
This content is educational only and is not personalized financial, investment, tax, legal, or credit advice.
