Top 5 Bookkeeping Mistakes Small Businesses Make in Canada — And How to Avoid Them

Introduction

Accurate bookkeeping is the foundation of every financially healthy business. Yet many small businesses in Canada fall behind, rely on incomplete records, or mix personal and business transactions — leading to CRA audits, lost deductions, cash flow problems, and incorrect tax filings. Whether you are a freelancer, e-commerce seller, contractor, restaurant owner, consultant, or corporation, the quality of your bookkeeping directly affects your tax bill, your ability to secure financing, and your overall profitability. This guide explains the five most common bookkeeping mistakes and how to fix them before CRA notices.

Mistake 1: Mixing Personal and Business Expenses

One of the most serious bookkeeping errors is using the same bank account or credit card for business and personal transactions. When records are mixed:
CRA may deny deductions because expenses cannot be verified
income may appear understated
records become harder to reconcile
audits take longer and become more high-risk
Business owners should maintain a separate business bank account and credit card to ensure clean, audit-ready bookkeeping.

Mistake 2: Not Keeping Receipts or Losing Documentation

CRA requires businesses to keep receipts for at least six years. Missing receipts lead to denied deductions, GST/HST reassessments, and reduced profitability. Many small businesses lose money simply because they cannot prove expenses. Businesses must keep:
original or digital receipts
proof of payment
invoices
contracts
bank or credit card statements (supporting documents only)
Digital receipts are acceptable if they are readable, complete, and stored securely.

Mistake 3: Not Reconciling Bank Accounts and Merchant Processors

Monthly reconciliations are essential. Errors occur when businesses fail to reconcile:
bank accounts
credit cards
PayPal, Stripe, Square
Shopify Payments
Amazon seller statements
Deposits must match invoices or sales. CRA compares merchant processor income to tax filings. If processor income is higher, CRA assumes underreported revenue. Reconciliation prevents costly reassessments.

Mistake 4: Incorrect GST/HST Filing

Many businesses:
charge the wrong GST/HST rate
file late
claim ITCs incorrectly
forget to remit GST/HST collected
fail to register once they exceed the $30,000 threshold
These mistakes trigger some of the most common CRA audits. Businesses must understand:
which sales are taxable
when to charge GST/HST based on customer location
how to track input tax credits
when to file annual, quarterly, or monthly returns

Mistake 5: Poor Tracking of Accounts Receivable and Accounts Payable

When receivables and payables are not tracked properly:
cash flow becomes unpredictable
unpaid invoices accumulate
suppliers remain unpaid
profitability becomes unclear
CRA may question the accuracy of financial statements
Proper tracking ensures businesses know who owes them money and who they owe — essential for accurate financial reporting and strong cash flow.

Additional Common Mistakes

not recording mileage logs for vehicle deductions
ignoring inventory tracking (especially for e-commerce and retail)
not recording shareholder loans properly
using bookkeeping software incorrectly
failing to categorize expenses consistently
These oversights cause errors in year-end tax filings and increase CRA audit exposure.

How Poor Bookkeeping Leads to CRA Problems

CRA audits often start due to bookkeeping issues such as:
unusual expenses
inconsistent profit margins
cash sales not matching deposits
large adjustments during tax filing
missing receipts
incorrect GST/HST claims
CRA may reassess multiple years if books appear unreliable. Clean, consistent bookkeeping reduces risk dramatically.

How to Fix Bookkeeping Problems

review past records and correct errors
perform full bank and merchant reconciliations
digitize receipts and adopt secure cloud storage
use accounting software such as QuickBooks, Xero, or Sage
separate business and personal accounts
hire professional bookkeeping support
A proactive approach protects your business and strengthens financial reporting.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses clean up bookkeeping, perform year-end adjustments, reconcile accounts, correct GST/HST issues, and build systems that reduce audit risk. Our bookkeeping and advisory services ensure your financial records stay accurate, organized, and fully CRA-compliant.

Real Client Experience

A restaurant owner facing a GST audit avoided penalties after we reconstructed missing POS and merchant processor data. A contractor with mixed personal-business transactions resolved CRA concerns through a full bookkeeping cleanup. An e-commerce business improved cash flow after proper receivable tracking. A consulting firm avoided a reassessment by digitizing receipts and correcting GST filings.

Common Questions

Can CRA deny expenses if receipts are missing? Yes. Should I use separate bank accounts? Always. Do I need bookkeeping software? Strongly recommended. What if my books are messy? They can be cleaned up. Does CRA compare processor data to tax returns? Yes.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal provides bookkeeping systems, financial structure, GST/HST compliance, and audit protection for small businesses across Canada — ensuring accuracy, profitability, and peace of mind.