Top 5 Bookkeeping Mistakes to Avoid – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Poor bookkeeping is one of the most common reasons Canadian businesses face CRA audits, cash-flow problems, inaccurate financial statements, and missed deductions. Whether you’re a sole proprietor, e-commerce seller, consultant, real estate investor, or incorporated business, bookkeeping mistakes can trigger penalties, lost tax refunds, and serious financial inefficiencies. CRA expects accurate, organized, and verifiable books and records under the Income Tax Act. This guide explains the top five bookkeeping mistakes small businesses make and how to avoid them—based on decades of CPA audit experience.

Legal and Regulatory Framework

CRA requires all businesses to maintain complete books and records for at least six years. Records must clearly support income, expenses, GST/HST filings, payroll remittances, inventory totals, and bank transactions. Inaccurate bookkeeping may lead CRA to deny expenses, assess penalties, or estimate income based on indirect audit methods. The Income Tax Act, Excise Tax Act (for GST/HST), Quebec Taxation Act (QST), and corporate legislation all require proper financial documentation. Bookkeeping errors can cause T1, T2, T2125, and GST/HST returns to be inaccurate, triggering reassessments.

Key Court Decisions

In Brooks v. Canada, CRA reconstructed income from bank deposits after poor bookkeeping—leading to reassessment. In Kosinski v. Canada, CRA denied cost-of-goods-sold deductions due to insufficient documentation. In Rogers v. Canada, courts confirmed that inadequate bookkeeping is not a valid excuse for missing records. These decisions reinforce that bookkeeping standards must be consistent, complete, and verifiable.

Mistake #1: Mixing Personal and Business Expenses

One of the biggest bookkeeping errors is using the same bank account or credit card for both business and personal spending. This creates messy records, complicates GST/HST claims, and increases audit risk. CRA may deny expenses if they cannot distinguish personal from business transactions. Using a separate business bank account and credit card is essential for audit protection and clean financial statements.

Mistake #2: Not Reconciling Bank Accounts and Merchant Accounts

If bank and credit card accounts are not reconciled monthly, businesses risk missing income, duplicate entries, unrecorded expenses, or merchant fees (Stripe, PayPal, Square, Shopify). CRA audits often compare bank deposits with reported revenue—any discrepancy triggers questions. Proper reconciliation ensures accurate revenue reporting, cash tracking, and GST/HST remittances.

Mistake #3: Poor Record-Keeping and Missing Receipts

CRA does not accept bank statements alone as proof of expenses. Missing receipts can lead to denied deductions, especially for meals, travel, home office, vehicle expenses, advertising, and subcontractors. Businesses must keep digital or paper receipts, invoices, contracts, and proof of payment. Cloud-based bookkeeping apps (Hubdoc, Dext, QuickBooks) greatly reduce risk by storing receipts automatically.

Mistake #4: Incorrect Treatment of Capital Assets vs. Expenses

Many businesses incorrectly deduct large purchases—like computers, machinery, furniture, or equipment—as immediate expenses instead of capital assets. CRA requires these items to be capitalized and depreciated using Capital Cost Allowance (CCA). Misclassifying assets leads to inaccurate taxable income and potential reassessment. Proper asset registers keep CCA schedules accurate and compliant.

Mistake #5: Ignoring GST/HST and QST Rules

Failure to register, charge, or remit GST/HST on time is a major audit trigger. Once taxable sales exceed $30,000 in any 12-month period, GST/HST registration becomes mandatory. Common bookkeeping mistakes include: not collecting GST/HST, claiming incorrect ITCs, late filing, not reconciling GST/HST payable, and misunderstanding destination-based tax rules for online sales. QST rules in Quebec are equally strict. Incorrect GST/HST bookkeeping often leads to penalties and interest.

Other Serious Bookkeeping Errors

Additional issues that frequently harm businesses include: not tracking accounts receivable, not managing accounts payable, inaccurate payroll records, incorrect inventory tracking, ignoring shareholder loan balances, not backing up bookkeeping data, using spreadsheets instead of proper software, and failing to prepare monthly financial statements. These blind spots lead to cash-flow issues and audit vulnerabilities.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses eliminate bookkeeping errors through structured systems, clean reconciliations, accurate CCA schedules, GST/HST compliance, and clear monthly reporting. Whether you use QuickBooks, Xero, Wave, or spreadsheets, we rebuild books, correct prior-year mistakes, prepare audit-proof records, and ensure tax filings are accurate. Our bookkeeping oversight reduces CRA audit risk and helps clients operate with confidence.

Real Client Experience

A Montreal e-commerce seller faced a large CRA reassessment due to missing receipts and unreconciled merchant accounts; we reconstructed records and reversed most penalties. A contractor mixing personal and business expenses cleaned up their books and avoided a GST audit after our intervention. A restaurant owner incorrectly capitalized assets and under-reported GST/HST—our corrections prevented further CRA action. A freelancer with incomplete records avoided reassessment after we rebuilt their financial statements from bank and invoice data.

Common Questions

Do I need a bookkeeper? Yes—any business with recurring transactions should. Can CRA deny expenses without receipts? Yes. Should I use a separate business bank account? Absolutely. What software is best? QuickBooks, Xero, and Wave are top choices depending on business size.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses maintain clean, compliant, audit-proof books. We ensure accuracy, minimize tax risk, and provide clear financial insights so entrepreneurs can make confident business decisions.