Hi! I am looking for a software recommendation for a client.
About his business:
construction
self-employed
needs payroll
in another province (hence needs ability to scan receipts)
annual sales $200-$300K
has a separate bank account for business
I have looked at the QBO solutions (as I am using QBO for my own practice and can get him a small discount under my umbrella). QBO has a solution for self-employed specifically but we can’t add payroll to that. So that leaves me with the EasyStart option (the most basic). I can’t wrap my head around how to book his personal draws as we obviously won’t be issuing dividends/salary from the shareholder account… so it will be a perpetual running balance?
Do you perhaps have another option on how I can do his bookkeeping and still have the payroll option?
I would suggest never using Easy Start - it doesn’t allow you to properly reflect accrual accounting (i.e. no accounts payable). I recommend QBO Essentials, at minimum. If you need the payroll option, no problem.
But remember that a self-employed individual cannot be on payroll - they must report the entire business income and expense as their own. I don’t recall where it is specified in the ITA, but CRA will not allow you to file a T4 slip for the owner of a proprietorship. You can still have payroll if the business has other employees.
If you’re looking for software options other than QBO, there are many, including:
Sage 50
Quickbooks Desktop
Wave
Xero
Freshbooks
MS Excel
etc
If you buy Sage 50 Canada accountant version, payroll is included. Some of the other options (Wave?) do not have built in payroll capabilities, but there are third-party add-ons. Or you can use the CRA online payroll calculator:
I forgot to clarify that the payroll will be for his employees, and not himself. I will report the annual activities on his T1 (Jan-Dec).
Do you have a idea on how I can reconcile the business bank account when he withdraws some funds for his personal use? My idea would have been to classify the amount in his “shareholder” account, but that account will never get cleared as I am not paying his salary or dividends.
I will 2nd @Nezzer & add Dext for receipts. The QBO solution for receipt scanning SUCKS. I have 1 client using payroll for 2 employees and it is worth it for remitting source deductions, T4’s etc.
Call it “Owner’s Capital” or some similar name, keep a running balance and at the end of the year collapse all income and expenses into it (as you would do with R/E in a corp).
So: Business makes $500
During year:
Investments 1,000
Draws: (200)
Balance: 800
At end of year close out net income (software may do this automagically) to the Capital account.
End of year Capital account is $1,300
Retained Earnings by another name, but similar process.
Withdrawals are part of his capital account - like retained earnings in a corp. Set up an account in the equity section. Withdrawals are a debit, invested capital is a credit, and net income is a credit. Some people keep separate accounts for investment and withdrawal, but it’s a matter of preference. His income statement will be titled “statement of income and proprietors capital” rather than “Statement of income and retained earnings”. Since the guy’s in construction, you might end up dealing with holdbacks. You’ll have to make sure these are properly handled on each progress claim.
Wave does have payroll, but I really haven’t seen how well it works. If you have used QBO, you won’t want to use Wave - it does not seem to be user friendly. And I would agree that EasyStart is just used to capture a client so they can be upgraded to Essentials.
As noted by @SmallBizGuy and @jhd.hemeon , in a proprietorship there is no “shareholder”. You should have equity accounts set up such as “Owner’s drawings” and “Owner’s contributions” in addition to “Owner’s capital” or “Owner’s equity, start of year” which should be set as the “retained earnings” type of account - where the software will close net income. The 2 additional accounts are handy when you generate a year-end balance sheet, to show something like this:
Owner’s equity, start of year: $100,000 Net income: 250,000 Owner’s contributions: 15,000 Owner’s drawings: (150,000) ------------------------------------------------------------- Total owner’s equity: $215,000
(in the above, “Net income” and “Total owner’s equity” are not G/L accounts that can be posted to - they exist only on reports)
For practical purposes, in the bookkeeping software, I also set up an account that is of type “bank account” or “credit card account”, and call it something like “John’s draws and contributions”. This makes it easy to record transfers to/from the owner’s personal bank accounts, and payment of business expenses from the owner’s personal funds (rather than having to post journal entries for everything - in many transaction screens you can’t “pay from…” an equity account). At the end of the year, you have to move the balance in that account to the equity account (drawings or contributions, as applicable) using a journal entry. Also, on Jan 1 of the next year, you have to use journal entries to close the “Owner’s drawings” and “Owner’s contributions” (equity accounts) to “Owner’s equity, start of year”.