Working with your Corporation Part 5: Paying for Expenses

This is part 5 of our blog series, “Working with your Corporation.”   Let’s now look into how you can pay for expenses.

Paying for Expenses

You will typically pay for expenses in 1 of 4 ways:

a.      Cash

b.      Cheque

c.      Debit Card

d.      Credit Card

Here is a basic rule to follow: IF YOU PAY FOR AN EXPENSE, ALWAYS GET A RECEIPT OR INVOICE.  You probably say, “I have record of the expense on my bank/credit card statement”.  Yes, statements are extremely important for bookkeeping and accurate records. However, statements MAY NOT withstand a CRA audit as they require receipts and invoices with details.

*Important Note for paying expenses: Always pay for Business Expenses from the business, and pay for personal expenses personally.  This is extremely important for bookkeeping, accounting and CRA reporting.  Keeping your business and personal expenses paid separately and properly will not only ensure accurate records, it will also save you money on your bookkeeping and Corporate Year End!  Keep it simple. You should have a business Debit and/or Credit Card and a personal Debit and/or Credit Card in your wallet and when you are paying for things ensure you use the correct card by determining if it is a business or personal expense you are paying for.

If you cannot get a business credit card, just get a sub account on your personal credit card account that you can use to pay for businesses expenses, keeping the record separate from personal.  Your bank can give you a separate credit card with a sub account that can be tracked separately on your statements.  Always let your business pay for its own expenses even when the company does not have the funds to pay.  In this case, personally write a cheque or transfer funds to the company and let the business pay for the expense.  Remember, this is a shareholder loan!  In the case of multiple owners, you may want to use reimbursement sheets so expenses can be approved by all partners.