A bookkeeping spreadsheet or software?

A spreadsheet is a perfectly good way to keep books, for some businesses, for a while. The CRA doesn't care what you use. Its guide for the self-employed says it does not "issue record books nor suggest any type of book or set of books". What it cares about is that your records are complete, supported by documents, and readable when it asks for them.

So the question isn't whether a spreadsheet is allowed. It's whether a spreadsheet will stay accurate for your business, and how much of your time it will take.

When a spreadsheet is fine

A spreadsheet works well if most of these are true:

• You're not registered for GST/HST, usually because you're under the CRA's $30,000 small supplier threshold.
• One bank account and maybe one card, used only for the business.
• Under a hundred or so transactions a month.
• Customers pay when you do the work, so you're not tracking unpaid invoices.
• No employees, no inventory.
• You're comfortable with a few formulas and you'll actually open the file every month.

A freelance writer with a dozen clients, a weekend market stall, or a side business in its first year: a spreadsheet is the right tool. Software would be overkill.

A free bookkeeping spreadsheet template

You don't need to download a template. Build this one in Google Sheets or Excel in ten minutes: one tab per year, one row per transaction, with these columns:

• Date
• Account (chequing, Visa)
• Description: who, and what for
• Category: match your tax form. Sole proprietors use the T2125 lines. See bookkeeping for sole proprietors for the list.
• Money in
• Money out
• Receipt: a file name or link to the photo
• Notes

Then add a summary tab with one row per category and a SUMIFS that totals each one, for example =SUMIFS(Transactions!F:F, Transactions!D:D, "Office expenses"). At year-end those totals are your T2125.

Finally, a reconciliation check: the opening balance, plus total money in, minus total money out, should equal the closing balance on the statement. If it doesn't, something is missing. How to reconcile a bank account walks through finding it.

If you're registered for GST/HST

Add three columns and the spreadsheet gets more fragile:

• Amount before tax
• GST/HST
• Total (the bank amount)

You enter the total from the bank line and the tax from the receipt, and the amount before tax is =Total − GST/HST. Don't calculate the tax as a flat percentage of the total. Some purchases have no tax (insurance, for example, is exempt), some are partly personal, and some come from suppliers who aren't registered and don't charge it. The receipt is the only reliable source.

Your summary then needs GST/HST collected (from sales) and GST/HST paid (from purchases) for each reporting period, because those become lines 103 and 106 of your return. See how to file a GST/HST return.

Where spreadsheets go wrong

None of these is a reason to avoid spreadsheets. They're the reasons spreadsheets fail without anyone noticing:

• A formula range that doesn't extend. You add rows below the SUM range, and they quietly drop out of your totals.
• Typed categories drift. "Office", "office supplies" and "Office Supplies" become three categories. Use a dropdown (data validation) for the category column.
• Transfers counted as spending. Paying your Visa from chequing is not an expense. The expenses were the card charges. Count both and you've doubled them.
• Owner draws as expenses. Money moved to your personal account isn't deductible. The CRA says not to deduct salaries or drawings paid to yourself.
• Gross amounts with the tax left in once you're registered, which overstates both income and expenses.
• One copy, on one laptop. The CRA expects electronic records to stay accessible and readable, and recommends backups, preferably at another site in Canada. And you have to keep them for six years.
• The file that only gets opened in April. Twelve months of statements at once is where most of the errors above come from.

When to move to software

These are the signs a spreadsheet is costing you more than it saves:

• You've registered for GST/HST. Splitting tax on every line, by hand, is the single biggest source of spreadsheet errors.
• You send invoices and wait to be paid. You need to know who owes you what, and your income has to be on accrual, which a single list of bank transactions doesn't show.
• More than one or two accounts or cards. Transfers between them multiply.
• Your accountant spends hours on your file. You pay for every one of those hours. See how much a bookkeeper costs for the alternative.
• You need a loan. Lenders and banks ask for financial statements or clean monthly figures. A spreadsheet can produce them, but it takes a while, and it's easy to get wrong.
• You're spending more than an hour or two a month on it.

Most owners don't move because the spreadsheet broke. They move because the monthly session slowly went from twenty minutes to a whole Sunday.

What software adds

The benefit isn't fancier reports. It's three things a spreadsheet can't do on its own:

1. Imports. Transactions come from the bank statement instead of being typed, so nothing is missed or keyed wrong.
2. Double-entry structure. Every transaction balances, so transfers, draws and loan payments can't be counted as expenses by accident.
3. Tax built in. The GST/HST split happens as each transaction is recorded, and the return figures add themselves up.

What it costs depends on what you pick. Some paid products charge a monthly fee that goes up as you add features. Free bookkeeping software for Canadian businesses compares the options, including the free ones.

The honest answer

If you're under the GST/HST threshold, with one account and simple customers, keep the spreadsheet. Lay it out properly, reconcile it monthly, and back it up.

If you're registered for GST/HST, invoicing customers, or dreading the year-end catch-up, move to software. The longer you wait, the more history you'll have to bring across.

Spark Books

Spark Books is the free option we built for exactly this point. Upload your bank and card statements (CSV, OFX or PDF from the major Canadian banks). There's no live bank feed, so it takes a few minutes a month. Spark sorts every transaction into a Canadian chart of accounts with the GST/HST split, asks when it's unsure and remembers your answers, matches receipts, and works out your GST/HST return figures. Invoices, bills and a 13-week cash forecast are included, and at year-end you get a package mapped to T2125 or GIFI. It's free, with no card. If you'd rather not do it at all, the bookkeeper plan is $350 a month.