Start a business, Do your taxes, Save money

Setting up Your Business Books: Step 1 – Expenses

You may be wondering why I’m going to talk about tracking expenses before tracking revenue. This is because most businesses incur expenses long before they have any sales coming in. Sometimes a business operates for months before they get any sales.  Of course, I hope that is not true in your case.

You have to fill out a “Statement of Business Activities” (T2125, used to be a T2124) as part of your tax return. On it are a list of expenses that CRA thinks are common to most businesses.  They have an “other” expense category, but unless you want a “real” person looking at your tax return, I feel it is best to leave this one blank. I find computers to be much friendlier when it comes to taxes.

Go here if you’d like detailed explanations for each of these.

  • Advertising
  • Meals and entertainment
  • Bad debts
  • Insurance
  • Interest
  • Business tax, fees, licences, dues, memberships, and subscriptions
  • Office expenses
  • Supplies
  • Legal, accounting, and other professional fees
  • Management and administration fees
  • Rent
  • Maintenance and repairs
  • Salaries, wages, and benefits
  • Property taxes
  • Travel
  • Telephone and utilities
  • Fuel costs (not related to Autos)
  • Delivery, freight, and express
  • Motor vehicle expenses (Including fuel, insurance, maintenance, etc.)

Any expense you hope to claim must be pigeon-holed into one of these categories. So, look through this list and choose the categories you think you will use (most people use less than half of these).

Set up Your Business Books: Step 1

Now here’s where I go high-tec on you: Get a shoe box. Get some envelopes (one for each expense category you will use). Write the names of the expenses on the envelopes. Now take one more envelope and write on it “What do I do with these?”. Throw all the envelopes in the shoe box and put the box in an easy to get at place. Leave the lid off! You want it to be as easy to use as possible.

When you get a receipt for those fancy new business cards you just bought, throw it in the “Advertising” envelope. You won’t need to touch that receipt again until tax time. If you buy something for your business, like for example, a $2500 computer, put it in the “What do I do with these?” envelope.

Don’t worry. If you keep reading this blog, you’ll soon be fishing those receipts out of that envelope and stuffing them where they belong!

June 17, 2011 - Posted by | Running Your Business, Starting Your Business | , , ,


  1. Hi,
    Thanks for this. But i have a question. What’s the difference between supplies & office expenses? And what are “Office SUPPLIES”? I don’t know what envelope to put my printer ink in.

    Comment by SH | July 4, 2011 | Reply

    • Hi SH,
      This is a very common question. I will answer it in detail in my Random Question category if you’d like more details. But in short “Supplies” are things not associated with a normal office, but you use them in your business. Things like earplugs for a sculptor using power tools, or gloves for a cleaning business. If you only have one or two of these types of things, don’t bother having a “Supplies” expense in your business. Just put them in your “Office Expenses” envelope. So printer ink should go in your “Office Expenses” category.
      Hope this helps,

      Comment by jkswift | July 4, 2011 | Reply

  2. […] commented on my post Setting up your business books: Step 1 – Expenses and it was such a good question that I wanted to dig it up and let it breathe. Feel free to email […]

    Pingback by Question: Difference between Supplies & Office Expenses? « Canuckbusiness | July 4, 2011 | Reply

  3. Trying to figure where things go. 1. Incorporation fee’s? 2. Training costs – where would you expense things like first aid or WHIMIS or other safety training required for the job? and 3. Healthcare insurance?

    Comment by Colin | November 11, 2012 | Reply

    • From the corporation’s viewpoint, Training Costs and Healthcare Insurance can be deducted as expenses under whatever heading you want to put them under. “Training Costs” and “Healthcare Insurance” seem like good names to have in your corporation’s chart of accounts, but that’s up to you and your accountant. Incorporation costs, however, should be capitalized as “Eligible Capital Property”.

      Comment by -- | November 14, 2012 | Reply

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