For many businesses, December 31 marks the end of not only the calendar year but also their fiscal year.The Canada Revenue Agency has mandated this for proprietorships, partnerships and other unincorporated businesses and even though incorporated businesses can set their year-end whenever they want, many use December 31 out of convenience and because it aligns with the personal tax year. Whenever your year-end is, there are some important things you need to consider when it comes to ending the old fiscal year and starting a new one in your financial software package.
Starting a New Fiscal Year
When you file your taxes at the end of the year the CRA only wants to see your financial information for the current year, so it makes sense to start a fresh fiscal year in whatever accounting package you’re using.
As a certified QuickBooks ProAdvisor we prefer QuickBooks over the other popular accounting packages. QuickBooks includes a year-end function that separates the financial transactions between one year and the next. Before you trigger a year-end and begin a new financial year you should make sure that all of your financial transactions are entered, including reconciling all of your bank accounts, invoicing any product or services sold during the old fiscal year and entering any supplier invoices. Once your accountant has processed your year-end they’ll send back a series of adjusting journal entries, which need to be duplicated in your live system so that what you have in your system matches what your accountant submits to CRA. You should then lock your system up until the effective year end - you won’t be able to make any more changes but doing this protects you in case of a CRA audit as it shows that you haven’t tampered with your books.
Should You Start a New Data File?
Some people choose to keep different fiscal years in separate QuickBooks data files. We recommend against doing this. Having multiple fiscal years’ worth in the same data file allows you to view reports from prior fiscal years so, for example, you can compare your current level of business against that of previous years. This might come in handy if you’re applying for a loan at the bank or making another kind of significant financial transaction where you might be expected to produce reports about the financial performance of your business going back beyond the current fiscal year.
The exception to this is if you’re changing your business type. For example, if you are changing your business from unincorporated to incorporated then not only do you need to start a fresh tax-year but you also need to start a whole separate set of books.
Converting to a New Accounting Software
The start of a new fiscal year can be a great opportunity to switch the financial software that you’re using if you’re unhappy with the software that you’re currently using. We firmly believe that QuickBooks is the best accounting software package for small businesses. It’s easy to use and much more intuitive than Simply Accounting. Intuit (the creator of QuickBooks) provides regular updates and great support.
Let Simply Bookkeeping Help …
Managing the finances of your small business can be a complicated endeavour. There are so many rules and regulations that must be followed and the Canada Revenue Agency can be quite unforgiving about any violations, which can incur penalties and interest charges and cause a lot of stress. Simply Bookkeeping provides professional bookkeeping services at a reasonable cost. For many of our small business clients we only need to work a few hours a week to keep their books up to date and in order. If you are trying to figure out how to start a new fiscal year in your accounting package or how to better understand the financial performance of your company we’d love to put our bookkeeping expertise and experience to work for you.
Please visit our website at www.simplybookkeeping1.com or contact Michele Hyde by phone at (647) 668 – 9363 or by email at firstname.lastname@example.org for a no-obligation chat to see if Simply Bookkeeping is right for you.
Have Your Say
We’d love to hear what you have to say about ending one fiscal year and starting the next in your business. Please leave a comment below, we’d love to hear about your experiences, opinions or best practices!