Soon, we will move into Holidays and you may not even realize that your business's year is coming to an end. Be prepared and know what procedures you must do with your bookkeeping to avoid the last minute hustle and stress.
If you don't have a well-informed bookkeeper you may not know what needs to be done at year-end to carry forward your bookkeeping into a new fiscal year.
So, let us help you get organized, and to do so we've compiled a basic list below of what might be needed to carry your books into the new fiscal year and help prepare for your taxes at the same time:
#1) Get Organized with Your Sales Invoices and Expense Receipts
Staying on top of your money is going to benefit you as you near the year-end. As a first step Collect all your invoices and expense receipts, then enter them into your bookkeeping software or ledger book. Several times, when I have had my clients give me "last year's receipts" six months later! To increase your level of organization, get yourself an envelope, accordion file, or filing cabinet (depending on the size and type of business you have), and be consistent in filling it with your receipts. As soon as you invoice someone or make a purchase, put the paper in your filing system, immediately! Don’t forget about your bank and credit card statements, utilities and cell phone bills too. The more organized you are, the easier it will be for you and/or your bookkeeper or tax preparer. This will save you both - time and money!
#2) Accounts Receivable
Accounts receivable, simply put, is work or a sale completed and invoiced to the customer but the total payment of the invoice still has not been received. To ensure a smooth business operation, you must stay on top of this part of your business. Don't just sit around waiting for the customer not to pay you. Create a system that allows you to remind customers when they have a payment around the corner. From a Fiscal year ending standpoint, this still must be reported as income in the fiscal year that the sale has been completed. A list of customers with the proper outstanding balances must be produced for year-end. Applicable sales taxes must also be reported and paid to your proper government authority at the appropriate reporting period and deadline.
#3) Accounts Payable
The same applies to accounts payable. However, automating your accounts payable system through QuickBooks or another accounting software may ease the process at the year-end. When using the accrual method, you must have an accounts payable set up in your accounting system. Accounts payable, simply put, is a purchase or eligible business expense that has been made but the outstanding balance has not totally been paid. This is still permitted to be claimed as an expense in the fiscal year the purchase was made. Some exceptions may apply, however, such as a purchase prepayment (like an advertising contract) and the expense must be outlaid over a period of time, such as a year to reflect the payments being made monthly for that particular expense. A list of vendors with the proper outstanding balances must be produced for year-end.
#4) Government Remittances
Ensure you file and pay all your applicable taxes for payroll and sales tax. Understanding and staying up to date with Provincial and Federal payroll deductions can be overwhelming. You need someone experienced to manage your payroll, remittances and submit on your behalf. Examples of government remittances and reports include:
Provincial and Federal remittances (CPP/QPP, EI and Tax)
Record of Employment (ROE) for terminated employees
Payments to these remittances can also be processed online through the government website or using your bank’s online payment system. The point we want to make here is by filing on time and in full you will avoid unnecessary penalties and interest.
If your business has inventory, it is best to use an inventory system right in your accounting software. It will be updated right at year-end using this method. If you don’t have such a system in place, you must count your inventory at year-end at minimum. For businesses in the very first year, all inventories must be taken out of purchases (credited) and put into inventory (debited) on the balance sheet. For every year thereafter, you must take the old inventory numbers out by crediting the inventory on the balance and debiting it back to purchases, and replacing them with the new inventory numbers.
#6) Capital Cost Allowance
Capital Cost Allowance is the means by which Canadian businesses may claim depreciation expense for calculating taxable income under the Income Tax Act (Canada). Similar allowances are in effect for calculating taxable income for provincial purposes. Check with the Canada Revenue Agency (CRA) (www.cra.gc.ca) or the Internal Revenue Service (IRS) (www.irs.gov) for asset classifications and qualifications as to what is deemed a capital asset. Capital cost allowance is also known as depreciation or amortization. You get to claim an amount from the capital asset as an eligible expense at year-end to help lower your taxable income on your business. We recommend you use a tax software program. This is where a tax preparer can be very valuable to you.
In a Nut Shull, What we recommend is Get a good bookkeeper and a good tax preparer that is not a family member to prepare your books and taxes. The reason: they are at "arms-length" from you and your business and a professional third party therefore will be better able to represent you to the CRA.
At SimplyBookKeeping1, we specialize in bookkeeping and help you follow the Year End Procedures and ensure that your data is in sync with your tax returns. Call us to request a consultation.