For all sole proprietors, partnerships and many corporations Dec. 31 is your business year end, and that is just around the corner!
While keeping up to date with your daily transactions and monthly bank reconciliations is expected, CRA (Canada Revenue Agency) also has a long “wish list” for your organization at year end.
As I have mentioned in previous articles, maintaining your financials throughout the year can reduce the time (and stress!) associated with year-end activities.
To avoid ending up on CRA’s “naughty” list this year, the following three areas of focus hints will help you make CRA’s “nice” list:
TAX: Have all income tax instalments been made? The amount(s) are usually based on the previous year's profit. You will be charged interest if you haven't stayed on track. (The exception is if this year’s net profit is less. Then there is no need to overpay, but calculate an estimate and remit that within the deadline).
PAYROLL: Have all source deductions been remitted to date? This would include CPP, EI and personal income tax deducted from each employee’s pay cheque. This will tie in with the annual T4s, which although aren’t due until March 2 (2020 is a leap year and the last day of February falls on a weekend), the final payment for 2019 is due on Jan. 15, 2020.
HST: Have you remitted, at the very least, your monthly, quarterly or annual remittances by their due dates? If not, CRA will issue a notional assessment which often confuses people for the actual amount owed. But it is merely their estimate of what you owe based on your previous returns, which could be highly over or understated and is not clear it's an estimate as it reads as a bill. Notice I said “remittances.” Although they’d prefer payment in full, it is important to at least get the paperwork in.
Other year-end items to consider: Record all sales and expenses in the month when they occur. This bookkeeping rule is known as accrual accounting and requires recording all sales and expenses as they happen – not when the cash is received or paid out.
So although you invoice many in December who won't be paying until the new year, and you also incurred costs in December but won't pay until later, they all need to be part of your 2019 figures!
Make sure to review your big-ticket items such as computers, furniture, tools, etc. If they have a life of more than a year, they may belong on the balance sheet as a capital cost (aka fixed or capital asset), with a portion being depreciated by year end. (Hint: the portion depends on the item and could be anywhere from 10 per cent to 100 per cent).
And speaking of rules, the first-year rule for depreciation of assets is half of the predetermined amount.
Also ensure you have not miscalculated your bottom line with prepaid expenses and deferred revenue as these will both change your taxes due so CRA will be checking these closely. Prepaid expenses include items paid for but for which there is no benefit until later, i.e. last month’s rent in a lease, or future travel or conference plans.
Deferred revenue represents money that has been deposited but for future use, i.e. a portion of an annual membership that hasn’t taken place yet or funding from an outside source for a future event, such as a sponsorship. (There are many more scenarios, so be sure to review this with a professional if it is not clear).
That's it in a nut (cracker) shell.
It's a lot and may be daunting, so if you haven't had help throughout the year, this is a great time to reach out for some bookkeeping assistance. Sandy Clause and her elves are only a call away!
Once 2019 is behind you, what is your 2020 vision? The new year is a great time to set up new processes. accountrain inc also offers consulting and training services which are a great gift to start off the new year and guaranteed to bring you joy!
Sandy Tunwell is the founder and managing consultant of accountrain inc.