Insights

The next financial statement that we’ll tackle is the Income Statement.  The Income Statement can go by many names, “Income Statement,” “Profit & Loss Statement” or the “Statement of Income and Retained Earnings” are the most common ones.  Our firm calls it the Statement of Income (or Loss) and Retained Earnings.

What is the Income Statement?

The Income Statement provides an overview on the operations or activities of a business for a specific period of time.  Each year a company will need to provide an annual income statement to report to the Canada Revenue Agency with their tax return and will end up paying income taxes based on the net taxable income that has been earned by that company.  Publicly traded companies will report their Income Statements on a quarterly basis to their shareholders.  Many companies, both private and public, will have their financials prepared on a monthly or quarterly basis to analyze how the business is performing and to assess if any trends can be seen in sales or costs. 

Things to think about when preparing your Income Statement

Since the purpose of the income statement is to tell the story of how your business did during a particular period of time, it’s important to ensure that the amounts on the income statement properly reflect what happened during that time.  Some key areas to consider are revenues, cost of sales or cost of service expenses, gross profit (profit margin), and overhead expenses (often fixed costs to run your business). 

Revenues

On a high-level basis, if you’ve sold something, you should be recording it as revenue.  However, there are some nuances that need to be considered that may change how much revenue is recognized.  Here is an example.  You are successful in signing a contract valued at $30,000 to deliver your services over a 6 month period, but your client pays you 50% up front and then 50% at the completion of the contract.  How do you recognize the revenue?   Do you recognize the $30,000 immediately?  Or do you recognize the revenue on a monthly basis? 

If the services provided for the contract is equal for each of the 6 months, you would recognize the revenues monthly.  Your cash won’t align with the revenue recognized, but that’s ok.  If you are providing the majority of the services at the beginning of the contract and very little in the last couple of months, you may have an argument, that you should be recognizing more revenues in the earlier months and less in the latter months.  The business owner should discuss recognition of revenue with their accountant to ensure that revenues recognized in the period are matched with costs incurred to earn this revenue.  This will ensure that profit margins are not skewed in any one period when costs and revenues are mismatched.  Also, depending on the type of business you have, you may need to comply with a specific set of accounting standards.  This should be a discussion to have with your accountant to see if this applies to you and your business. 

Cost of Sales or Cost of Service

Similarly, the Cost of Sales or Service should also match the timing of the revenues.  If the costs are not co-ordinated to be recognized at the same time as your revenues, you will end up with a financial story that will either present things better than they are or worse than they are.  It is also important for you to recognize the true inputs that relate to generating your revenues.  If you have inventory, it is also important for you to do an inventory count at the end of your period to ensure that your inventory value is correct.  If it is understated or overstated, there is a good chance that your cost of sales amount needs to be adjusted. 

Another input that should be reviewed are your staffing costs.  Is there a portion of these costs that should be included in the cost of sales?  If you have employees that help assemble your inventory, or if you have shipping costs directly related to the shipment of your goods, you should consider including these costs as a part of your cost of sales.  Business owners and their accountants should discuss the costs associated with the sale of each product or service in order to get a true picture of gross profit and ensure your goods and services are priced accordingly to earn a profit.  If not, what are you in business for?

Gross Profit

Gross profit is calculated by taking your Revenues less your Cost of Sales.  You should always aim to have a positive Gross Profit.  It is the Gross Profit that provides the funds to operate the administrative side of the business.  If your Gross Profit is negative, have a look at your revenues and expenses.  Have things been reflected properly?  If they have, are you spending too much on your inventory?  Are your prices too low?  From an investment point of view, a potential investor will shy away from a company who is operating with a negative or small gross profit (or a gross loss).  It demonstrates that the business owner doesn’t have a firm grasp on the market that they are selling into and are digging a hole that will eventually be too hard to climb out from. 

This is why it is important to ensure that your cost of sales (or service) is calculated correctly.  If the price of your product or service isn’t high enough to cover your direct inputs (costs), you will need to consider increasing your sales price.

Overhead Expenses

Overhead expenses are another word for administrative or fixed costs.  These expenses relate to the administrative side of the business and would be required if you have sales or if you don’t have sales.  Generally, these tend to be your fixed costs that will not vary as sales increase or decrease. 

This would include things like salaries for your office staff, rent and insurance.  Some costs will have a variable nature to them depending on the size of your business, such as advertising, meals & entertainment costs, travel, and interest charges.  These costs are not usually directly tied to sales of your product or services and are therefore  considered overhead expenses.

This does not mean that these costs should be ignored.  It is a good idea to look at the trends of these costs.  Are your advertising efforts matching with the increase or decrease in your business?  Should you be reviewing your loans to see if you can receive a more favourable interest rate?  How long is your lease agreement with your landlord?  Do you expect your rent expense to increase or decrease in the coming months? 

As a general rule of thumb, we also do not like to see overhead expenses exceed 10% of gross revenues.  As revenues grow, we like to see this ratio decrease as we should not see any large swings in these costs in relation to revenue.  If there are large variations, consider if any cost category currently classified in overhead expense should be considered in cost of sales instead.  Then re-evaluate your profit margin and sales prices.

How to use or interpret your Income Statement

The income statement can be created at any point in time and should be reviewed at regular intervals.  As your business is starting out, things are pretty hectic and crazy.  So, potentially creating monthly financial statements is asking a bit too much for yourself in the first year or so.  However, at a minimum, you should look at your income statement twice a year.  Once at the halfway point during the year to check in to see how things are going and to determine whether or not you need to make any adjustments. 

A budget can be created before your start your business.  And a significant portion of your budget will be based on how you expect your business to perform in a year.  The income statement portions of your budget can be used to compare against your current income statement. Are things turning out the way that you had hoped? Are things better?  Are things not going according to your plan?  Once you start looking at the numbers, start investigating what the numbers are trying to tell you. 

If this is overwhelming or you’d like a bit of assistance getting started on the right path on understanding your Income Statement, reach out to your accountant to have them help you understand what is going on in your business.  If the numbers just look like dollars to you and you aren’t sure what they are trying to tell you, spend the time to learn.  Once you spend a bit of time understanding the information, it will make you a stronger business owner, one that can make informed decisions about your business. Don’t worry, it will get easier each time you review the financial information. 

For a business owner, a set of Financial Statements can be an important tool in running your business. Generally speaking, there are three sets of statements that are commonly prepared by accountants. The Balance Sheet, Income Statement (Statement of Income and Retained Earnings), and the Statement of Cash Flows. In this blog post we’ll go into a bit of detail as to what information each statement can provide. By understanding these statements, you’ll have a better understanding as to the areas in your business that you are excelling at and other areas that may require more of your attention. It will also help you gain a better understanding of what other people are seeing in your business too. This is especially important when you are looking to get financing from a bank or other financial lender.

What is the Balance Sheet?

The Balance Sheet is prepared for a specific date in time. Generally, the statement is prepared at the end of a fiscal period or year-end. The purpose of the statement is to provide a snapshot of a business on a particular date. It gives an overview of a company’s Assets (Cash, Inventory, Accounts Receivable, Fixed Assets), Liabilities (Accounts Payable, Bank Loans, Shareholder Loans) and Equity (Share capital, Retained Earnings/Deficit).

Key Line Items on a Balance Sheet

Some key areas of the Balance Sheet that business owners should review regularly are Cash, Accounts Receivable, Inventory and Accounts Payable.

Cash

Cash is king/queen. It is what is going to pay for everything that you do in your business. Without it, you will need to invest more into your company or you will need to look to external parties to invest or loan you funds to give you time to make your business profitable. Monthly reconciliations of the bank balances allow you to ensure that you know how much money you have in your bank account that can be used to pay your suppliers and employees. If you have a retail business and receive payment for purchases through a credit card processor, you can use the bank reconciliations to ensure that the payments from the credit card company are being deposited on a frequent basis and that the deposits match to what you think that they should be. Reconciliations also give you and your accountant comfort that you have captured all of the transactions in the period in your accounting records. Without it, you may be able to cherry pick which transactions are recorded in your business and you may not get a true picture of your cash position.

Accounts Receivable

Accounts Receivable should be reviewed to ensure that your customers are paying you on time. If you find that you have had a record-breaking quarter in revenues, but your bank account is low, it’s likely that you have not received payment from your customers. You should be in touch with them on a

regular basis to ensure that they can still pay what they owe you. If there is an account that is not collectible, consider writing it off or at least providing a provision that it won’t be collected. If your provisions are increasing month over month, you may want to see if your pricing is appropriate or if your target markets need to shift to customers who are more likely to pay the full amount and on time.

Inventory

Inventory is another area that should also be reviewed on a frequent basis. If you have inventory, you should review to ensure that what you have in inventory, is still saleable. Is anything damaged or obsolete? Have you performed a count of all your inventory to ensure that what you think should be in available for sale is actually available? By keeping an eye on your inventory and continually checking to make sure that you have enough goods on hand and that they are saleable, will limit the possibility of theft occurring and that damaged goods or unsaleable products are identified early enough so that you can either dispose of these goods or sell them at a discount to make room for more saleable options.

Accounts Payable

Accounts Payable is the other key number on the Balance Sheet that should be reviewed regularly. This allows you to monitor what bills need to be paid in the next 30 days and what can be deferred to a later date.

Balance Sheet Financial Ratios

You will often hear in conversations amongst business owners terms like Current Ratio and Inventory Turnover. So what are these ratios and what do they tell you about a business?

Current Ratio

The current ratio determines if a business has enough funds available to pay off their operating expenses or current obligation. To calculate this amount, you would take your current assets (or items that are cash or can be quickly converted into cash, such as Cash, Accounts Receivable and Inventory) and compare this amount to the company’s current liabilities (Accounts Payable, Taxes Payable and Current portion of Debt payable) to see if the current assets are greater than the current liabilities. If the Current Assets are greater than the Current Liabilities, the lenders will gain confidence that the business can pay off their operating expenses.

Example: On December 31st, for the current assets, Cash is $5,000, Accounts Receivable is $10,000 and Inventory is $20,000. For the current liabilities, Accounts Payable is $20,000, GST Payable is $5,000, and the current portion of the debt payable is $25,000. Therefore, the current assets total to $35,000 and the current liabilities total to $50,000 and the current ratio computes to 0.70. The business owner and potential lender should start being concerned that they may not be able to pay their suppliers on a timely basis since they do not appear to have enough liquid assets available to pay their liabilities.

As a point of reference, a good target ratio is about 1.0. Most external parties will be looking for this regardless of the industry.

Inventory Turnover

The inventory turnover ratio will inform a business owner or potential lender how quickly the inventory is being sold. To calculate this ratio, you would take the Cost of Goods Sold and divide it by the Average Inventory Balance. To calculate the average inventory balance, you would take the inventory balance at the beginning the period plus the inventory balance at the end of the year and divide it by 2.

Example: On January 1st, the inventory balance is $100,000. During the year the company recognized $200,000 in Cost of Goods Sold. On December 31st, the inventory balance is $75,000. The Inventory Turnover ratio is therefore $200,000 divided by ($100,000 plus $75,000 divided by 2) = 200,000/((100,000 + 75,000)/2) which equals 2.29.

The inventory has turned over more than 2 times during the year. This business owner should be confident that the risk of having obsolete inventory is low. However, this doesn’t eliminate the need to review the inventory on hand to make sure that there isn’t any old inventory still held by the company.

Shareholder Investment

Another area that a lender will look at is how much money the business owners have invested into the business. This can be viewed by looking at the Liabilities and Equity sections of the balance sheet. If there is a large shareholder loan in the liabilities section of the balance sheet, this is an indicator of how much money the Shareholders of the company have invested into the company. If the Shareholder Loan is located in the Assets section of the balance sheet, this is an indicator that the Shareholders have withdrawn money out of the company and owe it back to the company. Lenders will often prefer to see a Shareholder Loan balance located in the Liabilities section of the balance sheet, which indicates that a Shareholder has some stake in the business and an interest in reinvesting and growing the business rather than removing all of the wealth from the company.

Are you ready to make your CEBA Loan Repayment by December 31, 2023?

Recap of what the CEBA was for: The Canada Emergency Business Account was one of the initiatives that the Government of Canada created as a way to support business owners during the COVID-19 Pandemic. The initial support payment was a $40,000 non-interest bearing loan with $10,000 being forgivable if the amount was repaid IN FULL by its due date. There was then an additional $20,000 that became available as the COVID-19 Pandemic continued beyond what was initially anticipated. Of this additional $20,000 only $10,000 needed to be repaid. In 2021, if a business received the initial $40,000 CEBA loan, they were to include $10,000 into their income for the forgiven amount. And then if they were the recipients of the additional $20,000 loan in 2021, they were required to include $10,000 of the forgiven portion in their 2022 tax return. The initial repayment date was December 31, 2022 but then as that day approached, the government extended the payment date to December 31, 2023.

We don’t expect that there will be any more extensions on this repayment date.

If you have the funds available to repay your CEBA loan, you can pay it now or wait until closer to the December 31st deadline to make your repayments. Personally, our preference is to repay it now, so that the risk is less that you spend the funds between now and December 31st, and risk not having the money to make the required repayment.

And just to reiterate, you do need to repay either $30,000 if you received the initial $40,000; or $40,000 if you received the initial $40,000 plus the additional $20,000. If you are unable to repay these amounts by December 31, 2023, you will need to repay the full amount of the loans. Your inability to repay the $30,000 or $40,000 by December 31st, will change your repayment terms. You will need to repay the full $40,000 or the $60,000 depending on whether or not you took advantage of the second loan.

We also don’t expect any leniency on the amounts that are required to be repaid. In other words, if you owe $40,000 in CEBA repayments and you only have $38,000 available to pay by the end of December, you will be forced to actually repay $60,000 and you will actually be charged interest from January 1, 2024 to December 31, 2025. You will need to work out repayment terms with the financial institution who loaned you the funds.

If you have $37,000 available right now and need to make a repayment of $40,000. Try and budget between now and December 31st to save additionally per month to get you to the required $40,000. This savings of $500 per month will save you $20,000 in cash as well as any interest that you may have to pay.

A couple of items to note:

1) If you are unable to repay the full amount, the loan forgiveness amount that you previously included in your income for your business, can now be a deduction since the loan forgiveness no longer exists.

2) If you didn’t claim the forgiven portion as income in a previous year and you are planning to or have repaid the reduced amount in full, you do need to make an adjustment to your 2021 and 2022 tax returns for the loan forgiveness amount by increasing your income by $10,000 in 2021 if you received the $40,000 loan and $10,000 in 2022 if you received the additional $20,000. (you can’t get something for nothing).

June = Halfway point in the Calendar year.  It’s astonishing how every year, January and February drag on a bit and then life speeds up in March and April, then May goes by relatively quickly and all of a sudden it’s June!!  For the kids, it marks the end of a school year.  For Public Practicing Accountants, this month is the last push to get all of the Sole Proprietor and Calendar End Corporation Tax Returns completed.  But what next?   

As a business owner, it may be the perfect time for you to reflect on where you’ve been.  To take stock of what went well, and what can be improved upon.  Use this information to plan for the next 6 months.  If you were able to plan out your year, look at how close you are to what you had budgeted for.  Where did you deviate from your initial plan?  Do you want to get back to the original plan?  Or do you like where you’re currently going?  

From an accounting perspective, now is a great time to look at your financial results.  And it doesn’t have to take too much out of your day to do this.  Look at the information that you have and compare it to the last quarter, the last year and the last month.  See if any trends are occurring.  Does something look really weird?  Like it’s too good to be true?  Or are things inline with what you expected?    If you are using an accounting software program like QuickBooks Online or Xero, you can extract this information relatively quickly. Take the time (an hour or so) to really look at the numbers.  And take the time to compare these numbers to other periods (another hour).  Then spend some time figuring out the story that the numbers are telling you.  Is the current recession affecting you positively or negatively?  Do you need to alter your purchasing schedule for your inventory?  Do you need to think about extending credit to long time customers.  Do you need to reduce staff?  Increase staff?  This part may take 2 hours or so.   

Then create a plan to carry you through to the remainder of the year.  And to set yourself up for planning into the following years.   This part may take a bit of time, but if you spent a couple of hours working on a plan and set some concrete deadlines towards realizing these plans, you may have spent the equivalent of 6-8 hours of time on this planning process. This doesn’t have to be done all in a single day.  You can do each part in isolation and stretch it out over a few days. However, I would recommend that you do accomplish this in a short amount of time (say 1 week).  This allows you to keep the momentum going and to not have to revisit what you’ve already reviewed each time.   

During the reflection time, be proud of what you have accomplished and appreciate the struggles that you have faced or are facing,but take an honest look at where things are not going according to your plan.  And figure out what things need to be changed.  Most of the time, you can work towards correcting things that have caused you to go “off track”.    If you’re unsure as to what is causing you to go on an unforeseen path, chat with your management team, bring them in to help brainstorm.  You have hired them in a senior position for their skills.  Let them use those skills to support the business.  If you are the management team, reach out to people you trust to help you explore different solutions.  Ask your accountant too.  Getting a different perspective can help create new opportunities. 

On December 15, 2022, Parliament passed Bill C-32.  In that bill, were some new trust reporting rules that will impact a number of people.  In particular, anyone who has a Bare Trust agreement. Why is this causing a fair amount of stress for business owners and professional accountants? 

Here is a bit of background:

In BC, the Property Purchase Transfer Tax is assessed each time a property is sold.  Currently, the rates are 1% on the fair market value to $200,000 and then an additional 2% on the fair market value that is in excess of $200,000 to $2,000,000.  And if the property is worth more than $2 million, the property purchase transfer tax increases to 3%.  If the fair market value of the property is over $3 million, there is an additional 2% tax.  As an example[1], if a $4,500,000 property in BC is sold, the property purchase transfer tax is $143,000. 

              $2,000 on the first $200,000

              $36,000 on the next $1,800,000

              $75,000 on the next 2,500,000 and ($4,500,000 – $2,000,000 = 2,500,000 x 3%)

              $30,000 on the amount in excess of the $3M FMV ($4,500,000 – $3,000,000 = $1,500,000 x 2%)

If you are in a property development business, where properties are bought and sold as a normal course of business, this is a high cost to doing business.  One way to avoid having to pay the Property Purchase Transfer Tax each time is to establish a Bare Trust agreement, where a corporation holds the legal title to the land as a Bare Trustee.  The Trustee only looks after the property according to the instructions of the beneficiaries of the property.   The property developers can instruct the Bare Trustee on how they want the land to be developed.  If the beneficiaries (the property developer) sell the property, they will sell the shares of the Bare Trustee corporation.   In this scenario, the title holder of the property doesn’t change, just the shareholders of the company.  So, there hasn’t been a change in ownership of the land.  So no property purchase transfer tax needs to paid to the province.  Which can save a business a LOT of money.  Any gain or loss on the sale of the property is taxed in the hands of the beneficiary company, so the property developer will pay the tax on the disposition of the land.

Prior to the new Trust Reporting Rules, the Bare Trustee would file an annual Corporation Income Tax Return (T2), since it is a corporation.  However, with the new Trust Reporting rules, even though a corporation owns the property, the Bare Trustee agreement between the corporation and the property developing company creates a Trust relationship and are now required to file as though they are a Trust.  So now the corporate Bare Trustees will need to file both a Corporation Income Tax Return and a Trust Information Return (T3).

A bare trust arrangement may also exist in many common situations where parents have added their children to title of their home for estate planning purposes or children have added a parent to title in order to qualify for a mortgage.  In these instances there is no formal written agreement that sets up this arrangement as a trust arrangement, but it is in fact a bare trust, where one person holds an asset on behalf of another person, but the benefit of the asset belongs to the first person.  Certain trust arrangements are exempt from this reporting requirement.  Some common examples are:

• If the trust arrangement has not been in place for three months;
• If the underlying asset(s) are valued at less than $50,000 throughout the year – assets may include deposit accounts, government debt obligations or listed securities; and several more but less common to individual taxpayers.

The tricky part is figuring out if you have a trust arrangement that even needs to be considered for these reporting rules.  As these situations are not well documented and most taxpayers will not even know to ask.  Our firm is taking this very seriously and will be having a conversation with every one of our clients to make sure we do not miss this new form as the penalties are outrageous.

The penalties for not filing the returns are pretty high.  There is the standard $25 a day, with a minimum of $100 to a maximum of $2,500.  But there is also an additional penalty of the greater of $2,500 or 5% of the maximum value of the property held during the taxation year if there was a failure to file or gross negligence can be proven.  So, in the case of the example above, where there is a property of $4.5M held by a Bare Trustee, if the T3 Trust Information Return is never filed, there will be the initial $2,500 penalty plus a potential additional $225,000 penalty owed for not filing for one year. 

The good news is that these new rules don’t apply to 2022.  They will apply for tax years ending after December 30, 2023.  It is a great time to reach out to your accountants to chat about what these new reporting rules mean to you. 

---

[1] BC government website: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/calculation-examples#:~:text=General%20property%20transfer%20tax%20rate,-See%20general%20property&text=Calculate%20the%20tax%20payable%3A,%24450%2C000%20X%202%25%20%3D%20%249%2C000

A dividend is one of the most common ways that Owner-managed businesses will distribute funds to the owners. Dividends are also distributions of their accumulated after-tax dollars that companies will give their shareholders. However, there are some key points that shareholders need to be aware of when they decide that they would like to receive dividends. Here’s a quick and dirty checklist:

1. Is there a class of Shares that can pay dividends? If so, what are the rights and restrictions?
2. Are there Retained Earnings available to be distributed to the shareholders?
   Dividends are distributions to shareholders with after-tax corporate dollars. So if your company is in a Deficit, the company may not be able to distribute dividends.
3. Is there a set amount that you need to distribute as dividends for your class of shares? Or is it discretionary?
4. Are you distributing Eligible or Non-eligible dividends to the shareholders?
5. Do you have all of the relevant information for the shareholders? (SIN/Business Number, Address)
6. Have the Directors of the company authorized the payment of the dividends, by way of a director’s resolution?
7. Who is preparing the T5 Dividend Slip and Summary that needs to be filed with the Canada Revenue Agency (CRA)? If it is your accountant, please make sure that you have discussed this with them so that they are aware that these forms need to be filed.

February is a month that is commonly used for paying out bonuses to employees. One of the reasons for this is so that employees can use those bonuses to contribute into their RRSPs prior to the RRSP contribution deadline. Another reason, is that it allows employees to be taxed on these bonuses in the following year, vs the previous year. Some employers will pay out this bonus directly and employees can contribute it into their own RRSP plans or employers will make the contributions into a Group RRSP that the employer establishes for their employees. There are pros and cons to both options.

Self Administered plans Benefits	Group RRSP Benefits
You control where your money is invested	The company takes care of managing the plan (i.e. less work for you)
You can determine how much you put into a plan	Your withholding taxes from your employer are less (takes into account the deduction you’d receive for making an RRSP contribution), so more $$ is in your pocket each pay period
You can enlist various advisors to assist with making decisions about where your money is invested	As the withholding taxes are reduced with the contribution, you can put more money into your RRSP right away rather than waiting for next year’s tax refund

Self Administered plans Cautions	Group RRSP Cautions
It can be more time consuming for you	You don’t control how your money is invested
You may forget to deposit an amount into your plan	There could be some restrictions on what happens when you leave your company.
	What your money is invested in may be restricted to certain types of investments

Happy New Year!  January is a time for Fresh Starts. For your business, it’s also a time to reflect on how the year went.  And as Accountants, its now the beginning of the time when we start reaching out to our clients to remind them of what we’ll be needing in order to prepare their corporate tax returns. 

Here’s a snapshot of the checklist that we’ll generally send out to our new clients.  What I’m adding though is some of the reasoning behind the requests.

1) Two years of historical tax returns, financial statements, and notices of assessments – both corporate and personal

a. This allows us to get a general idea of how your business is doing and to gain a better understanding of how your business operates.
b. This also allows us to see where there are potential tax and accounting treatments that could be more advantageous for you and your company.

2) Any legal agreements outstanding for the company

a. For accounting and tax purposes, this allows us to understand if there are any liabilities that need to be recorded, and any potential liabilities that may be arising in the future.
    i. This supports us in our helping you plan your cash flow and also for some potential tax planning.

3) Minute book, including certificate of incorporation as well as supporting schedules, share register, bylaws, shareholder agreement (if applicable)

a. For many small businesses, there is a tendency for business owners to self-incorporate. While this is a legitimate way to incorporate, there is a tendency to forget or be unaware that there are certain documents/agreements that need to be in place in order to ensure that the business is properly incorporated.
    i. The most common mistake is that shares are not issued. Shares are the asset that each shareholder should hold. This piece of paper is what is needed to indicate that the company is owned by someone.
b. The minute book is a record of the actions that the directors of the company have approved.
    i. Common documents in the minute book are:
      1. The appointment of directors
      2. Resolutions approving any issuance of dividends
        a. The type of dividend that have been approved.

4) A copy of the bookkeeping file and password (i.e. Quickbooks Desktop/Sage) or an invitation sent to [email protected] to access the accounting system if it is web-based (i.e. Quickbooks Online, Xero, Wave).

a. This is to allow us to generate reports like the Balance Sheet, Profit & Loss Statement, and Trial Balance
    i. These are reports that we will use to create your financial statements and tax return.
b. It also allows us to focus on the entries that make up a balance in the accounting records without having to ask you about it, which allows us to be as efficient as possible

5) Year-end bank reconciliation and bank statement for all bank accounts

a. This allows us to see that you have performed a reconciliation of your cash accounts and that you understand what cheques have not been cashed, or what funds have not been received.

6) Inventory count documentation at year end (if applicable)

a. This allows us to ensure that what you have on your books matches what you actually have in inventory

7) Investment portfolio statement for marketable securities held by the corporation;

a. For accounting and tax purposes, we need to know if there are any realized or unrealized gains or losses in your portfolio.
b. We will also need the Foreign Reporting statement that your Financial Institution provides you with as there is a separate Tax Form (T1135) that may need to be completed and submitted to the CRA>

8) Copies of insurance policies if insurance has been prepaid for the year;

a. This allows us to determine if a portion of the insurance that was paid in the year, should still be recorded on your books. If there is a portion of the policy that hasn’t expired by the end of your fiscal year-end, this amount would need to remain on your books as a prepaid expense.
    i. Example. You pay your insurance on an annual basis. But the insurance period is from October to September each year. You have a calendar year-end. Therefore, in December, you should have on your Balance Sheeet 9 months worth of a prepaid expense (Jan – Sept) since this portion of your insurance policy hasn’t been used.

9) Purchase agreements and/or bills of sale for any capital assets acquired or disposed of during the year.

a. Certain capital assets, like vehicles, have restrictions on how much can be capitalized for tax purposes. Therefore, having the purchase agreements allows us to determine how much can be capitalized on your tax return.
b. This also allows us to determine if any leased assets should be treated as a capital or operating lease for accounting and tax purposes.

10) Year-end credit card reconciliations and credit card statements

a. This ensures that you have performed a proper cut off to the end of your fiscal period since it is rare that a Credit Card statement will be created at the end of a month.
b. This also ensures that you are aware as to what your upcoming credit card payment will need to be in the following month.

11) Copies of payroll calculations and remittances made for the year;

a. This supports any T4 Slips and Summaries that need to be prepared in a year.

12) Statements and agreements for any long-term debt, lines of credit, or other financing in place;

a. These statements and agreements allows us to determine if the interest expense has been properly accrued/expensed and as well that the amount of the liability showing up on your Balance Sheet matches what the financial institutions have on their records.

13) Any lease or rental agreements in place;

a. This coincides with the Capital Assets and Long term debt requests

    i. Having this information allows us to assist you in determining if leased assets should be reported on the Balance Sheet and what the related liability would be as well.

14) Canada Revenue Agency (CRA) correspondence.

a. This would include any Notices of Assessment or Reassessment
b. Any requests that they may have sent you
c. This allows us to understand if there are any outstanding payments to be made, what instalments have been made during the year, and if the CRA disagrees with any of our filing positions.

15) Copies of any T-slips received in the year (T3/T5/T5008, etc);

a. This allows us to assist you in ensuring that your investment portfolio is properly accounted for
b. It also allows us to ensure that your investment income is properly recorded on your income statement
    i. These slips will disclose what portion of the investment income is considered to be interest income, dividend income or a capital gain

16) Details of any home office costs and mileage incurred during the year if not already included in the company bookkeeping.

a. This allows us to help you calculate the portion of your home office and mileage costs that are reimbursable to you for the usage of your car or office.

17) Mileage log for any business use of personal vehicles or personal use of business vehicles

a. This allows us to deduct the appropriate amount in your business and save you from CRA audit headache later on.
b. We may also need to record a personal benefit to you personally as an employee or shareholder so it is important to have support so that these amounts are not over/under stated.