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.