Bookkeeping for small businesses in Ontario: what to do monthly, quarterly and at year-end

Why does a small corporation need a bookkeeping routine?

Because the CRA's dates do not wait for the books. A corporation that collects GST/HST, pays staff or pays tax in instalments has filings due all year, whether or not anyone has looked at the numbers since last spring. A routine turns those dates into a habit. Done monthly, each task is small. Left to the end of the year, the same work arrives all at once, in the busiest season, with the questions nobody remembers the answers to. None of this needs to be complicated. Most owner-managed corporations need the same short list of tasks, repeated on the same days. Here is the routine we use.

What should you do every month?

• Record every transaction. Every sale you invoiced, every payment you received, every purchase and every bill. Accounting software with a bank feed does most of the typing, but someone still needs to say what each line was for.
• Keep the receipt, not just the card line. A card statement tells you that money was spent. The receipt tells you what was bought and how much of it was GST/HST you can claim back as an input tax credit.
• Reconcile every account. Match the bank and credit card balances in your books to the statements, line by line. Include the account you barely use. Bank feeds drop and duplicate transactions, and reconciliation is how you find them.
• Note anything unusual. An owner draw, a loan, a new vehicle or piece of equipment, a customer who paid cash, a refund. These are the items that cannot be sorted from a bank line alone, and they matter at year-end.
• Run payroll and remit on your CRA schedule. If the corporation pays anyone, including you, the deductions are remitted on the schedule the CRA assigns. Our guide to payroll remittance schedules explains how that schedule is set.
• File GST/HST if you are a monthly filer. Monthly filers file and pay one month after the end of each reporting period (CRA).

What should you do every quarter?

• File GST/HST if you are a quarterly filer. Quarterly filers also file and pay one month after the end of the reporting period, so the quarter's books need to be closed within weeks of the quarter ending (CRA).
• Check your sales against the small supplier limit. If you are not registered for GST/HST, watch your taxable sales. Once they pass $30,000 over four consecutive calendar quarters, or in a single quarter, registration is required (CRA). Our guide to the $30,000 threshold explains the timing.
• Pay corporate instalments if they apply. Some corporations must pay tax in instalments, monthly or quarterly depending on CRA conditions, due on the last day of each month or quarter. If you are not sure whether yours does, that is worth a question before the first one is missed.
• Look at the numbers, not just the filings. A quarter is long enough to see a trend. Compare sales and margins with the last quarter, check who owes you money, and decide whether you need to set more aside for tax.

What has to happen at year-end?

• Close the books. Every account reconciled to its statement, every unusual item explained, and income and expenses placed in the right year. This step is short if the monthly routine was kept, and long if it was not.
• Prepare the financial statements. A balance sheet and an income statement, prepared from the closed books. These go with the corporate return.
• Prepare and file the T2. Every resident corporation must file a T2 for every tax year, even with no tax to pay and even if it was inactive. The return is due within six months of the end of the corporation's tax year (CRA).
• Pay the balance on time. Tax owing is generally due two months after year-end, or three months for a Canadian-controlled private corporation claiming the small business deduction, if CRA conditions are met. That is well before the filing deadline, so the numbers need to be known early.
• File GST/HST if you are an annual filer. Annual filers file and pay three months after their fiscal year-end.
• Issue T4 slips if you have employees. T4 slips and the summary are due by the last day of February after the calendar year. If that day falls on a weekend or holiday, the next business day.

Our guide to what a corporate year-end involves walks through each step in more detail.

What records should a small business keep?

Keep anything that supports a number in your books or a return:

• Bank and credit card statements for every business account.
• Sales invoices and receipts for income, including cash sales.
• Purchase invoices and receipts, showing the GST/HST paid.
• Payroll records: who was paid, how much, and what was deducted.
• Contracts, loan documents and asset purchases, such as vehicles and equipment.
• Copies of every return filed and every notice the CRA sends back.

Keep them organized by month. A shared folder with one sub-folder per month is enough for most small businesses.

The CRA's general rule is to keep business records for six years from the end of the last tax year they relate to. If a return is filed late, the six years run from the filing date. Some records, such as long-term property records and share registers, are kept indefinitely. Do not destroy records early without written permission from the CRA (CRA).

What if your books are already behind?

Start with the bank statements, because they are the one complete record you already have. Reconcile each account month by month, oldest first, then add the receipts and invoices behind the larger items. Do not wait for a perfect set of paperwork. A gap in the records is normal, and catching up is ordinary work. What matters is getting current before the next CRA date, then keeping the monthly routine from there.

Weekends and holidays

If a return or payment is due on a Saturday, Sunday or a public holiday the CRA recognizes, it is on time if the CRA receives it, or it is postmarked, by the next business day.

What to do next

Pick one day each month for the routine, and put the quarter-end and year-end dates for your corporation in your calendar now. If you would rather hand the routine to someone, book a free consultation and we will look at where your books stand and what it would take to keep them current.