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December 2008

in this issue

Business Scenario
- Year-end Prep!


Accounting Tip

Did You Know ?


Sandy's Recommendations

Next Issue - Petty Cash


about e-ccounting

e-ccounting is a monthly newsletter focusing on accounting tips and solutions. Our mission is to educate our clients, students and readers by offering these resources in response to your ongoing questions.

It is our objective to gather information and provide easy access for your current and future needs.
Back-issues are available on the accountrain website.

These tips are not complete answers to complex questions. We therefore recommend, when in doubt, contact the professionals or government agency.

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accountrain specializes in the how's and why's of accounting.

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Sandy's Question Corner

Do you have an accounting question? Send it to us at accountrain


accountrain is now offering a series of three workshops. Take one, two or all three and save as you learn. The informative and interactive format guarantees a comfortable and fun learning environment.

2009 dates: To be announced in the Jan issue, as well, will be posted on the accountrain.com website mid January.

The Topics:

1. Understanding How to Read Financial Statements
  • Who's interested in your reports and why
  • Why there's more to the Income Statement than just the "bottom line"
  • What's so important about the Balance Sheet, and
  • Key accounts, definitions, ratios and samples to review.

2. Accounting 101 - for new and small business
  • Review of common questions, including GST, incorporating and many more
  • Choices for maintaining bookkeeping
  • Understanding government requirements
  • Shortcuts, tips and organizing all that paper!

3. Year-end Prep & New Year Planning
  • It's never too late to get organized
  • Understand what's different including: depreciation, accruals, deferred revenue and prepaids
  • How to choose accounting help
  • Preparing for an audit, and how about avoiding an audit!
  • Learn to streamline your bookkeeping methods to save time and money.

For more information or to register, email accountrain

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  • Business Scenario
    - Year-end Prep!
  • A question I am often asked is why does the year-end preparation take so long?

    What exactly does it entail?

  • Answer
  • The answer depends on how organized you are.

    Whether your year-is December 31st or not, there is no time like the present to start getting organized.

    For smaller businesses, the books are often not done on a regular basis and many times accountrain is given the proverbial shoe box full of month's worth of papers.

    Avoid this by maintaining your books weekly, monthly or at least quarterly.

    For larger businesses, the books are usually maintained on a regular basis but then there are a lot of other non-daily items to attend to including:

    (If you are not clear on what each word actually means, each one is defined in the Definitions portion of this Newsletter).

  • Depreciation
  • Although capital cost items should be depreciated monthly or quarterly, they must be done at least annually. A calculation is involved and as it is based on the type of item it is, and even differs if it's the first year, it's probably best if this is left to a professional.

  • Accruals
  • Accruals are merely expenses that haven't been invoiced yet but need to be reflected in their proper year. A good example is salary. If you pay every two weeks and the next pay is Jan 4th, a large portion of that pay may be for the month of December. Therefore, the Dec portion must be calculated and recorded in the proper year. How to do this, and the best way to deal with the actual Jan 4th pay should be reviewed with a professional.

  • Write-Offs
  • At year-end aged items on the Accounts Receivable report should be reviewed with the owner(s) and determined if they are, in fact, collectable. At this time, any uncollectible items should be written off, as well doubtful items should be set up as an Allowance for Doubtful Accounts. (again when in doubt, ask the professionals.)

  • Deferred Revenue
  • This would be any revenue sitting on the Income Statement, that may not fully belong there yet. In other words you will want to transfer it temporarily to the Balance Sheet and only recognize it when it is time. An example of this would be a school: at the beginning of the term you invoiced the student for the full tuition, but only a portion of the courses have been taken by December 31st.

  • Prepaid Expenses
  • The same idea of Deferred Revenue, this represents any expenses paid for but not yet fully used. An example would be insurance. A common thing is to be billed for an entire year of insurance, but by December 31st, only a few months have gone by. Therefore the unused portion should be transferred to the Balance Sheet and recognized once it has been used.

  • Accounting Tip
  • Understanding the Year-end Process will help you be more prepared for it, whether you need to offer assistance to the accounting team or hire additional accounting help.

    Many firms hire intermediate level consultants to act as the go between for the existing staff and the accountants.

    A myth is the accountants won't like this, as they would rather do it. This is untrue, the accountants always prefer the books to be as ready as possible so that they can do what they do best ~ taxes and working on your future. (it is not their job to clean up or work on the past).

  • Did You Know ?
  • Or should I say Do you Know what to address on the Financial Statements (at any time, but particularly) at year-end?

    The Income Statement is important to see how well you did with regards to sales / income / revenue. As well on the Income Statement review your expense accounts and maybe compare the totals to the previous year.

    But, don't forget to review the Balance Sheet. Since these numbers carry-over to the next year, ensure you understand what each one comprises of and agree to them.

    You may need help with this, don't be shy to ask.

    I have mentioned this before in another newsletter, but it is worth repeating ~ all company year-ends do not happen on December 31st.

    Sole proprietors and partnerships must include their earnings (etc.) from any business activity with their personal income tax return. Therefore it must coincide with any T4'd income for the same calendar year. (this means unless incorporated, the year-end is automatically December 31st).

    Whereas corporations are known as a separate entity (not attached to the owner(s)) with their year-ends being the anniversary date of when the business started.

    For more Did You Knows?
  • Definition
  • I have defined the terms discussed in the Answer portion of this month's newsletter. They are:

  • Depreciation
  • Also known as amortization. When large items are purchased, ie company car, new computer, photocopier, etc., they can not be fully expensed in the year they are purchased. This is because they have a life of more than one year. Depending on the type of item, the percentage of depreciation will vary. The cost should therefore be divided over a specific amount of time. These are considered capital assets (also known as fixed or tangible assets). For example equipment has a life of five years and therefore depreciates at 20% per year. A side note - there are different types of depreciation to choose from, an example is declining balance. Another note, the first year, the depreciation is valued at 1/2, therefore equipment would be 10%. Depending on the size of the company depreciation can be calculated monthly, quarterly or once at year end.

  • Accrual
  • When you hear the word accrual, try and remember the word timing! Basically accrual means we record things as they happen, not when the cash changes hands. As soon as a sale takes place, it is recorded regardless of when the payment is actually received. And on the opposite side of that, when an expense is incurred it is recorded upon receipt with the date of payment being irrelevant. This coincides with one of the GAAP Principles, Matching.

  • Write-Off
  • Although the term "I am going to write this off" is often used, in this context it merely means, I am expensing this in my records as an Income Statement item. However, a write off occurs when an Accounts Receivable becomes dated and is determined to be uncollectible. At year-end aged receivables are often reviewed and determined if they are uncollectible. The Receivable is cleared with the other side of the entry becoming an expense known as Bad Debt (expense). A receivable is usually written off if: the client is unable to pay, gone out of business, died or gone bankrupt. If an item is paid once it has been written off, reverse the bad debt expense.

  • Deferred Revenue
  • Revenue is money earned which appears on the Income Statement. Deferred revenue represents money received or promised but not recognized as earned because the work hasn't been done yet, and therefore sits on the Balance Sheet under the Liability section. (A liability is money a company owes, this rings true, because if the job is never done, the money is due back!) Once the job is complete (or partially done) the deferred revenue (or a portion of it) is transferred to the appropriate revenue account. An example of this would be in the construction industry, often work is done in stages. You can transfer or recognize the amount earned once a particular phase is complete. Other examples can be deferred memberships or events.

  • Prepaid Expenses
  • Items paid for prior to an event, or the product being used are recorded on the Balance Sheet classified as a prepaid until the event takes place or the item is used. At this time the value is recognized and transferred to the Income Statement and categorized as the proper expense type. Examples are: last month's rent (this could sit on the Balance Sheet for 5 years, based on the length of the lease), Insurance covering a one year term, prepayments for travel, courses, etc.

    For more definitions ...
  • Sandy's Recommendations
  • Prepare for the accountants.
    Accountants come in at year end to do one of three things:

  • a notice to reader
  • a review, or
  • an audit.
  • Whichever it is, the more you prepare and have done, the cheaper it will be. Any auditor would be happy to provide you with a list of what they would like done.

  • Next Issue - Petty Cash
  • Do you need one and if so how do you maintain it properly.


  • To determine how much your petty cash fund should be.
  • How to set it up Petty Cash in the books.
  • What it should the fund be used for and how to replenish it.
  • How to account for it, including a short cut.
  • Who should be responsible for the Petty Cash fund.
  • 613-789-2623

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