Did You Know?
The following tips are provided for information purposes only and are not intended for use without consulting with an accountant.
DYK
An accounting error can cost you twice as much as the actual value. What do we mean by that? For example, if you make a mistake (whether it is an honest or an intentional error, is irrelevant), that is worth $500, if the transaction is not acceptable, the initial $500 will be reversed, a penalty of up to $500 can be charged as well as additional penalties and interest back dated to the date of the transaction. This mere $500 could cost you $1,200! Another reason why accounting should be left to the professionals! (At least run your ideas by someone who knows the rules.)
DYK
Changes to late remitting penalties for Source Deductions – announced by the Canada Revenue Agency, as follows:
Starting in July 2003, the current late remitting penalty of 10% will change to a graduated penalty structure. The new revised structure will benefit employers who make every effort to remit but are only late within a few days of the due date. Penalties of 3% will be applied to remittances that are late 3 days or less, 5% for remittances that are 4 or 5 days late, 7% for remittances that are 6 or 7 days late and 10% for remittances that are 8 or more days late. There will be no changes to the failure to deduct or withhold penalty. Employers who fail to remit or pay as and when required will still be subject to the more stringent penalties of 10%, or 20% when the failure was made knowingly or under circumstances amounting to gross negligence.
DYK
A business must only obtain a GST/HST number once it has made over $30,000 per year. At this time the business is responsible for charging GST/HST to its clients and then remitting the GST/HST collected on the Sale of Services and/or Products. Note – it may be beneficial to obtain a GST/HST number while earning well under the $30,000 amount!
DYK
When deciding when and/if to incorporate a business, there are more issues to consider other than the possible tax break.
DYK
Any business using previously owned items can assign the items a fair market value and list them as capital assets in the books. It is essentially the same as providing the company with cash, also known as a capital contribution.
DYK
Although there are rules to follow while maintaining the company’s books, (also known as GAAP – Generally Accepted Accounting Principles), some of the methods have a variety of choices. For example, the methods chosen for calculating depreciation, as well as inventory. The main thing to remember is once a method is chosen, it must be consistently maintained from year to year.
DYK
When bankers, potential investors and board members are requesting the company’s Financial Statements it consists of two reports. They are the Balance Sheet and the Income Statement (also known as the Statement of Profit & Loss). The two reports work together. Without the Income Statement’s bottom line the Balance Sheet would not balance.
DYK
How to maintain your accounting records. The first important thing worth mentioning is that if the business is really small, meaning not a lot of transactions, then perhaps maintaining the accounting records by manual ledgers is all you need. Have a professional assist with the setup. As for the computerized packages: basically they all perform the same tasks and are about the same price. Some are more user-friendly than others. The suggestion is choose a package that is popular where you live so that the support is easily accessible. Also be sure to purchase a recent version. And lastly, don’t buy more than you need.
DYK
When maintaining your records, a common thing is to only enter the transactions. Take it one step further and learn to reconcile to your bank statement every month. Most transactions (at some point) affect cash, by doing the bank rec, you will ensure all transactions are entered and that the bank side is done correctly. One of the most common mistakes in bookkeeping is a novice will enter the bank portion backwards. Just remember when the money is coming into your bank, it is known as a Debit and if the bank is decreasing this is a Credit. (Which can easily be confused as a deposit on the bank statement shows as a credit.)
Speaking of banks, any institution will do. The best bet, is to stay with whoever you deal with personally as you have developed a history. Although it is not necessary to open a separate account for business, it does make things easier to track (this, of course, depends on the amount of activity). There is no harm in deciding to open a business account at a later date.
DYK
If you have to make a payment is US dollars, this can be done on your Canadian account. In the section where you put the dollar portion, just add US. To illustrate, let’s say you have a cheque for the amount of $125.00US. When the cheque clears, the exchange rate of the clearing date will be adding to the original $125.00 amount. For example, if the rate is 1.61 % the cheque will clear at $201.25.
DYK
A petty cash (P/C) flow through account can be set up and reconciled as needed rather than reconciling every time the petty cash fund is low. Remember once the P/C fund is established this value is what shows on the Balance Sheet. All other activity for petty cash will be reflected on the Income Statement.
DYK
When recording items that occur several times a month, ie. Parking, add them all together for one month and enter as one entry. Don’t forget the GST is included in the price.
Remember when deciding how to code an expense there are guidelines. For example for meals: If the meal is out-of-town re a business trip / course, etc, code the meal to Travel expense. If the meal is in town with a client or at a networking function, or a party/meal for the entire staff, charge the meal to Promotion expense. However if the meal is on your own, on the go, or with only one of your employees, the meal is expensed to Meals. The coding of meals is important for tax purposes.
DYK
Gifts from your employer, are they tax-free, or not?
[During holiday season], it’s not uncommon for employers to give gifts (other than cash) to their employees. And while everyone enjoys receiving gifts, the type of gift your employer chooses can either be tax-free to you and tax-deductible to your employer – or not! This distinction is covered in an administrative policy on Gifts and Awards Given by Employers to their Employees, issued by the Canada Revenue Agency back in 2001 and further clarified since. Click here for details of the policy.
This “Did You Know” was supplied by Janet Gray of Money Coaches Canada.