Top 5 Accounting Tips for Toronto Business

MP Group is a Toronto based accounting firm with expertise in accounting and tax matters that entrepreneurs and private businesses face.  We have gone through common accounting matters and summarize top 10 accounting tips for your business. 

1) Maintain Good Accounting Records

To manage the business appropriately, business owners need to understand what expenses and revenues they are incurring/generating to carry on a successful and profitable business.  That is why maintaining clean accounting books and records is important.  Expense invoices and receipts should be tracked, organized, classified and posted in accounting software.  

Source documents need to filed properly in folders by vendors, and maintained in an orderly manner so that they can be retrieved when needed.  Also, all this should be done in a timely and periodic manner and as soon as daily based on the size of the organization.  Controls should be in place to ensure that source documents such as invoices and receipts should be received by the appropriate personnel for accounting. 

2) Prepare Financial Reports

How is the business performing?  What was the gross profit for the month?  Did we meet our revenue targets?  Why are meal & entertainment expenses for high?  These are some of the many questions that can be answered if monthly or periodic financial reports are being prepared.  This is where the accounting function serves such a critical role. By having good accounting records and transactions posted in accounting software as noted above, the management team of the company can now prepare financial reports such as an Income Statement, Balance Sheet, etc.

These reports now take data and transactions to information that can identify problems and for analyzing.  Preparing a monthly income statement will allow management to assess revenues and whether targets are met, assess profit margins, assess key ratios, and identify expense categories that have spiked from previous months.  Preparing financial reports can now allow management to set targets and compare actual results from the targets.

3) Prepare Budgets

If you want to set targets and plan for future business growth, budgeting is a critical tool.  Budgeting helps you plan for future transactions, and set goals for your company to achieve.  By budgeting for future periods, you have a benchmark to assess actual performance against budgeted amounts and investigate variances further.  

This can help management determine whether there are some problems internally that need to be changed to ensure that targets are met.  Preparing budgets periodically such as monthly or quarterly will help identify problems sooner rather than later and areas for improvement.

4) Keep Track of HST and Corporate Taxes

By maintaining good records and ensuring all transactions are recorded, it can help identify your tax liability on an ongoing basis.  If accounting software is being used, business owners or management can pull up HST account and identify the amount of HST payable.  Also, by reviewing the bottom line, a simple tax calculation can be made to calculate the estimated corporate tax payment for the period.  This is important to track from a cash flow standpoint as sometimes the HST payable can be significant and not being aware of the amount to be paid can create a cash flow pinch.  Therefore, it is a good idea to review HST accounts on amounts collected on sales and HST paid on expenditure to have an idea on what is owed.  Also, reviewing accounting records for the corporate taxes owing periodically will help ensure that a future payment is accounted for.

5) Keep track of Shareholder Transactions

A lot of private businesses are operated closely by the owner.  At times, there can be transactions between the shareholder and the company.  Sometimes, the shareholder may pay for business expenses personally or use personal motor vehicle for business purposes.  These expenditures should be appropriately tracked by the company and the shareholder as these expenses incurred by the shareholder can be reimbursed by the company to the shareholder tax free.  

In addition, fund withdrawn by the shareholder need to be tracked and accounted for appropriately.  Funds can be withdrawn by a shareholder as either a loan, dividend or a salary.  Each have different tax treatment, therefore, should be tracked and reviewed periodically (i.e., loans to shareholders outstanding for greater than 1 year can lead to adverse tax treatment such as income inclusion).  Also, funds transferred into the company by the shareholder should be tracked and classified as a loan so that the shareholder can withdraw.

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