If incorporating is the best decision for you, here are the most important things to consider when doing your bookkeeping.

Balance sheet and income statement

Once you incorporate, you have to tell CRA how much money the corporation made and what it owns.

As an individual, you don’t have to tell CRA what you own on your personal tax return; this is the most significant change from personal to corporate bookkeeping.

The main reason why I recommend using an accounting software (like QBO) for a corporation is because manually tracking what the corporation owns can be tedious. Accounting software will keep track of your income, expenses, assets, and liabilities for you.

If you are using an excel file, you may not have correct balancing accounts for the corporation. Human error is real, and last time I checked, we’re human.

Separation of business and personal

There is a lot of corporate red tape when it comes to separating personal and corporate assets and expenses.

Once you incorporate your personal bookkeeping stops.

You can no longer expense any purchases on your personal tax return.
Any income you earn must go to the corporate account before it is passed on to you as salary or dividends.
There are only certain expense transactions that you can claim from your personal to your corporation.

Accrual accounting

This term applies to personal and corporate accounting, but I want to highlight it here.

Under accrual accounting, you must recognize a sale the month you earned it.

Earning income means that you completed all the work for that person, and they now owe you for the service completed (regardless of whether they have paid you or not).
You may have direct billing to insurance companies; you earn the income when you see your patient, regardless of when the cash comes into your account.

To be audit-proof, all of your expenses should be entered as of the invoice date, regardless of when you pay the invoice.

QBO has set up invoices and expenses so that you can properly accrue your transactions.

This is very important at year-end. If you purchase supplements on December 12th but don’t pay until January, you should be deducting that expense in the current year when it was ordered.
On the revenue side, any treatments you complete in December must be included in the current year’s sales, even if you don’t get the money until January.

Year-end adjusting entries

I highly recommend working with an accountant for your annual corporate income tax return. They will provide a list of annual adjusting entries for tax-related impact on your return. Also, they spent years mastering the ins and outs of corporate accounting to they will do it right!

This note is for you to be aware that accountants will calculate special year-end adjustments for you.

Depending on the accountant you work with, they may not book these entries into your QBO so you or your bookkeeper will have to make the adjustments.
The goal will be for your QBO to match your income tax balance sheet and income statement once the adjusting entries are booked.

RESOURCES:

If you are a corporation and have questions about your corporate income tax, book a free discovery call with us at https://www.tyagigroup.ca/book.

Book now to secure your spot for 2021!