This is Part 2 of our series on preparing for corporate year-end taxes which explains bookkeeping requirements.
“Yay tax time!” – said pretty much no business owner, ever. We understand corporate year-end can be a stressful and frustrating time of year between wrapping up the current fiscal year, planning for the next year, and needing to have corporate taxes done. To help ease the time and effort that is required when scrambling to get the accountant all that important information for year-end taxes, we have written this series on preparing for corporate year end taxes in hopes that it can help business owners prepare throughout the year and ease some of that stress come year-end. In part 2 of this series, we explain the bookkeeping requirements for corporate year-end taxes.
It is recommended to complete Bookkeeping throughout the year in order to properly prepare for year-end taxes, as well as keep the company’s financials in order. Bookkeeping involves a great deal of information and details pertaining to the company’s day-to-day financials that are most commonly recorded in accounting software. For more information on different bookkeeping tasks, check out our article on Recommended Bookkeeping Tasks and Frequency, which also includes a downloadable checklist.
In order to complete year-end taxes, your accountant will need access to reconciled bookkeeping records. Reconciliation is the process of confirming the accuracy of accounting records by regularly ensuring the correct balances are recorded in all of the accounts, and is typically done daily, monthly, or annually. The reconciliation can be done by the bookkeeper entering the records, or by an accountant. Reconciling involves comparing 2 sets of records to ensure they match up and have the same values on the same dates, usually one statement is created internally and the second statement is created externally such as from a bank, supplier, or a customer. Reconciliation is important to mitigate errors that may have been made internally or by financial institutions and can catch fraudulent withdrawals from an account. For year-end, it is important that reconciled bookkeeping records are given to the accountant in order to report the correct numbers on the corporate tax return.
Types of Reconciliation
1. Bank Reconciliation
This is the most common type of reconciliation done throughout the year for bookkeeping records. This process involves comparing the value of recorded bank transactions in the accounting software to monthly bank statements from the financial institution. This could include chequing and savings account statements, as well as credit card statements. The bookkeeper or accountant will go through each transaction within the accounting software and compare it to each transaction on the monthly bank statements to ensure the records are accurate, including the value of the transaction, the date, and the account the transaction has been applied to.
2. Vendor Reconciliation
This type of reconciliation involves comparing the accounts payable ledger to the statements provided by the supplier. The accounts payable ledger is a detailed listing of all the invoices received from suppliers that have been entered into the accounting software and provides an overall balance. The information included in this ledger typically includes the invoice number, date, supplier name, amount owed, as well as the amount paid with the payment date. Many suppliers do not provide statements automatically, so they may need to be requested periodically to reconcile the accounts.
3. Customer Reconciliation
Customer reconciliation involves comparing the accounts receivable ledger with the receivables control account in the general ledger to ensure they show the same balance. The accounts receivable ledger shows the records of all customer invoices and payments that have been made, meaning it shows both outstanding and paid invoices that were sent to customers. The receivables control account is a summary account within the general ledger that shows the total amounts rather than each individual invoice or customer. For example, it will summarize the total sales in one day, the total payments received from customers in one day, or the total amount owed by all customers. The general ledger is the summarized listing of all the different ledgers, which are collections of accounts where all of the different transactions are recorded.
Reconcile to File
It is essential to reconcile to file! All bookkeeping records must be reconciled in order for accountants to file taxes come year-end. Some of the important reconciliations include bank statements, accounts receivable, and accounts payable. In order to better prepare for year-end taxes and avoid added stress come year-end, it is recommended to perform these reconciliations throughout the year. Reconciling throughout the year will also help the business in having proper accounting records for their financial statements to be able to make important business decisions.
Next in this series is Part 3 – Payroll Records.
Download this resource Preparing for Corporate Year-End Taxes: Part 2 – Bookkeeping.