I know what you’re thinking… why are we starting a blog in July with a title that is more consistent with the festivities at the end of December? Well… when we talk about year ends for a corporation, they can occur at the end of any month during the year. That said, the corporation gets to choose its year end once and then it stays put year after year. This is known as the fiscal year. Individuals like you and I, proprietorships and partnerships always observe the calendar year end as our fiscal year end. Such is life. So why am I even bringing this up?
Year ends, when it comes to the financial side of a business, represent a time of year when all the numbers need to be tidied up, consolidated, agreed to by management, and presented to the accountant for tax filing with Revenue Canada. Once filed, “Notices of Assessment” are issued by Revenue Canada and any outstanding corporate or personal taxes are paid – preferably on time.
The statements issued by the bookkeepers and verified by the accountants become important benchmarks as to the financial viability of the business. Comparisons to previous years are useful in gauging the ongoing success of the business and whether or not financial and other goals are being met. All of this information is of interest to owners, managers, directors, shareholders, banks & lending agencies, potential partners or investors and, of course, Revenue Canada. By the way, statements can be generated at any time during the fiscal year including monthly, quarterly, etc. It all hinges on the books being up to date.
For the bookkeepers or bookkeeping services like us here at Fiscal Performance, it means additional work to do all of the amalgamating, tidying, consolidating and the generation of the relevant reports. Typically the end result in terms of reports includes the Profit & Loss statement for all businesses and the Balance Sheet for corporations. Additional reports including comparison reports are also a part of this.
As part of the year end process, bookkeepers need to ensure that any and all accruals are accurate to the moment of year end and reversed the following day if and when appropriate. Accruals are the fancy way of saying that all funds are in their appropriate accounts at a particular point in time to reflect the true financial position of the business. As an example, prepaid insurance is only earned in increments by the insuring company as the policy year passes. If the policy year crosses over the fiscal year, not all of the prepaid premium can be expensed and must stay on the company’s books as an asset on the Balance Sheet. If all of this is too confusing, I’d be happy to meet with you to clarify and discuss how we take care of it for you.
Anyway, that’s my take on New Year in July. Year ends are important in many ways and not just for businesses. We celebrate birthdays on our own personal year end. In the overall scheme of things, year ends represent milestones. May all of yours be joyous and worth of celebration. Oh… and… Happy New Year!
To new beginnings,
Tracy