Five Star Accounting FAQ
This section features some of our frequently asked questions:
My income statement shows a profit but I have no money in the bank. How is that possible?
This is an extremely common question for small business owners. Cash is king, no doubt about it. As a business owner, you are well aware of your cash position every time you write a cheque. But income statements include numbers that are non cash, or have yet to be converted into cash. For example, you have $10K in sales, but of that $8K has not been collected and is included in accounts receivable. You haven't received the cash yet, but your income statement records the revenue. Or, you show expenses related to office supplies, but have yet to pay the visa bill associated with it. Also, remember that there are truly non cash expenses. For example, amortization of fixed assets is the gradual expensing of a previous purchase. You may have already paid for the asset, but each month, you get to expense a portion of that.
You really need to see your balance sheet to see where your 'cash' is. Look at how much others owe you. Look at how little (perhaps) you owe others. Another common culprit is debt. As you pay down debt, you are able to expense the interest portion only, but the capital portion offsets the debt on your balance sheet. So, although your bank is taking out money (cash), most of this doesn't hit your income statement, thus showing a 'profit'.
Each company is different. If you are really perplexed, ask the staff at Five Star Accounting for specific explanations related to your company.
I need money for a personal unexpected expense. How can I borrow money from my company?
If your company has excess cash, you can take out money by way of a Shareholder Loan (SHL). CRA will allow this loan to remain on your books but for only a year. If you have not or cannot pay this loan back to your company by the next year end, you will need to declare this loan as income on your personal tax return and be taxed as such. So, for short term borrowing, a SHL is ok. Be wary of the possible tax implications though if you need funds for a longer period.
I need to take out a bank loan for my company but my bank wants to see a budget. How do I go about getting one?
A budget is a projection, or estimate, of how you see your company performing over a future period. You will need to project your sales and expenses. In doing so, you will need to make assumptions which you should be prepared to explain to your bank. For example, "Why do you think your sales will increase 20% next year? and similar questions. The staff at Five Star Accounting can help you calculate your budget in addition to questioning your assumptions so that you are well prepared to get that loan.
I’m just setting up a business performing a trade. Do I have to get a GST number?
Technically, you do not have to get a GST number unless your sales are over $30,000 per year. As we anticipate the growth of businesses, we recommend getting a GST number right away for a few reasons. First, with a GST number you are able to get back, or claim, the GST that you pay on your business purchases, (for example on your supplies or fixed assets). Also, you don’t have to monitor your sales month to month in order to determine when you hit that $30K mark. Once you do, (at some point during the year), you have 30 days to get the number. You cannot go back and get the GST credits, (called ITCs) from purchases made earlier in the year, either. So, unless you have just a hobby where you know for certain your revenue will always be under $30k per year, it is recommended that you be proactive and register your company for GST right from the start. You will also have to collect and remit the GST you will now charge your clients, but since most businesses do this, yours will not be at a disadvantage.
I am ready for my accountant to work on my year end and compute my personal (or company) taxes. What do I need to bring to them?
It is not uncommon for our clients to bring in shoe (or bigger!) boxes of papers and receipts relevant to their business for us to sort through. In fact, when in doubt about the usefulness of a document, just include it with your papers. However, there are specific documents we need to receive in order complete your year end. These include bank statements, supplier bills, customer invoices, credit card statements and receipts, deposit slips, government remittance forms from payments made throughout the year, the prior year’s financial statement and income tax return if applicable. If you are a new client, we also need to see the Articles of Incorporation and shareholder information (for corporate clients). If the prior year was done by another accountant, we prefer a back up copy of data such as a QuickBooks file. Finally we need to see any leases and loan agreements to calculate interest.
Our staff will easily and efficiently be able to pick up where your previous bookkeeper or accountant left off with the above information. As we work on your account, we may have a few questions which we will contact you on. After a short while, we will let you know your year end is complete, advise you of our results and complete your income tax return. When you come by, we will have your documents and tax return ready for signing and have you on your way to more important tasks - managing your business!