Financial statements for Kingston businesses

Filings include T4 slips, Schedule 1, Schedule 50, the CCA schedule and the GIFI schedules built from the statements.

Financial statement preparation for Kingston companies follows CSRS 4200 and is quoted before the work starts.

Who reads a Kingston company’s statements

Most small companies produce statements because the T2 requires the figures behind them. The statements start to matter when someone outside the business reads them. In Kingston that is often a bank or credit union reviewing a loan or line of credit, a bonding or surety company assessing a contractor, a landlord on a commercial lease, a partner or buyer, or a public-sector purchaser. Queen’s University, Kingston Health Sciences Centre, St. Lawrence College, Canadian Forces Base Kingston and the City of Kingston are among the city’s largest employers, and suppliers and contractors to institutions like these are frequently asked for financial information when they bid or qualify.

Each reader looks for something different. A lender looks at working capital, debt and cash flow against loan covenants. A surety looks at equity and how jobs are accounted for. A buyer looks at normalized earnings. Knowing who the reader is before the year-end is closed decides what has to be measured carefully and what has to be disclosed.

Work in progress for contractors

A contractor at year-end usually has jobs part-finished: costs incurred, some billed, some not. If revenue is recognized only when invoiced, a job that is mostly built but not yet billed shows its costs in one year and its revenue in the next, and the margin is invisible in both. Recognizing revenue as the work is performed requires an estimate of how far each job has progressed and what it will cost to finish. That estimate is only as good as the job costing behind it. Holdbacks are a separate line: they are earned revenue not yet collectible, and holdbacks retained from subtrades are costs already incurred. A surety will read these numbers closely.

Inventory for manufacturers, processors and restaurants

Sustainable manufacturing and food processing are among the sectors Kingston’s economic development strategy has prioritized, and every manufacturer, processor and restaurant carries inventory at year-end. It has to be counted or reliably measured at the year-end date, valued at the lower of cost and net realizable value, and the cost has to include what it should — materials, and for a manufacturer an allocation of labour and overhead. An inventory figure that is estimated rather than counted moves profit between years and is the first thing a lender asks about. A count on the last day of the year, documented, is worth more than any explanation afterwards.

Equipment, vehicles and leaseholds

Trucks, tools, shop equipment, kitchen equipment and fit-out are capital assets. On the statements they are depreciated over their useful lives; on the T2 they are claimed through capital cost allowance at the rates set by their class. The two rarely match, and many small companies simply use the tax figures on the statements, which is acceptable in a compilation if it is disclosed. Leasehold improvements — a restaurant build-out or a clinic renovation in a leased space — are written off over the lease rather than expensed when paid. Equipment loans and leases have to be split between the current and long-term portions so the reader can see what is due in the coming year.

Revenue from institutional and government contracts

Businesses selling to large institutions often work under contracts with milestones, deposits or retainers, and they often wait to be paid. Deposits received before the work is done are a liability (deferred revenue), not income. Receivables from large customers may be slow but are usually good; the aging should be presented so a reader understands why a profitable company holds less cash than expected. Where one customer accounts for a significant share of revenue or receivables, say so in a note — a reader who finds it in diligence trusts the rest of the statements less.

Grants and funding for health and technology companies

Kingston’s economic development strategy concentrates on health innovation and life sciences, and early-stage companies in those fields often receive grants or contributions alongside sales revenue. Government assistance is accounted for according to what it pays for: assistance toward expenses reduces those expenses or is shown as income over the same period, and assistance toward equipment reduces the asset’s cost or is deferred and taken in over its life. Repayable funding is a liability. The terms of each agreement decide the treatment, and they affect the T2 as well, so the statements and the return are prepared from one reading of each agreement.

What a compilation covers, and what it does not

A CSRS 4200 compilation engagement assembles and presents information management supplies. The accountant does not test the judgements, confirm receivables or express any opinion or conclusion. It is neither an audit nor a review, and the statements carry a report saying so. For most owner-managed Kingston companies it is the right product. It stops being enough when a reader needs assurance — a larger loan, a bonding facility above a certain size, a sale, or a contract that specifies a review or audit. Deciding the level before the year-end is better than revisiting closed periods. See compilation versus review.

Working with a remote Canadian CPA

EverStone is one CPA working online, with no Kingston office. Engagements run by secure document exchange, video and e-signature, and the statements and the T2 come from one closed set of books. Related pages: the Kingston small-business CPA page, Kingston trades accounting, and the compilation engagement explainer.

The year-end this all feeds into is our Kingston corporate tax page.

None of this works on records that are behind, which is what bookkeeping in Kingston keeps current.

Where a lender or an agreement calls for assurance rather than a compilation, the next question is what readiness for that engagement involves.

Where the questions are about cash, pricing and growth rather than presentation, see fractional CFO support for Kingston companies.