Getting Your Books Ready for Year End

Most year-end work is checking. By the time the return gets prepared, every balance in the books should match a statement, a count or a list you could hand to someone.

Reconcile everything to the last day

For a sole proprietor, business income is generally reported on a calendar-year basis, so year end is December 31. Some sole proprietors, and partnerships made up only of individuals, can elect a different fiscal period using Form T1139. A corporation's tax year is its fiscal period, and it can't be longer than 53 weeks.

• Reconcile every bank account, credit card and loan to its statement for the last day of the year.
• List who owes you money (accounts receivable) and check each amount against your invoices.
• List the bills you owe (accounts payable) and check them against the suppliers' invoices.

Those last two matter because most self-employed people have to use the accrual method. You report income in the fiscal period you earn it, no matter when you're paid, and deduct expenses in the period you incur them, whether or not you've paid yet. Farmers, fishers and self-employed commission agents can choose the cash method instead. So a December invoice the customer pays in January still belongs to the year that just ended, and so does a December bill you pay in January.

Count your inventory

If you sell goods, the CRA expects an annual inventory: a list of goods held for sale, plus raw materials, work in progress and finished goods if you manufacture. Make the list, count it at the end of your fiscal period, and keep it with your business records.

For income tax there are two accepted ways to value it. You can value the whole inventory at fair market value, or value each item (or group of items) at cost or fair market value, whichever is lower. Once you pick a method, you use it in later years too. This year's closing inventory becomes next year's opening inventory.

Sort out equipment and big purchases

Go through the year's larger purchases and separate repairs and supplies from capital items. A capital expense generally gives a lasting benefit, improves something beyond its original condition, or buys a separate asset (the CRA's example is a compressor bought for the business). As a general rule, you can't deduct the full cost of depreciable property in the year you buy it. You claim capital cost allowance (CCA) over several years instead. Keep a record of each asset you bought or sold: who from, the cost, and the dates. Our post on capital purchases and CCA covers the classes, the rates and the exceptions.

In September 2026, Finance Canada proposed immediate expensing for most depreciable property acquired on or after September 15, 2026. Some property is left out, buildings included. This is only a proposal and is not law yet, so check where it stands before you count on it.

Close out payroll and GST

If you had employees, your payroll records need each employee's hours and the CPP, EI and income tax you withheld, plus their TD1 forms and copies of every slip and return you filed. T4 slips have to reach employees, and the T4 return has to be filed with the CRA, by the last day of February after the calendar year. If that day falls on a weekend or a CRA-recognized holiday, it's due the next business day. If you file more than 5 information returns for a calendar year, you must file them electronically. Our post on T-slip filing has more.

For GST/HST, most businesses that file annually have to file and pay within 3 months after their fiscal year end. A sole proprietor who files annually, has a December 31 year end and had business income for the year gets until June 15 to file, but has to pay by April 30. If you file monthly or quarterly, check that the GST collected and input tax credits in the books for the year agree with what you actually reported on each GST return.

Check any shareholder loan

In a corporation, money a shareholder took out that wasn't salary or a dividend usually sits in a shareholder loan account. The general rule is that a loan a shareholder receives because they're a shareholder gets included in their income for the year. There are exceptions, including one for a loan repaid within one year after the end of the corporation's tax year in which it was made, as long as the repayment isn't part of a series of loans and repayments. Year end is when that balance should be looked at, alongside how you pay yourself (our post on salary vs dividends covers that side).

What to keep

File the reconciliations, inventory count, asset records, payroll records and GST working papers with the year's paperwork. Generally, the CRA requires records and supporting documents to be kept for six years from the end of the last tax year they relate to, at your place of business or home in Canada, and made available when it asks. You don't send them in with your return. If last year's books never got finished, start with catch-up bookkeeping.

How we help

Year-end prep is part of our bookkeeping work, along with matching books to your bank, payroll and WorkSafeBC, and sales tax filings. For corporations, our business tax work covers the year end, the corporate return and the planning that goes with it. We work in QuickBooks Online, Xero, Wave and our own in-house cloud software.