A construction year end requires more than a bank reconciliation and a copy of the general ledger.
Your accountant may need information about jobs in progress, holdbacks, unbilled work, change orders, equipment, financing, subcontractors, payroll, and tax accounts.
Organizing this information before the year end work begins can reduce follow up questions and help ensure the financial statements and corporate tax return are prepared using complete and accurate information.
1. Complete the Routine Reconciliations
Before sending the accounting records for year end, review and reconcile the following:
- Bank accounts
- Credit cards
- Lines of credit
- Equipment and vehicle loans
- GST account
- Payroll source deductions
- Accounts receivable subledger
- Accounts payable subledger
Old or unexplained reconciling items should be investigated rather than carried forward indefinitely from one period to the next.
2. Prepare a Jobs in Progress Schedule
For each significant open project, prepare a schedule showing the information available for items such as:
- Original contract value
- Approved change orders
- Amounts billed
- Amounts collected
- Costs incurred to date
- Estimated costs to complete
- Holdbacks
- Current project status
The accounting treatment will depend on the applicable facts and accounting framework. Operational information should therefore come from the people who understand the project and not only from the general ledger.
3. Review Accounts Receivable and Holdbacks
Provide an accounts receivable aging and identify amounts that are subject to holdback, disputed, unlikely to be collected, or collected after year end.
Also identify significant customer concentrations and balances that have remained outstanding for an unusual period of time.
4. Identify Unbilled Work and Incomplete Billing
Review completed work, progress certificates, approved field tickets, and change orders that had not been invoiced by year end.
Provide the available supporting documentation and explain why billing had not occurred before year end.
5. Record Supplier Invoices and Subcontractor Costs
Collect invoices relating to work performed before year end even when the invoice was received or paid afterward.
Review purchase orders, supplier statements, subcontractor records, and payments made shortly after year end for costs that may relate to the previous fiscal period but have not yet been recorded in accounts payable.
6. Update the Equipment and Vehicle List
Prepare a list of equipment and vehicles purchased, sold, or traded during the year.
Where applicable, provide:
- Purchase invoices
- Financing agreements
- Trade in documentation
- Sale documentation
- Sale proceeds
Identify equipment or vehicles that are no longer in use or were disposed of during the year, even where a formal sales invoice was not issued.
7. Assemble Payroll Information
Reconcile payroll records to the general ledger and the company’s CRA payroll account.
Identify items such as bonuses, taxable benefits, vacation obligations, and amounts paid to shareholders, owners, or related parties.
Employee time records should also be retained where they support job costing and project reporting.
8. Review GST Records
Reconcile the GST account to filed returns and CRA account information.
Retain purchase invoices and receipts supporting input tax credit claims. Businesses need sufficient records to determine how GST applies to their transactions and to support amounts claimed as input tax credits.
Construction contracts and holdbacks can also involve specific GST timing considerations. Where the correct treatment is uncertain, it should be reviewed based on the contract and the applicable rules rather than assumed from the timing of the accounting entry.
9. Prepare Subcontractor Information for T5018 Reporting
Construction businesses may have T5018 reporting obligations where the applicable requirements are met.
Companies should maintain accurate subcontractor information throughout the year, including:
- Legal name
- Address
- Applicable identifying number
- Total payments made during the reporting period
CRA guidance should be reviewed when determining whether a business is required to file T5018 slips and what amounts must be reported.
10. Collect Legal and Financing Documents
Provide copies of significant documents entered into or changed during the year, including where applicable:
- New or amended loan agreements
- Lease agreements
- Major customer contracts
- Major supplier contracts
- Claims, disputes, or legal correspondence
- Share transactions or corporate reorganizations
- Insurance claims
- Government assistance agreements
- Purchase or sale agreements
11. Explain Significant and Unusual Transactions
Provide a short explanation and supporting documentation for transactions that are unusually large, involve shareholders or related parties, or fall outside the company’s normal operations.
Identifying these transactions early allows the accountant to determine whether additional documentation or analysis will be required.
Start Before the Fiscal Year End
The best time to begin year end preparation is before the fiscal year closes.
This gives management time to address missing project information, review tax planning opportunities, identify unresolved accounting issues, and collect supporting documents while the details are still readily available.
Construction Accounting and Year End Services
Seniuk and Marcato provides bookkeeping, financial statement, corporate tax, and accounting services to construction companies, contractors, and skilled trades in Edmonton and throughout Alberta.
If your company would benefit from a more organized year end process or stronger accounting support throughout the year, contact our team to discuss your needs.
This article provides general information only. T5018, GST, accounting, and tax requirements depend on the business, the contract, and the particular facts. Professional advice should be obtained for specific circumstances.