What Does Corporate (T2) Filing Require?
Corporate accounting and income tax filing generally consists the following steps:
Bookkeeping consists of pulling all your information together into a single report, and accounting for the movement of money in and out of your bank accounts and credit cards. It comprises tasks such as reconciling bank statements and recording invoices and receipts. This work should be done by someone with formal training in bookkeeping.
Adjusting entries are accounting entries in your books that often reflect non-cash transactions, such as the conversion of a prepaid amount from the beginning of the year, into a paid amount at the end of the year. These are the entries that also reconcile (‘reconciling’ is basically an accountant’s way of explaining) any bookkeeping entries that may have been undetermined at the time. E.g., if the owner withdraws money from the corporate bank account, that could be salary, a loan from the corporation, or a payment on a loan from a corporation. Adjusting entries resolve any ambiguity. This kind of work should be done by an accountant.
Financial statements such as a profit and loss statement and a balance sheet are generated from the books after adjusting entries have been made. These form the basis of your corporate income tax return.
Income slips such as T4s and T5s reflect the salary and/or dividends paid by the corporation to individuals. These must be filed with the Canada Revenue Agency, and are used to complete people’s individual (T1) income tax returns.
Finally, the T2 (corporate) income tax return is the document that makes the final calculation of the income tax your corporation owes. This is also filed with the government.