Introduction
Most incorporated professionals delegate bookkeeping entirely — to an in-house bookkeeper, an outsourced service, or a part-time contractor. When a new bookkeeper takes over — or when an existing one makes systemic errors — those errors accumulate throughout the year and are discovered at year-end T2 preparation. The cost of discovery at that point depends on what was done wrong and how long it went undetected.
Scenario: Waverly Architecture Corp Discovers Systemic Bookkeeping Errors in October
Waverly Architecture Corp brings in a new bookkeeper in January. By October, the CPA reviewing the year-to-date financials for year-end planning identifies:
$38,000 in client invoices recorded as revenue in the wrong period — accelerating income from 2027 into 2026.
$12,000 in HST claimed as an input tax credit on invoices that were not paid (and therefore not eligible for the ITC under the accrual HST rules).
$22,000 in personal expenses on the corporate credit card booked as professional development and travel.
Problem 1: Revenue in the Wrong Period
Recording $38,000 of 2027 revenue in 2026 overstates 2026 corporate income and understates 2027 income. The corporation pays corporate tax in 2026 on income that is not yet earned. The fix is a correcting journal entry in 2026 — reversing the early-recognised revenue before the T2 is filed. Discovered in October, this is correctable before the year end.
If discovered after filing the 2026 T2, an amended T2 would be required — a more involved process but still manageable.
Problem 2: ITC on Unpaid Invoices
HST input tax credits on the accrual basis can be claimed when the invoice is received — regardless of payment. However, if the corporation is on the cash basis for HST (which smaller registrants may elect), ITCs are only claimable when the invoice is paid.
The bookkeeper has claimed $12,000 in ITCs on invoices that have not been paid. If the corporation is on the cash basis, these ITCs are premature — they should be claimed in the period the invoices are paid, not when received.
The fix: reverse the ITCs in the period claimed and re-claim them when the invoices are paid. If the HST return for the affected period has already been filed, an adjustment is required on a future return.
Problem 3: Personal Expenses as Corporate Deductions
$22,000 in personal expenses booked as corporate deductions creates both an income tax issue (the deduction is not legitimate) and a shareholder benefit issue (the personal benefit flowing from the corporation).
The fix before filing: reclassify the $22,000 to the shareholder loan account or to a specific shareholder expense account. The year-end treatment then depends on how the shareholder loan is handled — repaid, converted to salary, or declared as a dividend.
Preventing This in Future Years
Monthly reconciliation of the bookkeeping by the CPA — or at minimum, a quarterly review — catches these errors before they accumulate to year-end significance. The cost of a monthly review is a fraction of the cost of correcting twelve months of errors during the compressed year-end preparation period.
When to Speak With a CPA
When a new bookkeeper starts — even a highly qualified one — a CPA review of the chart of accounts, the coding instructions, and the first two months of entries is worthwhile. Systemic coding errors are much easier to fix in month two than in month twelve.