Entrepreneurship & Small Business

# construction business accounting

• Last Updated:
• Jul 15th, 2021 12:16 am
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[OP]
Newbie
Jul 9, 2021
1 posts

## construction business accounting

My brother and I have recently incorporated our small construction company due to the onslaught of so much work and as a result of crossing the \$30 K limit at which we are forced to pay HST. As of recently we are also collecting and remitting WSIB for sub contractors we bring onboard for short stint s to help with small projects.

I have been keeping track of our expenses, etc. on a large custom spreadsheet, mainly because I have not yet had time to learn an accounting package (such as Wave).

On the spreadsheet I track our daily hours worked, the rate of pay per hour, payments the customer makes to the cost of the project and the costs of materials purchased to complete the project. After several discussions with CRA I have learned (I think) that I am best to calculate HST at 13% of the actual cost of the products purchased at the till (including the HST already paid at the till). Apparently that gives us a small markup on goods purchased (which we did not do before we incorporated).

So my first questions is...is the HST calculation described above correct? If not what should the calculation be?

My next questions has to do with term definitions and their specific uses. I would like to know what values I need to keep track of, for tax and accounting purposes, on my spreadsheet. For example, I set up a formula to determine the percentage of project that is accounted for by labour as opposed to materials. However, when I look at that formula I am not sure I am calculating it correctly because terms such as gross sales, net sales, etc. are confusing me. What determines gross sales? Is it the profit we earn from labour and the entire costs of the goods we buy or just that 13% HST paid at the till?

So my question becomes what do I need to track and can anyone clarify some terms I should be aware of in the business accounting world, thereby allowing me to ensure my formulas are correct.

Thanks for any time.

D.
5 replies
Jr. Member
Mar 16, 2008
144 posts
Oakville, ON
When you set up your HST account with the CRA, do you know if you were set up under the quick method of accounting, or regular method?
Assuming you're using the regular method, you should be recording the HST you collect on sales (gross revenue), and the actual HST paid on materials & sub-contracts (ITC), and remitting the difference.

Gross sales is your revenue from the job (without HST), whether you charge a fixed rate or by the hour. You get net profit by deducting your material/labour/sub-contract costs (before HST) from the gross sales.

For WSIB, are you getting clearance certificates from your sub-contractors, or your sub-contractors don't have wsib and you're remitting the wsib premium on the labour portion of the sub-contract?
Member
Jan 18, 2017
402 posts
I say this with love, but based on your questions, you're off to a rough start. But that's okay! We'll start from scratch:

-- You don't necessarily need an "accounting package". If you don't know what you're doing, it will cause a huge mess for your accountant. Excel will work fine for what you are doing, you just need to set your columns up correctly is all.

-- Your HST is 13% ON TOP of whatever you invoice. So if you invoice for \$100, your actual collections will be \$113 - \$100 income and \$13 HST.

-- On your spreadsheet, you'll need two columns, one for Revenue, and one for HST collected. You'll show \$113 deposited to the bank, with \$100 in "Revenue", and the \$13 in "HST collected."

-- You need to decide if you're doing flat-rate jobs, or time and materials. This will dictate (sort of) how you'll deal with GST paid on materials and labour (Called ITC's - Input Tax Credits).

-- You'll have a new column on your spreadsheet, called "HST paid". So when you pay for expenses, you'll show \$113 total paid by the bank for materials at Home Depot, with \$100 going into the "Materials" column of your spreadsheet, and the remaining \$13 going into "HST paid."

-- The total of the "HST collected" column, less the "HST paid" column, gives you your actual HST balance payable.

-- "Gross sales" is strictly the total amount you've invoiced your customers for, and nothing else. (It doesn't include HST collected.)

-- "Net income" is the net profit you earn after paying out your contactors and your materials (Cost of Goods Sold, if you want to get technical.)

I have a Google Sheet template laying around somewhere that you can use if you want, but it's easy to make one yourself. All you're doing is making an Excel version of the old-school blue synoptic paper books.

Good luck - When it comes to construction, you really need to have your numbers dialed in. There's so many different ways to bleed cash in your business that you need to stay on top of the accounting, unfortunately.
Dougj2 wrote: My brother and I have recently incorporated our small construction company due to the onslaught of so much work and as a result of crossing the \$30 K limit at which we are forced to pay HST. As of recently we are also collecting and remitting WSIB for sub contractors we bring onboard for short stint s to help with small projects.

I have been keeping track of our expenses, etc. on a large custom spreadsheet, mainly because I have not yet had time to learn an accounting package (such as Wave).

On the spreadsheet I track our daily hours worked, the rate of pay per hour, payments the customer makes to the cost of the project and the costs of materials purchased to complete the project. After several discussions with CRA I have learned (I think) that I am best to calculate HST at 13% of the actual cost of the products purchased at the till (including the HST already paid at the till). Apparently that gives us a small markup on goods purchased (which we did not do before we incorporated).

So my first questions is...is the HST calculation described above correct? If not what should the calculation be?

My next questions has to do with term definitions and their specific uses. I would like to know what values I need to keep track of, for tax and accounting purposes, on my spreadsheet. For example, I set up a formula to determine the percentage of project that is accounted for by labour as opposed to materials. However, when I look at that formula I am not sure I am calculating it correctly because terms such as gross sales, net sales, etc. are confusing me. What determines gross sales? Is it the profit we earn from labour and the entire costs of the goods we buy or just that 13% HST paid at the till?

So my question becomes what do I need to track and can anyone clarify some terms I should be aware of in the business accounting world, thereby allowing me to ensure my formulas are correct.

Thanks for any time.

D.
______
Canadian & US tax guy (CPA)
Deal Fanatic
Jul 26, 2007
6913 posts
Toronto
Grab a copy of QuickBooks and see if bookkeeping is right job for you and your company. If you can't figure it out, better to spend the dough for bookkeeper to handle your daily affairs. When you are starting out, you don't even need expensive designated accountant. Most bookkeepers are CPA and can even conclude your yearend by filing T2 corporate income tax. Some may even include personal T1 income tax as bonus.

If you can figure out QuickBooks or any other computer accounting software, you can probably do yourself most of government remittances :
- HST remittance
- Source deduction/payroll remittance
- T4 yearend payroll

Only left is T2 corp income tax which you will probably want to send it to an accountant or CPA to do it for you.
[OP]
Newbie
Jul 9, 2021
1 posts
Thanks for all the great information. I will take some time to review my path forward.

D.