Ontario Tax & Accounting Terms

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Beck Ltd. Glossary

This glossary helps demystify key financial terms and concepts, enabling clients across Ontario to confidently navigate accounting, bookkeeping, taxation, and incorporation services.If you ever have any additional questions, don’t hesitate to contact us!

Accounts Payable (AP)

Short-term obligations a business owes to suppliers for goods or services purchased on credit. Effective AP management ensures strong vendor relationships, timely payments, and better cash flow control.

Accounts Receivable (AR)

The money owed to a business by its customers for goods or services delivered on credit. Tracking AR helps monitor cash inflows and assess customer payment reliability.

Accrual Accounting

An accounting method where revenue and expenses are recorded when earned or incurred, not when cash changes hands. This approach provides a truer picture of financial performance over time.

Amortization

The gradual repayment of a loan or the spreading of an intangible asset’s cost over time. Amortization ensures expenses are matched with the periods that benefit from the asset. In tax and financial reporting, the similar concept for tangible assets is called depreciation. Both methods ensure expenses are matched to the periods that benefit from the asset.

Depreciation

The reduction in value of physical assets like vehicles or equipment over time. Businesses record depreciation as an expense, reducing taxable income.

Assets

Resources owned or controlled by a business that provide future economic benefit, such as cash, equipment, and property. Assets are classified as current (short-term) or non-current (long-term) and represent one part of a company’s financial position, alongside liabilities (what the business owes) and equity (the owner’s or shareholders’ interest).

Equity

Represents ownership in a company after liabilities are subtracted from assets. Equity shows the residual interest of shareholders in the business.

Liabilities

Debts or financial obligations a company owes, including loans, mortgages, and accounts payable. Liabilities reflect external claims on a company’s resources.

Balance Sheet

A financial statement that summarizes a company’s assets, liabilities, and equity at a specific point in time. It provides a snapshot of financial health and liquidity and is commonly reviewed alongside the income statement, which shows profitability over a period of time.

Income Statement

A financial statement that shows revenue, expenses, and net income over a period. It highlights whether a business is profitable.

Financial Statements

Formal records of financial activity, typically including the balance sheet, income statement, and cash flow statement. They provide a full picture of business performance.

Bookkeeping

The systematic recording of daily financial transactions like sales, purchases, and payroll. Accurate bookkeeping creates the foundation for financial reporting and tax compliance.

Business Advisory

Professional guidance offered to improve decision-making, strategy, and financial performance. Advisory services can cover growth planning, financing, and risk management.

Capital Gains

Profit realized when an asset is sold for more than its purchase price. In Canada, only part of capital gains are taxable, making proper planning essential.

Cash Flow

The movement of money into and out of a business. Strong cash flow management ensures bills, payroll, and investments can be covered without financial stress.

Chart of Accounts

An organized listing of all accounts used to record transactions, grouped into categories like assets, liabilities, and expenses. A clear chart helps keep financial reporting consistent.

General Ledger

The complete record of all a company’s financial transactions. It provides the basis for preparing reports like the balance sheet and income statement.

Compliance

The practice of adhering to tax laws, accounting standards, and regulations. Compliance reduces risk and builds trust with regulators and stakeholders.

Corporate Income Tax

The tax corporations pay on profits after expenses and deductions. Careful planning reduces liability while keeping the business fully compliant with CRA rules.

CRA (Canada Revenue Agency)

The federal agency responsible for collecting taxes, administering benefits, and enforcing tax law in Canada. Businesses interact with CRA for payroll, GST/HST, and income tax filings.

Dividends

Payments a corporation makes to shareholders from its profits. For owners, dividends can be a tax-efficient way to take compensation from a business.

Double-Entry Accounting

A system where each transaction affects two accounts: one debit and one credit. This method keeps books balanced and ensures accuracy.

Expense

Costs a business incurs to generate revenue, such as rent, salaries, or utilities. Tracking expenses ensures profitability and maximizes tax deductions.

Fiscal Year

A 12-month period used for financial reporting and tax filings. Businesses can choose a fiscal year that aligns with their operational cycles.

GAAP (Generally Accepted Accounting Principles)

Standardized accounting rules that guide financial reporting. Adhering to GAAP ensures transparency, accuracy, and comparability of financial statements.

GST/HST (Goods & Services Tax / Harmonized Sales Tax)

A value-added tax levied in Canada on most goods and services. Businesses must collect, remit, and report GST/HST to CRA.

Incorporation

The legal process of forming a corporation separate from its owners. Incorporation offers liability protection and tax planning advantages.

Journal Entry

The formal record of a financial transaction in the accounting system. Each entry specifies accounts affected, debits, and credits.

Net Income

The profit a company earns after deducting expenses and taxes from revenue. Net income indicates overall financial performance.

Payroll

The process of compensating employees for work performed, including wages, salaries, and deductions for taxes and benefits. Payroll must comply with CRA regulations.

Personal Income Tax

The tax individuals pay on income from employment, self-employment, investments, and other sources. Proper filing ensures compliance and avoids penalties.

PREC (Personal Real Estate Corporation)

A Personal Real Estate Corporation (PREC) is a type of professional corporation in Ontario that allows eligible real estate professionals to incorporate their practice. It is a form of specified professional corporation.

Operating Company

The operating company is the active business entity that earns income from real estate activities. Income is reported through the corporation, which may provide tax planning opportunities such as deferring personal taxes, income splitting (where allowed), and accessing the small business deduction.

Holding Company

A holding company can be used in conjunction with a PREC to hold surplus cash or investments, provide an additional layer of asset protection, and facilitate long-term tax planning. It does not carry on active business operations.

Retained Earnings

The portion of profits kept in the business rather than distributed as dividends. Retained earnings fund reinvestment and business growth.

Revenue

Total income earned from business operations before expenses are deducted. Revenue is a primary indicator of business performance.

Shareholder

An individual or entity that owns shares in a corporation. Shareholders have rights to dividends and potential capital gains.

Statement of Cash Flows

A financial statement showing cash inflows and outflows categorized into operations, investing, and financing. It helps assess liquidity and financial strength.

Tax Deduction

An expense that reduces taxable income, such as office rent, vehicle costs, or charitable donations. Deductions lower the overall tax bill.

Tax Credit

A tax credit is an amount that reduces the federal or provincial income tax you owe, after your tax has been calculated.

Types of tax credits:

Non‑refundable credits: Can reduce your tax to zero but cannot generate a refund. Examples: Basic Personal Amount, Age Amount, Disability Amount.

Refundable credits: Can result in a refund if the credit exceeds the tax you owe. Examples: Canada Workers Benefit (CWB), GST/HST Credit.

Tax Planning

Developing strategies to minimize tax liabilities while staying fully compliant with laws. Tax planning is a proactive process that maximizes savings and efficiency.

Tax Return

A formal filing to CRA reporting income, expenses, and taxes owed or refundable. Businesses must file annually to remain compliant.

Transfer Pricing

Rules governing how related companies price goods or services across borders. Proper transfer pricing ensures compliance with international tax laws.

Trial Balance

A report listing all account balances to confirm that total debits equal total credits. It helps catch errors before preparing financial statements.

U.S. Tax Compliance

Meeting obligations to the IRS for individuals or businesses with U.S. connections. This includes filings for U.S. citizens in Canada or cross-border corporations.

Withholding Tax

A tax deducted at source from payments like wages or dividends. Employers and corporations remit this tax directly to the government.

Working Capital

The difference between current assets and current liabilities. Positive working capital indicates financial stability and operational flexibility.

VAT (Value-Added Tax)

An international consumption tax applied at each stage of production and distribution. Comparable to Canada’s GST/HST.