When a contractor first incorporates and begins operating through their corporation, the accounting system is often the last thing configured. The corporation gets registered, the bank account gets opened, the first invoice gets issued, and the EFT lands in the account before anyone has set up a chart of accounts, a GST/HST clearing account, or an invoicing template with the correct registration number. Cleaning up a year of unconfigured books is more time-consuming than setting them up correctly at the start.
This guide covers what the accounting system needs to do, how to structure the chart of accounts for a single-person incorporated IT contractor, and what to have in place before the first invoice is paid. The principles apply regardless of which accounting software the corporation uses. The configuration choices matter more than the software selection.
What the Accounting System Needs to Do
The accounting system for a single-person incorporated IT contractor has a defined scope. It needs to:
- Record revenue as invoices are issued and as payments are received
- Separate GST/HST collected from revenue and track the input tax credit position
- Track all expenses by deductible category
- Record all flows between the corporate and personal accounts in the shareholder loan account
- Reconcile the corporate bank account and credit card(s) against the books each month
- Produce a current income statement and balance sheet that reflects the corporation’s actual position
For a straightforward single-person contractor corporation, that is the core set of requirements. The system usually does not need to manage inventory, track project costs across multiple engagements, or produce complex reports. The configuration that supports these functions is not complicated. What makes it effective is that it is done before the transactions start, not after the records have accumulated.
The Chart of Accounts
The chart of accounts is the list of categories the accounting software uses to classify every transaction. For an incorporated IT contractor, the relevant accounts fall into a small number of categories.
Revenue
A single IT contractor corporation typically has one revenue account: Professional Fees. All invoices issued to clients or agencies are posted here. If the corporation has distinct service lines with separate billing rates, a second revenue account may be warranted, but most single-person contractor corporations have no reason to split revenue beyond that.
Revenue accounts record the invoiced amount before GST/HST. The GST/HST component of the invoice goes to the GST/HST payable account, not to revenue. Setting up the accounting software to automatically separate the tax from the revenue on each invoice is the correct configuration. Many software products handle this through the tax code applied to the invoice line item, which routes the GST/HST to the liability account and the pre-tax amount to the revenue account automatically.
Expense Categories
The expense side of the chart of accounts should reflect the types of expenses a contractor corporation actually incurs. Common categories for IT contractor corporations include:
- Software and subscriptions: licenses, SaaS tools, development environments
- Professional development: courses, certifications, technical books, conference fees
- Professional fees: accounting, legal, and other professional services paid to third parties
- Office supplies and equipment: hardware, peripherals, office materials
- Home office or workspace reimbursement: amounts the corporation properly pays or reimburses for business use of a workspace, tracked separately so the year-end preparer can review the support and map the amount to the correct GIFI category
- Vehicle: if a vehicle is used for business purposes, a separate account to capture costs that are then prorated based on business-use percentage
- Business insurance: errors and omissions, directors and officers, general liability
- Bank charges and interest: fees on the corporate bank account and any interest charges
- Telephone and internet: the business-use portion of communication costs
The expense categories should match what the corporation actually spends money on. Creating categories for expenses that never occur adds noise without value. Every expense account should map cleanly to the corporation’s financial statement categories and the General Index of Financial Information (GIFI) used with the T2 return, particularly Schedule 125 for income statement information. Categories that do not have a clear GIFI treatment are an indication that the classification may need review.
GST/HST Accounts
The accounting system should be configured to track both sides of the GST/HST position: GST/HST collected or collectible on invoices issued, and input tax credits (ITCs) on eligible business expenses. Some systems use separate liability and receivable accounts. Others combine the amounts into a single net GST/HST account. Either approach works as long as the net balance is accurate and can be reconciled against the GST/HST return filed.
The GST/HST liability side captures the tax charged on every invoice. When the accounting software applies a tax code to an invoice line, it posts the pre-tax amount to revenue and the GST/HST amount to the tax liability account. The liability grows with every invoice issued and decreases when remittances are made to CRA, or to Revenu Québec for most Quebec-based registrants.
The ITC side captures the GST/HST paid or payable on eligible business expenses. When an expense is categorized and the applicable tax code is applied, the GST/HST portion is posted to the ITC side of the tax account. Eligible ITCs reduce the net remittance obligation. A business expense that does not include GST/HST, or for which GST/HST was not charged because the supplier is not registered, does not generate an ITC.
The GST/HST filing guide covers what is required to support an ITC claim. The accounting system setup should capture the tax amounts on business expenses as each transaction is entered so that the ITC total is current and does not need to be reconstructed from receipts at remittance time.
Shareholder Loan Account
The shareholder loan account is a balance sheet account that tracks the net balance of all transfers between the corporation and the shareholder outside of formally declared salary or dividends. It is one of the most important accounts in a contractor corporation’s chart of accounts. The shareholder loan guide covers the rules in detail.
The shareholder loan account is not a revenue or expense account. It does not affect corporate income. It records the running balance of what the corporation owes the shareholder (a credit balance, from loans the shareholder has made to the corporation) or what the shareholder owes the corporation (a debit balance, from draws taken or personal expenses paid through corporate).
Every draw from the corporate bank account that is not salary or dividends is posted to the shareholder loan account as a debit. Every personal expense that passes through the corporate account is posted there as a debit. The account must be set up before the first draw is taken. A draw that is categorized as an operating expense instead of a shareholder loan entry is a misclassification that reduces reported corporate income incorrectly.
Bank and Credit Card Accounts
The corporate bank account and any corporate credit cards should each have a corresponding account in the accounting system. The balance in each account mirrors the actual bank or card balance after reconciliation. The reconciliation step is where the accounting records are confirmed against the actual bank statement.
A personal bank account used for business purposes, or a corporate bank account used for personal expenses, creates reconciliation problems and audit risk. A corporate credit card used exclusively for business expenses is straightforward to reconcile. A corporate card that includes personal charges requires those charges to be posted to the shareholder loan account rather than to expense categories.
Invoicing Configuration
The invoicing function within the accounting system should be configured before the first invoice is issued. For invoices to GST/HST-registered agencies or clients, the invoice or supporting document needs the prescribed information that supports the recipient’s ITC claim. A practical contractor invoice template should include:
- The corporation’s legal name or operating name
- The corporate address
- The GST/HST registration number
- A sequential invoice numbering system for audit trail and reconciliation purposes
- Tax codes for the provinces where supplies are made, so each invoice can use the rate determined by the GST/HST place-of-supply rules
- Payment terms that match the contract (net 15, net 30, or whatever is agreed)
A common configuration error is setting up the invoice template without a tax code applied to the service line item. If no tax code is applied, no GST/HST is calculated or tracked on the invoice. A registered corporation providing taxable services can end up issuing invoices without GST/HST, or tracking invoice revenue without the related tax liability. Confirming that every service line item on the invoice template is linked to the appropriate tax code is the verification step before issuing the first invoice.
The invoice description should reflect the nature of the services: consulting fees, professional IT services, or the specific service type named in the contractor agreement. A generic description is acceptable provided it is sufficient to identify the supply. An invoice with no description at all does not meet the documentary requirements for the agency’s ITC claim.
Bank Feeds and Reconciliation
Most accounting software supports connecting directly to the corporate bank account so that transactions import automatically. This bank feed eliminates most manual data entry. The feed delivers the transaction date, amount, and a description from the bank. The categorization, matching to invoices, and GST/HST treatment are applied after the transaction arrives in the software.
A bank feed that is connected and reviewed regularly keeps the categorization workload manageable. A feed that is ignored for several months accumulates uncategorized transactions, which then require review in bulk. Bulk categorization under time pressure is where miscategorization errors occur.
The reconciliation step confirms that the bank balance in the accounting software agrees with the actual bank statement at the end of the reconciliation period. A reconciled account has no unexplained discrepancies. An account that has not been reconciled may reflect transactions that appear in the bank but not in the books, or entries in the books that do not correspond to actual bank transactions. Both types of discrepancies affect the accuracy of the reported income, shareholder loan balance, and GST/HST position.
Setting Up Before the First Transaction
The sequence that avoids most setup problems is straightforward:
- Open the corporate bank account and connect it to the accounting software as soon as the account is active
- Configure the chart of accounts using the categories described above before any transactions are categorized
- Set up the GST/HST accounts and confirm the registration number is in the system before any invoices are issued
- Configure the invoice template with the registration number, sequential numbering, and the correct tax code applied to service line items
- Set up the shareholder loan account before the first draw is taken from the corporate account
Each step takes a short amount of time. The cost of doing them out of order, or not doing them at all, is measured in the time required to retroactively correct a year of miscategorized transactions, untracked GST/HST, and unrecorded shareholder loan entries.
Quebec Perspective
For Quebec-resident incorporated contractors, the accounting system setup includes QST alongside GST/HST. The QST registration number must be included on invoices for QST-taxable supplies issued to Quebec clients and agencies. The chart of accounts should track QST collected and QST input tax refunds (ITRs) on eligible business expenses, parallel to the GST/HST accounts.
Under the agreement between the federal government and Revenu Québec, Quebec businesses generally deal with Revenu Québec for GST/HST administration unless a special category such as selected listed financial institution status applies. The accounting system should reflect this by tracking both the GST/HST and QST balances as distinct accounts, even though the filing and payment may go through one authority. The rates differ, the calculations are separate, and the supporting documentation requirements are parallel.
Quebec-based accounting software configurations sometimes combine the two taxes for display purposes. The underlying accounts should remain separate so that the GST/HST net tax and QST net tax figures can be reconciled against the combined return when it is filed.
Common Configuration Errors
No GST/HST accounts configured. An accounting system set up without GST/HST accounts cannot separate collected tax from revenue. All invoice amounts may land in revenue. The GST/HST liability is invisible in the books. When the remittance is made, it has no clear account to be posted to. Configuring the tax accounts at setup is a one-time task; fixing the absence retroactively requires reclassifying every invoice and expense transaction from incorporation to the correction date.
No tax code on the invoice template service line. The invoice template has a place for a tax code, but it is left blank. Invoices may issue without GST/HST, or the corporation may charge GST/HST outside the software while failing to track the tax component in the books. Either way, the accounting system no longer reconciles to the invoices and GST/HST return.
Draws categorized as expenses. Without a shareholder loan account configured, draws from the corporate account are often categorized as office expenses, professional fees, or left uncategorized. The effect is an artificial reduction in reported corporate income and an inaccurate shareholder loan balance. The year-end review cannot be done accurately until these transactions are reclassified.
Personal and corporate accounts mixed. Using the same bank account for corporate and personal transactions, or using a personal credit card for corporate expenses, creates a categorization burden that compounds over time. Every transaction must be reviewed to determine which portion is corporate and which is personal. A corporate bank account and corporate credit card used exclusively for corporate purposes eliminates this burden.
Invoices issued without a consistent numbering system. An invoicing setup that allows manually entered, inconsistent invoice numbers creates gaps that can make the audit trail harder to follow. Sequential numbering is a practical control, and most software enforces it automatically when configured correctly.
An accounting system that is configured correctly from incorporation is one of the lowest-cost investments a contractor corporation can make. The configuration time is measured in hours. The downstream benefit is accurate books throughout the year, a functional monthly close, a GST/HST position that is current at all times, and a shareholder loan account that reflects what has actually moved between the corporation and the shareholder. The monthly close guide describes how the system is maintained once it is set up. The year-end review guide describes what the year-end process looks like when the books have been kept current.