Business owners will have a lot of different taxes that they have to pay throughout the year according to Edmonton bookkeeping. And it is incredibly important that they are keeping track of always different tax amounts that they pay separately.
The reason why, is not only so that they understand how much taxes and which taxes they have paid. So that when their accountant does their corporate year-end. It will know how much taxes they paid. And how much they owe for the next year.
But also, by keeping track of their taxes correctly. Entrepreneurs will end up with the most accurate financial statements. That they will need to use in order to get the most up-to-date information about their businesses finances.
In fact, it is very important that business owners review these financial statements prior to making any business decision. Such as if they can run payroll, pay bills, or purchase and assets. Or even before an entrepreneur decides that they can take a shareholders draw.
The reason why, is because the financial statements will show an entrepreneur how much money they have in their business that they can use. As well as all of the financial obligations they have. So they can decide if they have the money to make the decisions they need to make.
If an entrepreneur does not have enough money to do what they want to do. Such as run payroll or pay bills. Then an entrepreneur can make the decision to engage in some revenue-generating activities.
Such as doing some sales calls. Or doing some collection calls, to bring money that they are owed into the business.
Many entrepreneurs make the mistake of thinking that they can look at their bank account balance. In order to understand how much money they have in their business to use. However this is a critical error.
The reason why business owners should not rely on their bank account balance. In order to know how much money they have to use in their business. Is because they might have checks that they have written, that are waiting to cleared by their vendors.
Or, they could have electronic fund transfers that are waiting to clear. And by not taking these into account. It might look like an entrepreneur has more money in their bank to use than they actually do.
Entrepreneurs who end up looking at their bank statement in order to make financial decisions says Edmonton bookkeeping. End up overspending, and potentially causing their business to run out of money.
Since running out of money is one of the most common reasons why entrepreneurs in Canada fail. Avoiding this can help entrepreneurs stay in business for longer says Edmonton bookkeeping.
This is why it is important for entrepreneurs to understand how to account for taxes. So that an entrepreneur can end up with the most accurate financial statements. So that their business decisions are more accurate. And will help them avoid running out of money in their business.
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Learning how to enter financial information into their accounting software is very important says Edmonton bookkeeping. To help entrepreneurs have the most up-to-date financial statements in their business.
Even though their Edmonton bookkeeping company might be getting them financial statements once a month. Many entrepreneurs must make financial decisions more often than that.
Which is why business owners should learn how to enter the payments that they are making correctly into their accounting software. So that when they do pull their own financial statement. It will be more accurate, and can help them make better financial decisions.
However, when it comes to paying taxes. Many business owners often make errors, that can end up making their financial statements less correct. And therefore, make or financial decisions in their business.
One of the first reasons why business owners make errors when it comes to their tax payments. Is because most accounting programs defaults tax payments to the companies payable account and not the tax payable accounts.
Therefore, as soon as an entrepreneur starts entering tax payments. They should know that they cannot accept the programs defaults. And that they must put that payment into the right tax payable account.
The next thing that an entrepreneur needs to learn. It is to put into the correct tax payable account says Edmonton bookkeeping. There are going to be several different tax payable accounts. Based on all of the taxes that an entrepreneur must pay.
In Alberta that means not only federal tax payable accounts. But a provincial tax payable account. Because in Alberta, provincial taxes are paid separately. Despite the fact that is not done like that in any other province and Canada.
However, an entrepreneur also needs to ensure that they are having a separate GST account. Because well GST is a federal tax. It is calculated differently, and should be kept separate.
There is also going to be a variety of payroll tax accounts, because of the wide variety of payroll taxes that an entrepreneur pays. And while they might think that that includes three, one for income tax, one for CPP and one for EI. That is also not accurate.
In fact, because an entrepreneur has an employer portion of CPP as well as the employee portion of CPP. As well as the employer portion of EI as well as the employee portion of EI. The payroll tax accountant itself will equal five different tax payable accounts.
By understanding that there are eight different tax payable accounts. Will help an entrepreneur keep these separately when they are entering the tax payment into their accounting software.
As they pay each of the taxes, their tax expense account will decrease in total. And once there tax expense account gets to zero. That means they have paid all of the taxes that they owe for the previous year.
Since taxes get calculate for the previous year at the end of an entrepreneurs corporate year. By continuing to make instalments, they will pay for the current year’s taxes.
So that when their accountant calculates the taxes at the end of their next year. They will have already paid a portion of the taxes they owe the government.