There is a huge learning curve for business owners to learn their accounting software program says Edmonton bookkeeping. Not only is this important to help ensure that their financial statements are accurate.
But if an entrepreneur makes mistakes in entering tax payments into their accounting software. They may not understand how much in taxes they paid. Or how much they have left owing.
One of the most important things that business owners need to understand. When they start using their accounting software. Is that there is a tax payable account. Where all of their tax payments are accounted for.
And there is the tax expense account. That only has one entry per year. And that is made by the accountant, when they complete their corporate year-end. And have figured out how much tax the entrepreneur owes.
The matter what amount of taxes the entrepreneur owes. Edmonton bookkeeping says business owners need to get into the habit of paying their taxes in instalments.
While they might get done paying their tax payments halfway through the year. They should continue making tax payments.
So that when they have the calculation of taxes at their next corporate year-end. They will already have started paying them down. To make it easier to complete all tax payments by the end of the year.
However, what makes this more complex says Edmonton bookkeeping. Is that there are several different tax payable accounts. Because each separate tax that they pay as a business owner. Must get accounted for in a different account.
One of the first things that surprises business owners when they first start doing their own bookkeeping. Is that there is a federal tax payable account. And there is a provincial tax payable account.
This is surprising to many business owners who have come from other provinces. Because Alberta is the only province where this is kept separate.
In all other provinces in Canada. Business owners simply pay all of their provincial and federal taxes to Canada revenue agency. Who separates out the provincial tax, and forwards it to the provincial government on behalf of the business owner.
However, in Alberta there is a separate tax department, and business owners need to ensure that they are paying them accurately and on time. Which is why business owners need to be aware of this, and ensure that they are booking different payments into the correct tax payable accounts.
In addition to the federal and provincial tax payable accounts. There are several different federal tax accounts. Because of all of the different federal taxes that they must pay.
This means GST will have its own account. And while payroll will have its own account. Payroll can also be split into four different tax payable accounts. Based on all of the different payroll taxes business owner must pay.
Not only is there CPP and EI that business owners must pay. They also have to pay the employer portion of those taxes. As well as the employee portion of CPP and EI. Meaning the payroll tax accounts should equal for different accounts. Because they are all different and unique taxes that a business owner is responsible for.
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Even though many business owners understand that they must ensure that they have accurate financial statements says Edmonton bookkeeping. They may not realize that the tax payable and tax expense accounts that they have. Can impact that.
While business owners may understand the difference between tax payable accounts. Which are accounts used for an entrepreneur to indicate when they have made at tax payment or instalment.
While the tax expense account. Is for their accountant to calculate the corporate taxes that they owe after doing their corporate year-end.
When they are entering those tax payments into their accounting software. They need to understand that most accounting software programs. Will default their tax payments into accounts payable.
Even though many business owners may understand why this should never be the case. They tend to second-guess themselves when their accounting software has the default into that account.
Therefore, it is very important for business owners to understand that where there software will want to put that tax payment. Is not correct, so that they can fix it and enter the payments into the correct accounts.
Not only that, but because they are going to be so many different tax payable accounts. Business owners need to be very clear what tax they are paying. So that they can enter the correct amounts.
Edmonton bookkeeping says if they end up combing going any of their tax payments. They can end up overpaying some taxes. While underpaying others.
And it can be very difficult for their Edmonton bookkeeping company and accountant to try to fix. So by keeping this separate from the beginning, can help ensure that not only are they avoiding making critical errors in tax payments. But that their financial statements will also be more accurate as well.
Something else for business owners to keep in mind. Is that they should still continue making their tax payable instalments. Even if there tax expense is showing that they do not owe any more money.
The reason why, is because the tax expense will only get calculated once each year. And that is after their accountant has completed their corporate year-end.
So by continuing to make those instalments. Even after they have paid last year’s tax expenses. They should continue making those instalments. So when they get to the end of their current year.
They will already have made several payments towards that tax amount. And will have a lower amount to have to pay by the end of the next year.
The next thing that business owners should take into consideration, is that payments into the payable accounts will never get reflected on the profit and loss statement.
The reason why, is because business owners should not have the taxes that they pay count against the income that they earned in that month.
For example, if business owners end up paying ten thousand dollars worth of tax in one month. And make their income statement look like they have made a ten thousand dollar loss which is not true.
When business owners understand how to do their tax payable and tax expense accounts correctly. Not only can they ensure that they are paying the right amount of taxes. They will also ensure that they are avoiding making critical errors when it comes to paying their taxes.