The reason why entrepreneurs have a lot of questions about their tax payments says Edmonton bookkeeping. Is because this is a very complex part of learning how to keep their books accurately.

And while it can be very easy for entrepreneurs to be told what errors to avoid. It is completely another thing for entrepreneurs to learn how to do this all on their own and make no mistakes. Therefore, entrepreneurs end up having a lot of questions that they pose their Edmonton bookkeeping company. That help them understand.

Here are the most common questions that entrepreneurs have. That help them understand the tax payable and tax expenses in their accounting software.

One of the first questions that they have is will their accounting software defaults or tax payments to the correct accounts? This is an extremely important one to know the answer to. Because the answer is no.

While accounting software programs will typically have the default for a lot of the payments into the correct account. This is not the case with tax payments. In fact, most often, the software will default tax payments into the tax expense account.

This is not where it should go, because the tax expense account is where the taxes are entered that entrepreneurs owes. So when they accidentally put the tax payment here. Not only will it not take into consideration that an entrepreneur has made a payment. But it will increase the amount that it looks like they owe.

Therefore, business owners need to approach entering information into their accounting software. As though they should never assume the software will default payments to the correct location.

The next question that entrepreneurs have for their bookkeeping company. Is should entrepreneurs oversee taxes such as payroll or GST in their accounts payable section?

Again, this is an extremely important question to understand the answer to. That no, they should never see any taxes in their accounts payable. Because although it is an expense that they have to pay. It is a corporate expense and not an expense of the business.

Accounts payable is for business expenses only. Which are limited to direct and indirect expenses. Direct expenses are supplies and materials for producing their products and materials as well as labour to produce them.

While indirect expenses include rent of the office space, administrative salaries, utility bills, phone and Internet and office supplies just to name a few says Edmonton bookkeeping. Taxes never belong in accounts payable.

By understanding the difference between tax payable and accounts payable. As well as the difference between tax payable and tax expense. Can help entrepreneurs enter the taxes that they are paying accurately. So that they can avoid making critical errors.

They end up posting tax payments incorrectly. Their financial statements will end up being less accurate. Which can puts entrepreneurs at risk of making poor financial decisions. Because they will not understand exactly what their financial situation will be.

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It is very important that entrepreneurs understand how to enter tax payments into their accounting software says Edmonton bookkeeping. Not only so that they can end up with accurate financial statements. So that they can end up paying the correct amount of taxes.

This is why entrepreneurs should understand the most frequently asked questions. So that they can understand what not to do from the very beginning.

Because if they end up making errors on specifying how much in taxes they have paid. They can end up overpaying, or underpaying. Which would result in late payments, and interest charges.

One of the first questions that entrepreneurs have for Edmonton bookkeeping is what is the difference between tax payable and tax expense accounts?

This is an extremely important question to know the answer to. Because the tax expense account is simply for the accountant to enter the amount of taxes that they have calculated an entrepreneur owes in the previous year.

Only one entry should be made into this account per year. It should be made by the accountant only, once they have completed an entrepreneurs financial year-end.

However, the tax payable accounts. Our where an entrepreneur should specify that they have made at tax payment. And there will be a separate tax payable account for each of the taxes that an entrepreneur should pay in their business.

In Alberta, that means that an entrepreneur will have up to eight different tax payable accounts. Because unlike any other province in Canada. Entrepreneurs must account for federal and provincial taxes.

In all of the other provinces, entrepreneurs will pay their provincial and federal taxes directly to Canada revenue agency. Who will then calculate the provincial taxes that should be remitted. And send that to the provincial government on their behalf.

The other five tax payable accounts that an entrepreneur should be aware of. Is GST, and the various payroll accounts. Despite the fact that they are all lumped together as payroll taxes. Edmonton bookkeeping says entrepreneurs should keep track of them in their own, separate tax payable account.

What this means, is that an entrepreneur should have a tax payable account for income tax, the employer portion of EI, the employer portion of CPP. The employee portion of EI and the employee portion of CPP.

By understanding the different tax payment accounts. Can help entrepreneurs be prepared when they are making those payments. As well as posting those payments. What account they should be posted to.

The next question that entrepreneurs often have is why do their profits not have to exceed their payroll and GST taxes?

Business owners have often been told that they have to profit more than the taxes that they owe. But this is not the case for payroll or GST taxes.

The reason why, is because those taxes will only be generated by doing business. And are collected as the entrepreneur does business.

For example, the GST is added to the taxes that they charge customers. Therefore, if they do not have customers and do not generate sales. They will not collect the GST.

For payroll, since they will take it off of the check that they have already earmarked to give their staff. It should never be a problem to collect payroll taxes either. And so it is not an additional tax that they must account for.

By understanding tax payable accounts. Entrepreneurs can end up avoiding making the mistakes that business owners before them have made.