When entrepreneurs are new in business, they have a lot of questions for their Edmonton bookkeeping company. These questions will help them not only enter information into their accounting software correctly. But can help them understand their business finances on a deeper level.
A lot of these questions are centred around tax payments and tax accounts. Especially since taxes are extremely important in business. And it can be very easy to make mistakes.
Ensure that these mistakes do not end up costing an entrepreneur significant amount in late fees and interest charges. Here are some of the most commonly asked tax payment questions that Edmonton bookkeeping receives.
The first question that entrepreneurs ask is what is the difference between a tax payable and tax expense account? This is an extremely important one. Because the two are completely opposite of each other.
The tax expense account is where the accountant will put the amount of taxes that they have calculated the entrepreneur owes. After completing their fiscal year end.
The tax payable accounts on the other hand are all of the various tax accounts that exist representing each of the different taxes that an entrepreneur is responsible for paying.
This includes attacks account for federal taxes as well as provincial taxes. Because in the province of Alberta.
Business owners are expected to pay their provincial taxes separately from their federal taxes. Even though all other provinces send their federal and provincial taxes straight to Canada revenue agency.
Who will then calculate the provincial taxes and forwarded to the provincial government on their behalf. Therefore, not only will they have a separate tax payable account. But they will have to keep these two different accounts and tax amounts separate as well.
They also will have a separate tax payable account for GST. Because even though GST is a federal tax. It is calculated and kept separate as the federal taxes.
And finally, an entrepreneur will have five different payroll tax accounts for all of the different taxes that an entrepreneur owes.
This includes the income tax amounts, the employer portion of EI and CPP. As well as the employee portion of EI and CPP.
When entrepreneurs understand that there is eight different tax payable accounts. They may be a little bit more careful in figuring out there taxes and accounting for them and their accounting software.
The next question that entrepreneurs often have for Edmonton bookkeeping is why are tax payments posted to a payable account and not an expense account?
It might seem like the right thing, for tax expense accounts to be where they pay the taxes. However, this is not accurate. When an entrepreneur enters the taxes that they fade into the tax payable account.
The tax expense account will decrease in value. And when an entrepreneur pays off the taxes that they owe, that tax expense account will show zero.
If an entrepreneur continues to pay taxes in instalments. Which is the recommended plan of action. It will start showing a negative balance. Which indicates a prepayment. Which is a prepayment, because an entrepreneur will get their tax bill until the very end of their year. Which is also White’s important to prepay taxes.
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Entrepreneurs who are learning how to enter information into their accounting software end up having lots of questions for Edmonton bookkeeping.
They are more than happy to answer these questions, but if entrepreneurs knew the most asked questions ahead of time. They often would have more information. And be able to enter information more accurately. Which would lead to more accurate and up-to-date financial statements.
One of the first questions that Edmonton bookkeeping gets from new entrepreneurs is at what point in the year are an entrepreneurs taxes actually calculated and posted?
This is extremely important to take note of says Edmonton bookkeeping. Because entrepreneurs will not know how much tax that they are accruing during their year of operation. Until the very end of their year.
Their accountant will look over their books, and do their corporate year end. And will figure out how much tax the entrepreneur owes for the previous year.
If entrepreneurs got into the habit of creating tax payments on a regular basis. That is that they are planning taxes in instalments. Even without knowing how much tax they owe.
When their accountant figures out how much tax they do owe. They will count that against the taxes that they have already been paying. And it can be very likely that an entrepreneur has very little to almost no taxes that they need to pay.
It is very important that entrepreneurs will only have one amount ever entering into their tax expense account. Which is put their by their accountant. And reflects last year’s taxes.
The next question that Edmonton bookkeeping gets from entrepreneurs is should Canada revenue agency payroll payments get posted to their tax payable accounts?
This is an extremely important one. Because many entrepreneurs assume that the federal taxes, the GST, and the payroll taxes. All belong in the same tax payable account. Because they are all federal taxes. But this is actually and surprisingly not true.
In fact, these are all different taxes. And should get posted in separate tax payable accounts. So that entrepreneurs can end up having a very detailed account of all of the taxes that they paid. Which ones were paid, and in what amounts.
Not only is it GST and payroll owing to beats two separate counts. But payroll itself. Is going to be up to five different accounts. To take into consideration the income tax, the employer CPP, the employer EI. As well as the employee CPP, and the employee EI amounts.
By understanding all of the variable tax accounts that an entrepreneur will find in their accounting software. Can help prepare them for specifying them exactly. When they enter the information into their accounting software.
If entrepreneurs have any other questions, they should not hesitate in reaching out to either there bookkeeping company, or their accountant. Because they are dedicated to helping entrepreneurs ensure that their finances are as accurate as possible.