Even though many business owners may understand that they need to keep their financial statements as accurately as possible says Edmonton bookkeeping. If they do not understand how their accounting software is set up. They may have some tax entries being posted to the wrong account.
One of the first things that business owners need to know the difference between. In order to ensure that they can avoid posting tax payments to the wrong account. Is what the difference is between tax payable account. And what a tax expense account is says Edmonton bookkeeping.
The tax expense account. Is where an entrepreneur will have the calculation of the taxes that they owe. Ultimately, this is entered only once a year, when their accountant does their corporate year end.
They put the amount of tax that they owe the government into the tax expense account. A business owner should never be putting any tax amounts into the tax expense account ever.
However, the tax payable account. Is where an entrepreneur indicates that they have made at tax payment. And it reduces the overall amount in the tax expense account.
Since a business owner should always be making a tax payment instalment. Whether they have a tax expense in that account or not. They should always be seeing a decrease in their tax payable account as they pay their taxes.
However, a business owner will have several different tax payable accounts. Based on how many different taxes they end up paying throughout the year.
In order to understand how many different tax payable accounts there are. Business owners need to know how many different types of tax that they pay as a business owner. Starting with the federal and provincial taxes.
Many business owners may not realize that they pay their federal and provincial taxes separately. And in fact, this is the case in Alberta. But no other provinces in Canada pay their federal and provincial taxes separately.
Typically, if business owners own businesses in other provinces. They simply pay Canada revenue agency their provincial and federal tax. And it is Canada revenue agency who sends the correct amount of provincial tax to the provincial government.
It is very important that business owners understand this. Especially if they had been a business owner in another province. Because it might end up with them paying too many taxes to Canada revenue agency. And not paying the Alberta government at all.
One of the most important things that business owners need to understand says Edmonton bookkeeping. Is that their accounting software is going to have the taxes default into the wrong account.
Therefore, business owners need to understand that whenever they are booking a tax payment. They need to specifically direct their accounting software. Which tax account it goes into.
Which is another reason why they need to understand that there are several different tax accounts. And what tax they are paying when they book that expense into their accounting software.
By understanding the difference between tax payable accounts. And tax expense accounts, is is owners can ensure that they are keeping track of the taxes that they pay correctly.
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In order to help entrepreneurs ensure that they have accurate financial reports, and ten bookkeeping says they need to be careful of where they are booking the tax that they pay.
The tax expense account is going to be calculated by their accountant at their corporate year-end. And therefore, business owners should never be putting anything into this account.
There tax payable account on the other hand. References wide variety of accounts that an entrepreneur can book different payments into. Since they have several different taxes that they must pay as an entrepreneur.
They need to understand all of the different tax accounts that they will have. So that when they are entering this information into their accounting software. It will not make stakes, and combing goal their tax payments.
While business owners may understand that they have a federal and provincial tax payable account. Edmonton bookkeeping says they are many more different tax payable accounts than that.
Not only do they need and account for federal and provincial taxes. But they also have many different federal taxes. Such as GST, and payroll taxes.
However, while this appears at first glance that this means an entrepreneur should have for tax payable accounts. There is actually more than four.
Taking into consideration payroll taxes, not only does an entrepreneur have income tax, EI and CPP for example. Edmonton bookkeeping says that they also need to have separate accounts for the employer as well as the employee portion of those taxes.
Therefore, the tax payable account. Can actually be split up into four different accounts, and it is very important that entrepreneurs are very careful to specify where each of their payments are going into.
Another important consideration that business owners need to have. When they are learning how to enter expenses and payments into their accounting software. Is that they should never see tax, payroll or GST amounts into the accounts payable section of their financial reports.
The reason why this is so important, is because most accounting software programs. Have the default for tax, payroll or GST into accounts payable.
Therefore, business owners must learn when they are making a payment into any of these tax accounts. That they do not accept the software’s default. And choose where it needs to be entered instead.
When business owners are keeping track of all of the different tax payables that they are responsible for. The only one that they need to ensure that they are profiting more than the payments themselves.
Is the corporate tax expense. Because whatever an entrepreneurs monthly payment is for corporate tax. They need to be making more in profit than that payment. So that they know that they can cover all of their expenses.
When it comes to GST or payroll taxes, Edmonton bookkeeping says. They do not have to profits over and above those taxes. Because the taxes are taken from the amount they already have taken into their business.
By understanding the difference between tax payable and tax expense accounts. Can help entrepreneurs ensure that they keep accurate record of their taxes. So that their financial reports are accurate.