When entrepreneurs are learning how to do their own bookkeeping, there are many things that they should learn early on says Edmonton bookkeeping. This will ensure that they do not make critical errors. That could end up making their financial statements incorrect.
In fact, it is extremely important that entrepreneurs not only have up-to-date financial statements. But that they are as accurate as possible. Since business owners need to use these financial statements in order to make financial decisions in their business.
The ideal scenario says Edmonton bookkeeping. Will be for business owners to review their financial statements prior to any financial decision they make. Whether that is paying bills, running payroll. Or if an entrepreneur is going to make a purchase, or even pay themselves.
By looking at their financial statements, Edmonton bookkeeping says they will understand how much money they have in their business. And how much money they have to spend as well. When looking at their financial obligations.
They will be able to know if they have enough money to spend on payroll or bills. So that they do not end up making purchases or payments, that will cause them to run out of money.
Since running out of money is the second most common reason why Canadian entrepreneurs fail. Overcoming this, will help entrepreneurs make better financial decisions. And help them overcome one of the most common obstacles entrepreneurs face.
However, there are many different mistakes that they can make when they are learning how to do this. And one of the first things that Edmonton bookkeeping recommends entrepreneurs do. Is ensure that when they are making a tax payment. That it is being entered into their accounting software correctly.
Most accounting software programs default tax payments to accounts payable. And this is not accurate. Because not only are tax payments not a business expense. But instead of corporate expense, it should never appear in accounts payable.
But when an entrepreneur is making a tax payment. They should always ensure that it is going into the right tax payable account. So that they can keep accurate track of what taxes they have paid. And how much they end up owing the government at the end of the year.
If they end up putting all of the tax payments into one account. Whether it is accounts payable or not. They will not have an accurate record of if they have paid GST, payroll taxes, or federal or provincial taxes.
Which will make it more difficult for their accountant to figure out which taxes they have paid, and what taxes they still owe.
Therefore, entrepreneurs need to understand that not only is there a separate tax payable account for taxes. But that there is going to be taxed will account for each of the taxes that they owe. From federal to eventually, GST and payroll for example.
The sooner entrepreneurs can keep track of all of the various taxes that they are paying. By entering that correctly into their accounting software. The more accurate their financial statements will end up being.
Have you been doing your own Edmonton Bookkeeping all this time?
Learning how to enter financial information into their accounting software is very important says Edmonton bookkeeping. But if an entrepreneur makes critical errors. They might end up with an accurate financial statements.
And if an entrepreneur is using their financial statements in order to make financial decisions in their business. When they have errors, they might end up making the wrong decisions. And putting their business at risk.
Therefore, business owners who are going to be taking care of their bookkeeping themselves. Or supplementing the bookkeeping that their Edmonton bookkeeping company is doing. They should know what to do to avoid making huge errors. That could negatively impact their business.
One of the first things that a business owner should learn, is what the differences between a tax payable and tax expense account is.
A tax expense account is where the accountant enters all of the taxes that they have calculated the business owes. And it is only entered once a year, when the accountant completes the businesses corporate year-end.
Every time an entrepreneur makes a tax payment, the tax expense account will decrease in its total amount. Until an entrepreneur has paid all of the taxes that they owed in the previous year.
It is very important that an entrepreneur continues to make tax payments, even when their tax expense account is zero. Because the tax expense account calculates the last years taxes. And when an entrepreneur has paid off last years taxes.
By continuing to make tax payments. They will be paying the current years tax. So when their accountant calculates the taxes that they owe at the end of their current year. They will already have paid off some of the taxes that they will owe.
The tax payable account on the other hand. Is the account that an entrepreneur uses to enter all the tax payments that they are making. And it is not just enough are not been are to have one tax payable account. Where they account for all of the tax payments they make.
An entrepreneur should have as many different tax payable accounts. As they have different taxes that they must pay. In Alberta, an entrepreneur must pay the provincial government separately from Canada revenue agency. They will have a provincial tax payable account.
However, since an entrepreneur also must pay federal taxes, they will have a federal tax payable account. And while the GST is a federal tax. This is separate than the federal taxes that they pay. And should be separate tax payable account says Edmonton bookkeeping.
Also, since there are several different payroll taxes that an entrepreneur is responsible for. They should have several different tax payable accounts for all of the payroll taxes they must pay. Such as the employer and employee portion of CPP, as well as EI.
By keeping all of these tax payable accounts separately. An entrepreneur will know exactly how much they have paid in each taxes by the end of the year.
So that it is easier for their accountant to calculate how much they have left owing for the current year. And so that they will have accurate financial statements throughout the year.