Learning how to enter information into their accounting software as new entrepreneurs is important says Edmonton bookkeeping. First, it will help them understand their business finances. But second, it will ensure that they have the most up-to-date financial statements as well.
The reason why it is important to have up-to-date financial statements. Is because entrepreneurs should be pulling these financial statements. And using them in order to make informed financial decisions in their business.
Before they make any decision, whether it is to pay bills, pay staff, or make purchases. Business owners should look at all of their different financial statements. An order to understand the financial state of their business. And if they can afford to make that decision.
If they cannot make that decision, because they do not have enough money. They can do some collection calls, so that they can bring money that is owed into their business.
Or, a business owner may need to increase their revenue-generating activities. From going out on more sales calls, to increasing their marketing and advertising. Or even increasing their prices or minimizing their expenses.
However, none of these decisions can be made without looking at the financial statements first says Edmonton bookkeeping.
In fact, a business owner who does not consult their financial statements. Might simply make the decision to make those payments, or run payroll or purchase the asset. Which could cause them to run out of money in their business, if they do not have the finances to make that decision.
Since 29% of all entrepreneurs that fail in Canada. Say that the reason why they failed was because they ran out of money. Simply by reading their financial statements prior to any financial decision. Can help entrepreneurs avoid running out of money in their business.
Therefore, it is very important that entrepreneurs understand how to enter things correctly into their accounting software. And then use those accurate and up-to-date financial statements prior to making a financial decision in their business.
One of the most common errors that entrepreneurs make when they are new in business says Edmonton bookkeeping. Is that they make a tax payment, and then when they enter that into their accounting software.
See event where their accounting software defaults the payment should go. This is not accurate, because most accounting programs will default a tax payment to the expense account. Even though it does not belong there.
The expense accounts are specifically for entering the amount of taxes that an entrepreneur owes. And not the taxes that they pay. So by understanding that they should not accept their programs default setting. Can help them ensure they have the most accurate tax payable and tax expense accounts.
In fact, the accountant will be entering the taxes that an entrepreneur owes once a year at their corporate year-end. And every time they enter a tax payment, their tax expense account will decrease.
This is very important for entrepreneurs in order to understand that they should not accept where their software defaults they save things. Can help ensure that they learn where to save things properly. So that they can end up with the most accurate financial statements.
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It is very important that entrepreneurs take into consideration keeping track of the taxes that they pay accurately says Edmonton bookkeeping. Not only will this end up with more accurate financial statements.
But it will also help ensure that they know how much taxes they have paid and how much they owe. So when they have paid all of the taxes that they owe where their previous year. They can continue making instalment payments, and keep track of what taxes they have paid.
While many entrepreneurs nor is understand what the tax expense account is. That it is where their accountant will put all of the taxes that they have owed in the previous year.
But many business owners may think that there is simply one tax payable account. Where they count for all of the taxes that they are paying. This is not true says Edmonton bookkeeping. They also need to keep track of what taxes they have paid for, and a separate account.
In Alberta, there is even more tax payable accounts than any other province. Because business owners must keep their federal taxes and their provincial taxes separate. They pay for these separately, despite the fact that it is not done this way in any other province in the country.
In any other province, business owners will send their provincial and federal taxes to Canada revenue agency. Who will then calculate the right provincial payment. And send that payment off to the provincial government on behalf of the business owner.
However, it is not just to tax payable accounts that business owners need to take into consideration. They also have to have a separate tax payable account for each of the separate taxes that they pay. The most common one after provincial and federal tax is GST.
GST is calculated separately, and therefore should be in its own tax payable account. By keeping this separate, entrepreneurs will know how much GST they have paid.
And when their accountant calculates how much in sales that had for a year. They will be able to see it very quickly if they paid the correct amount.
There is also a separate tax payable account for payroll taxes. And Edmonton bookkeeping says business owners should be aware that for every different payroll tax, there should be a separate tax payable account.
This means that not only should there be one for income tax. But there also should be an account for the employee portion of EI and the employer portion of EI. As well as the employee portion of CPP, and the employer portion of CPP.
Therefore, entrepreneurs should keep in mind that there are up to eight different tax payable accounts. So that every time they are entering a tax payment that they have made into their accounting software.
They will be able to understand what tax they have paid, so that they can end up with the most accurate financial records for their business.