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The only time an entrepreneur has to worry about keeping track of intercompany transactions according to Edmonton bookkeeping is if they own a holding company that holds an operating company. This structure might exist because an accountant is trying to protect an entrepreneur who owns a risky business. Or, they may be structuring it that way, to give the entrepreneur the freedom to purchase assets in a way that does not force the operating company to hold those assets. There are many reasons why a business might benefit from this type of corporate structure.

When an entrepreneur finds out that this is how their business is structured, then they need to understand that they will be something called an intercompany transaction quite often. This is where transactions happen between the two companies that they own, and they need to keep very good track of these various transactions so that their Edmonton bookkeeping company can do their bookkeeping properly.

For example, if an entrepreneur does not keep track properly, they might end up sending their bookkeeper a deposit who then applies that as profit in the operating company. If this is incorrect, and it should have been applied to the holding company, there can be a lot of errors that happen between both corporations. Even if it is a deposit that should have gone to be operating company but to a different place, if a bookkeeper does not know these things ahead of time, they will not be able to do the bookkeeping accurately.

Another error that often happens between intercompany transfers is if a business owner does not tell their Edmonton bookkeeping company what the transactions are for, this could cause them to make assumptions that would end up having things misclassified. This can end up with a holding company and the operating company not balancing at the end of the year. This is a huge problem, especially because not all will in companies and operating companies are necessary can have the same fiscal year-end. If the Edmonton bookkeeping company discovers this mistake after they have completed the year-end of the different companies, that could be very problematic to try to fix.

Other errors that might happen are if a business owner sends expenses, the expenses get booked to the wrong corporation, as well as having money applied to a shareholders loan by mistake. These can be very difficult to fix, and can be very difficult for an Edmonton bookkeeping company to ensure that the companies balance every month.

Ultimately, it will be the goal of the Edmonton bookkeeping company to match all transactions for all companies at all times. Not just at the end of the year, but every month. Not only does this give an entrepreneur updated financial statements that they can use to make informed financial decisions in their business to allow them to grow their corporation, but it will ensure that when the accountant gets the files to do fiscal year-end, they will end up having the most accurate files possible that will allow them to do the year ends quickly and accurately.

Edmonton Bookkeeping | Keeping Track Of Intercompany Transactions

When business owners are starting their first business, Edmonton bookkeeping says that they often struggle with understanding the basic business financial knowledge. In fact, into it, who is the company that makes accounting software QuickBooks did a survey of small business owners in order to understand how much they know about basic financial literacy. The respondents were asked questions such as what is about the sheet, income statement, and financial statement. They were asked about how to improve cash flow in their business, and to explain what an accrual is. The makers of QuickBooks discovered that 82% of all respondents scored lower than 70% on this knowledge quiz. This is an extremely alarming number of entrepreneurs who do not understand their business finances. Therefore, it is important that they not only hire a great Edmonton bookkeeping and accounting firm, but that they keep very accurate record of all of the various transactions in their business to ensure that they are ending up with accurate financial statements on a monthly basis so that they can make that are financial decisions in their business, but so they can end up with the most accurate year-end statements as well.

The reason why an entrepreneur would have a holding company as well as and the operating company says Edmonton bookkeeping, is in order to protect the business owner if they own a risky corporation. It also protects them even if they do not have a risky business another reason why, is so that a business owner can purchase assets for their business, without that business owning the assets. They would then charge the operating company a rental fee, as well as the charge they will operating company management fee for the business owner to manage the business. That will allow the business owner to still have those assets if something happens in their business, and the business is no longer viable. These are some of the reasons why an accountant would recommend to a business owner to set up their corporations this way.

Something else for businesses to keep in mind when they own two corporations is that dividends are treated tax-free in Canada when transferring from the operating company to holding company or back. This ability to transfer money tax-free between corporations can benefit a business owner significantly says Edmonton bookkeeping.

Ultimately, there are many reasons why a business owner would own a holding company and an operating company. It also gives them the benefit of having options about how to pay themselves, which is very beneficial.

Ultimately, when an entrepreneur owns a holding company and they do not need to understand why as much as they need to understand to keep transactions organized, and clearly labeled so that their and ten bookkeeping company can work on their bookkeeping accurately. This will allow them to have up-to-date monthly statements that they can use to make business decisions with and help ensure that when they reach their year-end, it will go smoothly for being up-to-date already.