Even though many business owners have heard that they need to review their financial statements regularly says Edmonton bookkeeping. They may not realize how important it is to enter information into their accounting software correctly. To help ensure this happens.
Even if their Edmonton bookkeeping company is providing them financial statements on a monthly basis. If an entrepreneur is entering information into their accounting software during the rest of the month. They should be aware of this as well.
In fact, the second most common reason why entrepreneurs in Canada fail. Is because they ran out of money. Many entrepreneurs can make better financial decisions.
That could end up with them not running out of money in their business. If they not only regularly review their financial statements.
By to enter the information into their accounting software is accurately as possible. So that their financial statements are as correct as possible at all times.
When way that entrepreneurs can help ensure this happens. Is by entering the taxes that they are paying in instalments correctly.
Business owners might not realize how tricky this can be if they are not aware of all of the different tax payable accounts they should have But also because most accounting programs will default tax payments into accounts payable. Which is the wrong place for tax payments to show up.
Tax payments are an expense of the corporation and not of the business. And so tax payments should never show up in accounts payable. Because this could make their balance sheets incorrect.
It can also make their financial statements look as though an entrepreneur is not profiting the way they should in their business. When this is also not the case, because the taxes are an expense of the corporation.
Therefore, entrepreneurs should understand that there is a separate account for the taxes that they pay. But also, that it is not just a single tax payable account. Because they must keep all of the different taxes that they pay separate as well.
If they do not have a separate tax payable account for each of the taxes. It will be very difficult for their Edmonton bookkeeping company and their accountant to understand exactly what taxes they have paid and in what amount.
That not only could make their corporate year-end more difficult to do. But it could end up with an entrepreneur overpaying some taxes, and underpaying others. Which could result in the business ending up with late payments or interest charges that they did not need to have.
They also should understand what their tax expense account is. And this is where their accountant will put the total of the taxes that they owe the government.
And every time they post a payment to their tax payable accounts, the total amount they owe their tax expense account will decrease. When they have paid all of the taxes and their tax expense account is zero.
Edmonton bookkeeping recommends entrepreneurs continue to make tax payments in instalments. So that they can start paying the taxes that they will owe for the current air. So that they do not get behind in their payments.
Are you confused by the point of Edmonton Bookkeeping?
There are several reasons why entrepreneurs should keep track of the taxes that they are paying regularly says Edmonton bookkeeping. First, it will help ensure that their financial statements are accurate. So that they can make better financial decisions.
And second, so that they know how much tax they owe the government at the end of the year. One of the first things that entrepreneurs need to realize, is all of the different taxes that they are paying. This be accounted for separately.
In Alberta, they must keep track of their provincial taxes separately from their federal taxes. Even though no other province in Canada needs to keep track of these separately.
In fact, in other provinces business owners will send all of their provincial and federal taxes to Canada revenue agency. Who will then calculate the provincial taxes that entrepreneur owes. And send that amount to the provincial government on their behalf.
But since Alberta business owners must be paying these taxes separately. They should have a provincial and federal tax payable accounts. But they need to have more than just these two tax payable accounts. Because there are more taxes that they pay.
And although GST is a federal tax. It needs to be calculated separately from their federal taxes. And it should be its own tax payable account.
As well, they will have payroll taxes that they need to send to Canada revenue agency. And while many business owners assume that this is just one tax payable accounts. Edmonton bookkeeping says there are several different payroll taxes that they have to pay. And so these should be separate accounts.
Not only is there income tax that an entrepreneur must pay. But there is also CPP and EI. But also, an entrepreneur needs to take into consideration that there is an employer and employee portion of CPP. As well as an employer and employee portion of EI as well.
Therefore, they can have up to eight different tax payable accounts. That they need to keep separately. And ensure that when they make a tax payment. That they know exactly what they are paying. So that they can account for it correctly.
However, it is also very important that an entrepreneur knows that when they open up their accounting software. That tax payments are often default Inc. to the payable account of their business.
And that this is not correct. So that instead of letting the software dictate whether tax payments are saved. That they know that it must go into the tax payable account. But also what exact tax payable account it needs to go into.
The sooner an entrepreneur can learn this says Edmonton bookkeeping. The sooner they are going to be able to have the most accurate and up-to-date financial statements.
So that they can use these financial statements throughout the month to make business decisions. That will help them not only spend their money wisely. Avoid running out of money in their business. Which is the second most common reason that Canadian entrepreneurs fail.