Entrepreneurs have a lot to learn when it comes to understanding their business finances says Edmonton bookkeeping. But there are some things that they should learn sooner rather than others. To help them make the best financial decisions possible.
One of the most important things that entrepreneurs can do, is learn how to read their interim financial statements. These documents that are going to show them exactly what is going on financially in their business.
Including how much money they have in their business. As well as how much money they owe in their business. So that they can make decisions about spending that money. Without making mistakes.
For example, if an entrepreneur does not consult any financial information before making a decision. Such as running payroll, or purchasing an asset.
They could end up very easily spending more money than they have. Which could cause payments to bounce, or have an entrepreneur run out of money.
Another mistake that business owners often make says Edmonton bookkeeping. Is looking at their bank account in order to make those same financial decisions.
While their bank balance will show exactly how much money they have in their business at that moment. But it will not show them, is how much money is pending such as electronic fund transfers. Or checks that have yet to be cashed.
But it also will not show them says Edmonton bookkeeping. Is how much they owe vendors already. And this is important to know. Because an entrepreneur may not want to increase the amount of bills they have. If they are having a hard time paying the bills they already have off.
Therefore, it is important for entrepreneurs to learn how to read to their financial statements. And then look at those statements before making any financial decision in their business.
They should always have the most up-to-date and accurate financial statements possible. Because as they make decisions, and receive funds in. The information in their financial statements will change. And will require re-evaluation, before they can make an informed financial decision again.
Because of this, it is very important that entrepreneurs understand what a tax expense account is as well as what a tax payable account is. The tax expense account is where their accountant will indicate how much the previous years taxes are.
They should only be one entry of the tax expense account. And that should be made by the accountant, after their corporate year-end. However, a tax payable account is something entirely different.
These of the various accounts that an entrepreneur will use to indicate what taxes they have paid. And how much taxes they have paid. As they pay a tax and enter it into a tax payable account.
Their tax expense account will decrease until it is zero. And then will go into the negative, indicating a prepayment of tax.
The sooner entrepreneurs are able to enter this information correctly. The sooner they are going to have the most accurate and up-to-date financial statements. As well as understanding that they are paying their taxes in instalments and correctly.
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There are many important things that entrepreneurs should be learning when it comes to entering information into their accounting software says Edmonton bookkeeping.
With how important it is to review their financial statements on a regular basis. Entering information into their accounting software is extremely important.
And with how important it is to pay their taxes is. And that they are ensuring that they are paying their taxes in the correct amount and on time.
It is very important that entrepreneurs understand what a tax payable account is. And what the tax expense account is. So that they can ensure that not only are they paying the right taxes. But that they are accounting for those taxes that they are paying correctly as well.
While the tax expense account is for the accountant to indicate how much in taxes in entrepreneur owes for the previous year. The tax payable accounts are much more complex.
The tax payable accounts are going to have a separate account for every single tax that an entrepreneur pays. And in Alberta, entrepreneurs will have more tax payable accounts then entrepreneurs and other provinces.
The reason why, is because entrepreneurs in Alberta must pay their provincial taxes and federal taxes separately. Other provinces will be able to send their provincial taxes to Canada revenue agency along with their federal taxes.
And Canada revenue agency will calculate the provincial taxes. And then send those directly off to They provincial government on behalf of the entrepreneur.
This is why when entrepreneurs have experience with owning a business in another province. And they come to Alberta, Edmonton bookkeeping says they should be made aware of this difference.
However, this does not mean that there is just too tax payable accounts. They will also need one for GST. Because even though GST is a federal tax. It is calculated differently. And as for a different purpose. And so GST gets its own tax payable account.
And finally, there will be several accounts for payroll. Because there are several different payroll accounts as well says Edmonton bookkeeping. There should be one for income tax, and the employer and employee portion of EI. As well as the employer and employee portion of CPP.
By understanding that the tax payable account has five different accounts. Can help ensure that business owners are aware of those differences. And know how to enter that information into their accounting software correctly.
The sooner an entrepreneur can keep this sorted out. The better chance they are at having correct financial statements. That they will need in order to make the most informed financial decision.
It is also very important to understand this. Because most accounting software programs will default tax payments to the tax expense account. And not only does not nor need to know that this is wrong.
But they also need to know why it is wrong, and where to tell their accounting software to put the entry. To ensure that there bookkeeping is kept as accurate as possible.