It is very important that entrepreneurs learn about tax payable accounts when they start entering information into their accounting software says Edmonton bookkeeping. Because if they end up entering the tax payments incorrectly. They can end up with very inaccurate financial statements.
When entrepreneurs are entering information into their accounting software. They need to keep in mind that their accounting software is not necessarily going to have information default to the right location.
When a comes to tax payments. The accounting software will want to default into the tax expense account and not the tax payable account.
The tax expense account is where the entrepreneurs taxes that they owe is calculated. And not only is this calculated only once a year. But it is calculated by their accountant, and so this number should not increase throughout the year.
But instead, as they enter tax payments and their tax payable accounts. The number will decrease until it reaches zero. If they start making tax payments in advance. This number will go into the negative, indicating a prepayment.
Therefore, if an entrepreneur has the software default into the tax expense account. Not only will they not look like they are paying taxes. But it will look like they are continuing to pay more taxes than they actually do.
Instead, business owners need to keep in mind that their accounting software is not always correct. And that they need to change where they are saving their tax payments says Edmonton bookkeeping.
The tax payable accounts, are the accounts where an entrepreneur will keep track of all of the tax payments that they have made.
And because of that, an entrepreneur will not simply have one tax payable account in their accounting software. But they will have a tax payable account for each of the taxes that they owe.
In Alberta, that means that there is going to be a federal and provincial tax payable account. Which is different than any other provinces Canada. In other provinces, entrepreneurs will pay both their federal and provincial amounts to Canada revenue agency.
In Canada revenue agency will then calculate the right provincial tax amount, and send that amount to the government on the businesses behalf.
So especially if entrepreneurs are coming from another province that they have previously owned a business in. They will need to keep in mind that they will have more tax payable accounts in Alberta and they did anywhere else.
The next thing that business owners need to keep in mind, is that despite the fact that GST is a federal tax. It does not belong in the federal tax payment account. Instead, it will get its very own tax payable account.
By keeping track of their GST separately, their accountant will be able to figure out if they have paid the cracked amount. Simply by looking at the amount of money that the entrepreneur made in the previous year.
There is also owing to be separate tax payable accounts for payroll. And since there are so many different payroll taxes, there will be that many different tax payable accounts says Edmonton bookkeeping.
Therefore, by understanding how many tax payable accounts a business owner will have. In each different tax must be accounted for separately. Can help ensure that business owners are avoiding making mistakes that could significantly impact the accuracy of their financial information.
Throw our name in the ring for consideration for Edmonton Bookkeeping.
Business owners who are going to take care of some of their own bookkeeping by entering information into their accounting software should learn certain things early on says Edmonton bookkeeping.
By learning what mistakes they should not make. Can help ensure that they have the most accurate and up-to-date financial statements.
In fact, many entrepreneurs may decide to do some of their bookkeeping themselves. So that they can end up with the most accurate and up-to-date financial statements possible.
The reason why this is important, is because if an entrepreneur uses their financial statements to help them make informed financial decisions in their business.
The more accurate and up-to-date these financial statements are, and the better their decisions will be. Since entrepreneurs typically have to make financial decisions more often than once a month. Which is how often their Edmonton bookkeeping company will send them interim financial statements.
The more information they can enter on their own. Will increase the accuracy of their financial statements. So that when they use them to make financial decisions. They will be able to make better decisions with better information.
Because of this, it is very important for entrepreneurs to understand where to save their tax payments. Because many new entrepreneurs assume that tax payments should get reflected on their profit and loss statement.
This is not true, because an entrepreneur is not paying an invoice off when they are paying taxes. And if they decide to pay five thousand dollars worth of taxes because they have the money to. This should not make it look on their profit and loss statement like they made five thousand dollars less in profit.
Therefore, business owners need to keep in mind that there taxes should be indicated in their tax payable account and nowhere else.
However, business owners need to be making these tax payments on a regular basis. Even if there tax expense account shows that they have paid off their taxes entirely says Edmonton bookkeeping.
The reason why, is because when their accountant calculates the taxes that they owe. That is for the previous year of business. Therefore, when they pay down their tax expense account. They are literally paying last year’s taxes.
When they have paid their tax expense account completely. By continuing to make payments in instalments. They are paying the current years taxes. Which is important to do, in order to make the taxes that they will owe at the end of the year less.
As their accountant does their corporate year end for the current year. They will calculate how much they owe in taxes, and subtract the amount that the entrepreneur has already paid.
If an entrepreneur has not kept accurate track of the taxes that they have paid. Or put them in the wrong accounts. They can impact how much taxes that it looks like they owe. Or have them overpay some taxes but underpaid others.
How important this is, business owners should keep in mind to take great care when entering taxes. And put them in the correct tax payable account. So that they do not make critical errors when paying taxes to the government.