It is very important that business owners can ensure that they are doing their accounting correctly says Edmonton bookkeeping. So that they end up with financial statements that are accurate. If their financial statements have errors on them, they may not be able to make the most informed financial decisions.
And while many business owners can learn many different aspects about their bookkeeping. If they end up putting their tax payments where their accounting software defaults to. This can end up with critical errors on their financial statements.
The reason why, is because most accounting software programs. And up default thing tax payments to the general payable account for the business. When it should go into all of the various tax payable accounts that an entrepreneur should have.
In order to understand this, Edmonton bookkeeping says business owners need to understand how many different tax payable accounts they will have. So that they can keep it separate when they enter payments.
While many business owners might understand that they will have one tax payable account. They should actually have a federal and provincial tax payable account. Because in Alberta, provincial taxes are paid directly to the provincial government.
Nowhere else in Canada does this happen. In all of the other provinces, business owners will pay all of their federal and provincial tax to the Canada revenue agency. And they will send the cracked provincial taxes on the entrepreneurs behalf to the province.
However, because it is separate in Alberta. And especially of their people coming to Alberta from other provinces. They must ensure that they keep their provincial and federal taxes separate. And have two different tax payable accounts for federal and provincial taxes.
However, these are not the only two tax payable accounts that a business owner should have. They should also have a tax payable account for GST as well as all of the variable payroll taxes that they have to pay.
While there is CPP and EI that business owners need to keep separately. There is also the employer portion and the employee portion of each. Meaning the payroll tax accounts should equal for separate accounts.
Therefore, in addition to the four accounts for payroll taxes, GST, federal and provincial taxes. An entrepreneur needs to be aware that they have up to seven different tax accounts. That they can put their payments into and their accounting software.
So that when they enter tax payments, they need to know exactly what taxes they are making a payment on. So that they can enter into their accounting software correctly.
That way, they are taking into account all of the taxes that they are paying, and which taxes they are paying. As well as how much they are paying.
By keeping all of these accounts separate. Business owners will ensure that they do not end up combing laying various tax payments into other accounts.
Making it very difficult for their Edmonton bookkeeping company or their accountant. To figure out what taxes they have paid and how much they owe.
If entrepreneurs are going to be doing their own accounting. Or if they are ever going to be entering their own payments into their accounting software. They need to be aware of all of the various tax accounts.
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It is extremely important for entrepreneurs to understand the difference between tax payable account and expense account says Edmonton bookkeeping. Because this will help ensure that they keep accurate financial records of all of their taxes. As well as what taxes they pay.
This will ensure that they have accurate financial statements. So that they can end up making the best financial decisions for their business. Because they have the most accurate documents to understand the finances of their business before they make financial decisions.
The first thing that business owners should understand. Is what the tax expense account is. This is where the calculation of all of the taxes that they owe is accounted for.
Their accountant will be the one that figures out how much taxes they have owed in the previous year. And will enter this amount into their accounting software at their corporate year-end.
Since this is the only time the taxes that an entrepreneur owes is calculated. They should never be making entries into the tax expense account. And this represents all of the money that they owe.
The tax payable account on the other hand says Edmonton bookkeeping. Is used to keep track of all of the tax payments that an entrepreneur has made. This means that for all of the taxes that they pay, and entry will be made into this account. And the tax expense will decrease with every payment that they make.
One of the most important things that entrepreneurs need to keep in mind. Is that even when their tax expense account gets to zero. Meaning that they have paid all of the taxes for the previous year. Should continue making tax payments in instalments.
The reason why they should continue making tax payments in instalments. Is so that when they get to the end of their next year. They will have already made several payments towards the amount that they owe.
Since taxes only get calculated for the previous year at the end of that year. Making instalments can ensure that business owners are continuing to pay the taxes that they will owe the government.
Since there will be several tax payable accounts. It is very important that an entrepreneur is being very careful to keep track of what taxes they are paying. And making the correct entry into the right tax payable accounts.
It is also very important that business owners are ensuring that they never see any of their taxes that they are paying. In their accounts payable section of their financial statements.
The reason why says Edmonton bookkeeping. Is because accounts payable is for expenses of the business. Which taxes are expense of the corporation and not the business.
So if entrepreneurs are entering their tax payments into their accounting software. And it defaults to the accounts payable section of the entrepreneurs accounting software. They must know to not accept the default. And to put the tax payment in the correct account instead.