There are lots of questions that entrepreneurs end up having says Edmonton bookkeeping. When they start entering tax payments into their accounting software.
It is very important that entrepreneurs do this accurately. Because it can help ensure that they end up with the most accurate financial statements. That they need in order to make informed business decisions.
Also, it is important that they are accounting for the taxes that they pay. Accurately and correctly. So that they do not end up making a mistake, and underpaying. Which could result in late penalties and interest charges.
Therefore, business owners should hear the most commonly asked questions that Edmonton bookkeeping has from new entrepreneurs. That can help them avoid some of the same mistakes that entrepreneurs have made before them.
One of the first questions that is ask, are if payments to the payable accounts get reflected on the profit and loss statement?
This an incredibly important one to understand. And can impact not only the taxes that they owe, but there financial statements.
Tax payments do not get posted to the profit and loss statement. Because they are not an expense of the business. The profit and loss statement is where the entrepreneur should account for all of the invoices that they have generated in their business, or all the sales that they have created.
Also, the profit and loss statement is where the entrepreneur will account for the expenses and cost of generating those products and services that they have sold. From direct costs and indirect costs.
And taxes are a corporate expense, not an expense of generating sales. Which is why they do not belong on the profit and loss statement.
In addition to that, if it was reflect on the profit and loss statement. An entrepreneur was doing so good in their business, that they decided to make a five thousand dollars tax payment.
If it was reflected on their profit and loss statement. That five thousand dollar payment would make it look like they took a five thousand dollar hit in that month. Which is also not accurate.
Business owners should ensure that their tax payments are not reflected in their profit and loss statement at all.
The next question that entrepreneurs often have for their Edmonton bookkeeping company. It is at what point in the year is the tax expense account calculated?
This is also very important for entrepreneurs to know. Because their taxes are only calculated at one time. Which is at the end of their year, when their accountant does their corporate tax return.
Annual time should anyone be entering anything into their tax expense account. From themselves, their bookkeeper or their accountant. But every time an entrepreneur makes a tax payment. And properly books it in the tax payable account. The tax expense account will decrease by the same amount.
By understanding how their tax payables and tax expense account works. And how to properly book tax payments. Entrepreneurs can end up with accurate financial statements. As well as accurately know how much they paid in taxes each year.
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Business owners need to understand how important it is to properly keep track of their taxes that they pay says Edmonton bookkeeping.
And if entrepreneurs are entering information into their accounting software. In order to end up with the most accurate financial statements. They need to know that they should be doing to enter tax payments are.
However, many entrepreneurs make critical errors of this point. Requiring their Edmonton bookkeeping and accounting company To spend a lot of time fixing errors. That could have been avoided. If entrepreneurs are new what to do initially.
By answering some of the most commonly asked questions. Edmonton bookkeeping can ensure that other entrepreneurs do not make the same critical mistakes that entrepreneurs before them made.
The first question that entrepreneurs have Edmonton bookkeeping is what is the difference between tax payable accounts, and tax expense accounts?
Ultimately, the difference is that the tax payable account is where an entrepreneur specifies where they have made a payment. And that there is going to be a different tax payable account for all of the different tax payments that they have made.
The tax expense account on the other hand. Is simply where the entrepreneur sees the calculation of the taxes that they owe. As they entering amounts to the tax payable account. The tax expense account will decrease. Until they have paid off all of their taxes. At which point this tax accountant will read zero.
However, business owners should be paying their taxes in advance in instalments. And this will be reflected on their tax expense account by a negative number. Showing their accountant how much they have prepaid in taxes all year.
The next question that entrepreneurs often have is should payroll tax amounts get posted to separate accounts for each payroll tax?
This is incredibly important. Because most entrepreneurs understand exactly how many payroll taxes they are responsible for. There is the income tax, employer portion of CPP and employer portion of EI. As well as the employee portion of CPP, and the employee portion of EI.
Not only should all of these people taxes be accounted for separately. They should be in a separate account from each other. So that entrepreneurs will be what to look back and see exactly what payroll taxes they have paid. And in what quantity.
By keeping these amounts separate. Entrepreneurs ensure that they know all of the different taxes that they have paid. And will avoid co mingling any of them together.
This can ensure that they know exactly how much taxes they have prepaid. So that when their accountant calculates the taxes that they owe at the end of the year. They will have a very clear idea of how much they have already prepaid.
By entering in this information into their accounting software accurately. Not only can ensure that they understand their tax situation. But that they will have kept their financial statements accurate as well. So that there is no errors on these important financial documents.