Many entrepreneurs want to take on some of the entries into their accounting software themselves says Edmonton bookkeeping. Which is a great idea, so that they can end up with the most accurate interim financial statements possible.
Interim financial statements are incredibly important. Because they can help entrepreneurs make more informed financial decisions. And if they get into the habit of reviewing these prior to any financial decision.
They can end up making better decisions, that can help them learn when they should not spend money. But also help them understand how to minimize expenses, and when they need to engage in some revenue-generating activities.
It is very important for an entrepreneur to understand if they need to increase their marketing, or do some collection calls. In order to bring the money that they are owed into their business.
By entering information into the accounting software in between their Edmonton bookkeeping company working on their finances. An entrepreneur can end up with more accurate and up-to-date financial statements.
However, this is not the case if they are making errors in their entries. Which is why it is incredibly poor for business owners to understand what common mistakes are made. So that they can avoid making those mistakes themselves.
One of the first things that many business owners make mistakes on says Edmonton bookkeeping. Our posting their tax payments to the wrong account.
Typically, accounting programs default tax payments to the businesses accounts payable. And this is not correct. Taxes are expense of the corporation, and not an expense of the business.
And despite the fact that accounting software will default here. Entrepreneurs need to understand that they should not be putting taxes in the software’s default setting.
In fact, not only do they need to understand that it should go into a tax payable accounts. There are actually several different tax payable accounts that things should get posted to depending on what taxes are being paid.
For example, Edmonton bookkeeping says that in Alberta there is a federal tax payable account as well as a provincial tax payable account. The reason this is important to take note of. Is because no other province has this requirements.
Businesses in any other province in Canada. Will send both their federal and provincial taxes to Canada revenue agency. Who will then send the correct provincial taxes to that provincial government directly.
However, business owners in Alberta must pay their provincial taxes separately. Therefore, ensuring that they are keeping these taxes separate in their tax payable accounts is incredibly important.
Something else for business owners to take into consideration. Is that there GST must be kept separate in its own tax payable account as well. Despite the fact that it is a federal tax. Since it gets calculated differently, and is a different tax. It should be kept separate.
And there should also be accounts for payroll taxes. And since there are many different payroll taxes, there will be many different tax accounts for the various payroll taxes.
There is the CPP and EI taxes. But because there is an employer portion as well as employee portion. Business owners need to ensure that there keeping these separate in their accounting software.
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There are many things that business owners can learn to ensure that they are entering information to their accounting software correctly says Edmonton bookkeeping. And understanding the difference between their tax payable accounts and tax expense accounts is incredibly important.
The tax expense account is where the calculation of all the taxes that they owe is entered. It should only be entered by their accountant, and they calculate the taxes that they owe at the companies corporate year-end.
Since the taxes that are calculated are going to be taxes for the previous year. Is very important that an entrepreneur does not add anything to the tax expense account.
But sees that every time they enter an amount into their tax payable account, their tax expense account should decrease by the same amount.
However, there tax payable account is what an entrepreneur should account for all of the different tax payments that they are making throughout the year. Even after they have paid the tax expense account back to zero. They need to continue to make tax payments in instalments.
The reason why they need to do this, is so that they can start paying the current years taxes. Since the previous years taxes will get entered into the tax expense account. It is very important that an entrepreneur continues to pay taxes.
So that when their accountant calculates the taxes that are owed in the current year. Entrepreneurs will have already been making payments in instalments says Edmonton bookkeeping. Minimizing the amount of taxes that they eventually owe the government.
It is very important that entrepreneurs are entering the tax payments that they are making into the correct tax payable account. And watching that that amount makes the total tax expense they have decrease.
One thing that they should ensure never happens. Is that there payments for taxes should not go to the profit and loss statement.
There is several reasons for this says Edmonton bookkeeping. And one of the most important things that they should keep in mind, is that the taxes that they pay are not decreasing the profit that a business has.
For example, if they paid five thousand dollars in taxes in a single month. If it was reflected on the profit and loss statement. It would look like the business made five thousand dollars less profit for that month. When that not the case.
It is also important that taxes should never appear in accounts payable either. Because this is not an expense of the business. But a corporate expense.
So it should not appear in the business expenses. Otherwise it will end up making the financial statements of the business look like they are making less money than the business actually is.