It is very important that entrepreneurs understand not only what tax payable accounts are says Edmonton bookkeeping. But how to accurately enter tax payments into those accounts. So that they can keep track of the taxes that they have paid, and that they owe.
In order to understand what tax payable account is, is owners also need to understand what their tax expense account is. So that they can put their payments to the right account.
When they are entering tax payments into their accounting software. Edmonton bookkeeping says there accounting software will default to the tax expense account. And business owners need to understand that this is not accurate. And where to put the payments instead.
There tax expense account, is where their accountant will put the amount of taxes that they have calculated that the business owner owes for the previous year in business.
As they enter payments to their tax payable account. There tax expense account will decrease. Until they have paid off the entire balance and it shows zero owing. And then as entrepreneurs continue to make tax payments in instalments.
Entrepreneurs will see the tax expense show a negative number, to indicate a prepayment. Because all of the taxes that they pay will show up this way. When they enter those taxes that they have paid. They need to keep accurate record.
So that at the end of the year, not only their accountant. But their bookkeeping company will know what taxes have been paid. And they can calculate how much they still have left owing.
The tax payable accounts on the other hand. Are they counts that entrepreneurs will use to indicate what taxes they have paid and and what amount.
Because there are so many different taxes that an entrepreneur will owe as a business owner. They need to be aware that there will be that many tax payable accounts. They should take care to avoid co mingling their tax payments.
If they accidentally enter different tax payments into the wrong accounts. It can be very difficult for their accountant or their Edmonton bookkeeping company to figure out what taxes they have actually paid at the end of the year.
The first thing that entrepreneurs need to keep in mind, is that in Alberta, business owners will account for and pay their federal and provincial taxes separately.
In no the province is this done. So if entrepreneurs are coming to Alberta from owning a company in another province. They need to realize that taxes are accounted for differently here.
Therefore, they should have one tax payable account for federal taxes and one for provincial taxes. But, they will also have more tax payable accounts then that.
The next tax payable accounts that an entrepreneur might be aware of is the GST account. Even though this is a federal tax. It does not get lumped in with the federal taxes that they are already paying. And it gets its own separate tax payable account.
After GST, an entrepreneur will have tax payable accounts for all of the taxes that they pay for payroll. And since there are many different payroll taxes, there will be many different tax payable accounts for payroll.
By understanding this, entrepreneurs can ensure that they are accounting for their taxes correctly. So that they know how much they have paid and how much they ultimately owe.
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Business owners need to understand that when they are entering information into their accounting software says Edmonton bookkeeping. How they enter the information is incredibly important.
And one of the reasons why entrepreneurs even want to enter information into their accounting software in the first place. Is so that they can have the most up-to-date financial statements.
Business owners should look at their interim financial statements in order to make financial decisions in their business. Such as running payroll, or paying bills.
But also, if they want to pay themselves, or make any asset purchases. Edmonton bookkeeping says that they should be reviewing their financial statements in order to understand if they have the money to do so.
Since running out of money is second most common reason why Canadian entrepreneurs fail. If more entrepreneurs could read their financial statements before making financial decisions.
More business owners could avoid making financial decisions that would cause them to run out of money. However, it is very important that entrepreneurs are using the most accurate and up-to-date financial statements to make these decisions.
Which is why it can be extremely important for business owners to enter information into their accounting software. So that when they go to make those financial decisions. They are using the most accurate and up-to-date financial statements available.
One mistake that many business owners often make when they are entering tax payments. Is thinking that their payments should get reflected on their profit and loss statement.
For new entrepreneurs this makes a lot of sense. Because they see the taxes as an expense of the business. However, Edmonton bookkeeping says it does not belong on the profit and loss statement is very important reasons.
First, the profit or loss statement is for entrepreneurs to put the prophets of the business, and the expenses of the business. This includes direct and indirect expenses, and all of the money that they have generated through selling their products and services.
Since taxes are not a direct or indirect cost. But an expense of the corporation. It does not belong on the profit and loss statement. And if an entrepreneur kept their tax payments on the profit and loss statement.
What would end up happening. Is that the business would look like it did not make as much money in a month that they made a significant tax payment. Which is not true at all.
For example, if an entrepreneur paid all of the tax that they owed in a single year in a single month. If it was on the profit and loss statement, it would look like the business lost money in that month. When that’s not the case.
Therefore, entrepreneurs need to understand what tax payable accounts are, and what tax expense accounts are. And how to enter those payments into their accounting software accurately. So that they can end up with the most accurate financial statements to use.