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When business owners are reviewing their financial statements, they should be aware of the areas that errors easily occur, is that is a great place to start verifying the accuracy. One place that businesses can start is on their tax payable accounts. Edmonton bookkeeping says that the reason why there is so many errors on this account, is because some accounting software often places those tax payments in the accounts payable section. Although this is a common software error, business owners should understand that every single tax payment that they make should be posted to the appropriate tax payable account. There will be 5 in total, for the federal, provincial, GST, and payroll taxes that they will pay in their corporation.
Another reason why the tax payable accounts frequently have errors, is because there is so many of them. There are 5 in total, and sometimes it is very easy for business owners to accidentally commingle these payments. Business owners should watch to ensure that GST payments never get posted to the federal tax accountant. And Edmonton bookkeeping says that entrepreneurs in Alberta need to understand that they need to make 2 separate entries for the federal and provincial tax payments that they make. The reason why this is something need need to be aware of, is because in other provinces, business owners are only making one payment, which is to the federal government. CRA will then take the payment, figure out what provincial tax needs to be paid, and send it off to the province on behalf of the business owner. If entrepreneurs are coming from out of province, they need to be very aware of how this is handled in Alberta.
When business owners ensure the accuracy of their financial statements, and fix errors on a regular basis, their financial statements become a powerful tool to help them make great financial decisions in their business. And when this happens, business owners can be far more likely to avoid cash flow problems which is the reason why 29% of failed entrepreneurs close their business.
The average Canadian pays 43% of their income in taxes, and entrepreneurs also pay a significant portion of taxes says Edmonton bookkeeping. Because of this, business owners need to keep very clear and accurate records of all of the taxes that they are paying in their financial statements. Because there are so many different taxes to pay, it can be very easy to make errors in the various tax payable accounts that exist in financial statements. By reviewing the tax payable and tax expense accounts on a regular basis, business owners can ensure the accuracy of their financial statements.
In order to verify the accuracy of each of the accounts, entrepreneurs need to understand the difference between tax payable accounts and tax expense accounts. Edmonton bookkeeping says that the tax expense account is the account where the taxes that a business owes are indicated. Since corporations do not find out what their tax bill is until the end of the year, is account should be empty until the accountant puts an entry into it at their fiscal year end. And easy way to verify that this account is error-free, is for business owners to be reviewing it to ensure that nothing gets posted to it throughout the year.
The tax payable accounts are the accounts that business owner uses to make their tax instalment payments. Since they do not get their tax bill until the end of the year, every time they make a payment to each of these 5 accounts, it will show up as a negative balance. Despite the fact that they are making those payments, business owners should understand that it will show up as a negative number, when the accountant adds the tax bill at the end of the year it will zero out those negative amounts. Business owners should not panic when they look at their tax payable accounts and see negative numbers there, especially since they have been making payments.
Another reason business owners should verify the accuracy of these tax accounts, according to Edmonton bookkeeping is because it is a common accounting software problem to default all tax payments into the accounts payable section. Although technically a business owner is making a payment onto a bill, taxes need to be handled separately and should never default to the accounts payable section. By understanding this, business owners can review the accounts payable section and fix any tax payments that have been and are here by mistake.
When entrepreneurs are able to ensure the accuracy of their financial statements, they can be more confident they are making important financial decisions in their business, that the making the best decision that they can, with the information that they have. If business owners are making the same decisions on less correct financial statements, there is a good chance that the decisions they make could be negative on their business.
