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Edmonton Bookkeeping | Corporate Tax Payable And Expense Accounts
The average Canadian spends 43% on taxes when entrepreneurs are going over there business financing with Edmonton bookkeeping, they should understand the difference between corporate tax payable and expense accounts, so they can understand what that different tax accounts are so that they can minimize tax entries being posted to the wrong account. If tax entries are being posted to the wrong account, business owners may discover that their finances are incorrect, and the last thing that business owners need is their financial statements to have errors on them when they are using them to make important financial decisions.
The biggest thing that an entrepreneur should understand according to Edmonton Bookkeeping, is what the difference is between tax payable accounts and tax expense accounts. The tax payable accounts are the accounts that are posted on the financial statement that a business owner uses to make tax payments. As they make their payments, the amount in their tax payable account decreases. The tax expense account is where the accountant will put all of the taxes that a business owner owes for the year. The only time this should have an entry made into it, is when the accountant does the year-end and puts the amount of taxes that the business owner owes into it.
Entrepreneurs need to understand that in Alberta, business owners should have both a federal tax payable accounts as well as a provincial tax payable account. The reason is that there is a separate tax department for Canada revenue agency and Alberta finance. With other provinces, a business owner will pay CRA, and CRA will disperse the amount os the provincial taxes that are required on behalf of the company to the province. However, when in Alberta, Alberta has its standalone tax department called Alberta finance and so an entrepreneur needs to ensure that they have a tax payable accounts for federal and provincial taxes.
The reason why there have to be a tax payable accounts and a tax expense account, according to Edmonton bookkeeping the payment that is being made goes to the payable account because it does not necessarily mean that the expense occurred when the payment was made as a business owner makes tax installment payments, each installment is posted to the payable account. The tax expense account is for the amount of taxes that are owed, and expense has generally occurred at a different time than the payments.
Business owners should also understand when they are looking at their financial statements, that the payments to the payable accountants do not get reflected on the profit and loss statements of the business. And this is a good thing because a business owner will want to match the payment to the period that it occurred in.
If entrepreneurs can understand the difference between corporate tax payable and expense accounts, they will be able to watch on their financial statements for any errors that may be posted, because errors are quite common on this part of the financial statements.
One of the most common errors that entrepreneurs make on their financial statements according to Edmonton bookkeeping, is that business owners accidentally post incorrect information to all of the various tax payable accounts and tax expense accounts that occur in their financial statements. Since entrepreneurs are making large and important financial decisions in their business based on these financial statements, ensuring that they are as error-free as possible is extremely important.
Business owners should understand that the only time that anything will get posted to the tax expense account, is that the year-end because that is the only time an entrepreneur will know what their tax bill is. Therefore, when their accountant works on their corporate year-end, they will make the entry into the tax expense account of the amount that a business owner owes. If an entry is made to the tax expense at any other time, business owners should understand that this is an obvious error. Since entrepreneurs are not the ones doing their taxes, they should not be making any entries onto this account. Every time a business owner makes a payment for any tax amount, the amount that they pay goes on to the appropriate tax payable account.
For business owners to be able to review their financial statements to see if incorrect amounts are being posted to the wrong tax payable accounts, entrepreneurs need to understand how many tax payable accounts there are said Edmonton bookkeeping. The various tax payable accounts are the corporate tax expense account, the federal tax payable account, the provincial tax payable account, the GST payable account, and the payroll withholding account. The corporate tax expense account is going to have an entry of the tax that the business owner owes. All of the other various accounts are when an entrepreneur makes a payment to each various tax, whether it is federal, provincial, GST or payroll tax gets posted to those accounts. Business owners should become familiar with the number of tax payments that they make to each of those four tax payable accounts so that they can review their financial statements and watch for errors.
Other things that business owners should be mindful of when reviewing their financial statements according to Edmonton bookkeeping, is that if an entrepreneur ever sees tax, payroll or GST amounts in accounts payable, that is an error. They should never see any of those amounts in accounts payable. The reason why this may show up here could be due to a payroll software default thing to one of those accounts. If a business owner is not careful, they may find various tax payments showing up in their accounts payable. Business owners need to understand their statement statements, and it should not be cluttered up with accounts payable information. By staying vigilant when reviewing the financial statements, business owners can ensure that they are error-free so that they can be confident in making important financial decisions based on the information in them.