Edmonton Bookkeeping | Differences Between Tax Payable And Expenses Account
The average Canadian pays 43% of their total income in taxes, according to Edmonton bookkeeping. And entrepreneurs pay a significant amount of their profit in taxes in their business as well. Because of the amount of taxes that business owners have to pay, they should understand clearly how to read them on their financial statements to watch for and catch errors.
To watch for errors of tax payments on their financial statements, entrepreneurs should understand the difference between tax payable accounts and tax expense accounts. Edmonton bookkeeping says tax expense accounts are the accounts that a business owner will have in their financial statement that indicates the taxes that they owe. Rather than being on the regular expense account on the financial statement, business owners should understand that their taxes get their separate expense account. However, entrepreneurs also need to realize that since they only get one tax bill a year, which is at the corporate year-end, this account should be at zero for almost the entire year. The only time and entry that will be made into this account, is when the accountant puts and entry into here. Business owners can very easily guard against errors happening on this account, simply by checking to see if any payments have accidentally been made to this account.
It is also extremely important that business owners understand what a tax payable account is, and how those look on their financial statements. Edmonton’s business owner says that tax payable accounts on the various accounts that business owners are going to indicates where they have made tax prepayments. Business owners should be aware that as they make these payments it will show up on their financial statement as a negative number. The reason for that is since they will not receive their bill for taxes that they owe until their corporate year-end when an entrepreneur prepays a liability in ends up looking on their financial statement as a negative number. The reason this is so important to note is so that business owners understand when they see all the taxes that they have been paying throughout the year to be counted as a negative number on their financial statement.
Business owners should understand that if they utilize any accounting software in their business, sometimes the tax payments that they are trying to make are excellently automatically posted to the accounts payable section of the business. Business owners may not be aware of this, or even if they are aware but think that it is completely fine that the taxes are attributed to the accounts payable since it is a payment. As long as they can understand that if they see tax excellence in accounts payable, this is an error that needs to be rectified says Edmonton Bookkeeping.
By guarding themselves against errors on their financial statements, entrepreneurs can be that much more ready to utilize their financial statements to make decisions in their business when the timing is right.
Entrepreneurs should understand the financial statements in their business are ones that they need to utilize to make decisions on says Edmonton bookkeeping. However, if there are any significant errors in those financial statements, the business owner is at risk for making a business decision that could negatively impact their business. Industry Canada says that 50% of all entrepreneurs are out of business in Canada by their 5th year, and out of those entrepreneurs, 29% said the reason why their business failed was that they ran out of money. By ensuring the accuracy of their financial statements by learning how to read and review them, entrepreneurs can be certain that there keeping their financial statements up-to-date set they can be a tool to help guide them with their business decisions.
One of the ways that business owners can verify the accuracy of their financial statements is by looking at the tax payable accounts. Edmonton bookkeeping says that there are 5 different tax payable accounts that entrepreneurs need to fully understand so that they can keep them separate when they are making entries, or reviewing their financial statements. The 5 different accounts are the federal tax payable account, where all of the federal tax to CRA is indicated except for GST which is its account, the provincial tax payable account, which is unique to Alberta. The payroll account is broken down into 2 sections, one for the source deductions that a business owner takes from their staff, and the other one that is over by the business owner that is 1.4% more than the CPP that entrepreneurs pay. By reviewing all of these accounts, and understanding them, can help entrepreneurs guard against excellently co-mingling the payments between these.
Business owners should also understand that in addition to accidentally co-mingling them, often when business owners are entering payments for the different tax accounts utilizing their accounting software, that their accounting software may default that they put tax payments into accounts payable. This might seem accurate to business owners because texts make be considered accounts payable, but this is not the right place for them. If entrepreneurs can understand that, and they will be in a better position to ensure their financial statements do not contain this error.
When more checks that entrepreneurs should be looking for when they are reviewing their financial statement according to Edmonton bookkeeping, is that their profits should always be higher than their corporate tax installments. If this is not the case, business owners use it as a sign that it is time to increase the revenue in their business to ensure that they are not running out of money in their business. If they happen to see that their profits are not higher than their corporate tax, that is a surefire sign that they do need to increase the profit in their business.