Edmonton Bookkeeping | How Tax Accounts Look On Financial Statements
An extremely important task that a business owner needs to be aware of in their business, according to Edmonton bookkeeping is how corporate tax payable and tax expenses look on the financial statements of their business. Since interim financial statements typically have some errors in them, business owners should be aware of all of the different ways they can review those financial statements to minimize errors. This is important because as entrepreneurs need to review financial statements in order to make business decisions, the accuracy of those interim financial statements are of paramount importance. The more accurate they are, the better equipped a business owner is in making decisions for their business.
Since business owners are paying lots of taxes in their business, learning how the different tax accountants look on the financial statements can help entrepreneurs minimize errors. Tax expense account is just one account that is going to indicate how much in taxes the business owner owes in total. The reason why business owners should be aware of how this looks, is because since entrepreneurs do not end up getting their tax bill until the end of the year, this account will stay at zero for the entire year, until their accountant enters the amount of tax that they owe at the end of their fiscal year. Edmonton bookkeeping says that if entrepreneurs see that there is any amounts entered into that account throughout the year, that is a great indication of an error.
Business owners should also understand how tax payable accountants look on their financial statements. Mostly, because there are 5 different tax accounts that business owners need to be aware of. The 5 different tax accounts are the federal tax payable account, provincial, GST which needs to be kept separate from federal, and to various payroll tax accounts. Business owners should familiarize themselves with how much should be entered into each account and the frequency. For example, the payroll accounts should have entries made for as often as payroll is in their business, either every 2 weeks, twice a month or monthly. Edmonton bookkeeping says the GST account is often paid quarterly, therefore business owners should ensure that entries are not being made more often than that. By understanding what the difference tax accounts are, and what typical payments are to those accounts, can help business owners stay on top of the accuracy of those accounts.
When business owners are aware of how the different tax accounts look, it can help them verify the accuracy of those accounts, which can help them keep the overall accuracy of their financial statements in tax. This is extremely important says Edmonton bookkeeping, because as business owners make decisions in their business, understanding and utilizing financial statements to make those decisions can be extremely beneficial. Since half of all entrepreneurs close their business before they have been in business for 5 years, and 29% of those businesses close because they have run out of money, using the information in the financial statements can help entrepreneurs avoid that same fate.
Even though entrepreneurs need to utilize interim financial statements in order to make important fiscal decisions in their business says Edmonton bookkeeping, they also need to understand that there is a high degree of probability that those financial statements of mistakes in them. In fact, any financial statements that are not prepared by chartered professional accountants have a higher degree of probability that there are errors in those statements, and business owners need to learn how to understand and read their financial statements as well as how to check them for errors so that when the need arises to use those financial statements in order to make decisions in their business, they have the most accurate tool available.
It is extremely important that business owners review their corporate tax payable and expense accounts as they appear on their financial statements, because they pay a lot of taxes throughout their year, and verifying and correcting those errors can be significant in helping business owners keep accurate financial statements. Also, there are several accounting software default settings that can contribute to those financial statements being inaccurate. Edmonton bookkeeping says that by understanding and what ways accounting software can be incorrect, can help entrepreneurs the first error that can be perpetuated by accounting software is any tax amounts that are attributed to a business owners accounts payable. This is difficult to catch partially because accounting software may put the default setting for taxes to the accounts payable account, but also, business owners may not catch it because it might make sense to them that their tax is put into their payables. Since they are in fact paying tax. By catching this air and fixing it can help entrepreneurs avoid that error.
Another accounting software error that can easily occur according to Edmonton bookkeeping is when tax payments are accidentally posted to and expense account that is not a tax expense account. Since the tax expense account should only be entered by an accountant at the fiscal year end, if entrepreneurs are accidentally putting tax payments to an expense account, that will end up double entering the taxes to the expense account. This can result in numbers all throughout the financial statement being wrong, simply with this one wrong entry. Business owners need to be aware that taxes to be paid should not be entered into the financial statement of the business except by the accountant.
Edmonton bookkeeping says that tax payments should also not appear on the profit and loss statement. If business owners can check the profit and loss statement every time they review their interim financial statements, they can easily catch this error, and avoid their financial statements being wrong because of it.
By staying on top of reviewing financial statements every month, entrepreneurs can catch errors regularly, to ensure that their financial statements are staying as error-free throughout their business as possible, so that if they ever need to review those financial statements in order to make a business decision it can become easier.