Edmonton Bookkeeping | How To Review Financial Statements For Accuracy
This owner should be reviewing their financial statements regularly, especially the interim financial statements they receive from Edmonton bookkeeping. The reason this is so important is that entrepreneurs often need to make financial decisions in their business and to make the best decision possible they need to be using the most accurate and up-to-date information possible. If their financial statements are not kept up-to-date or accurate, then business owners are essentially making financial decisions without any research, and that can end up impacting negatively their business. Since half of all entrepreneurs fail in business within the first 5 years, and 29% of those failed business owners say the reason why they failed is that they ran out of money in their business. Making important financial decisions and business without utilizing the facts they have, can end up with business owners making poor financial decisions.
One of the best ways for entrepreneurs to check the accuracy of their financial statements is to review the tax payable accounts. Edmonton bookkeeping says one of the reasons why it is so important to review the tax payable accounts, is because accounting software issues often make amounts that are put into the software that should go to tax accounts end up in other areas that can cause problems throughout the financial statement. For example, some accounting software ends up putting various taxes that should appear in the tax payable account into the accounts payable section of the financial statements. This never should be the case, and unless business owners understand that their payroll software may create that error so that they can guard against it when they are making entries, or look for that error when they are doing their verification check, either way, entrepreneurs need to understand that this is an error that can happen that needs to be fixed.
Edmonton bookkeeping says another area that business owners should be aware of that their accounting software may have incorrect defaults is when putting tax payments into their software, it may default to having it applied to an expense account. Many business owners may not even catch this, because they think that taxes should be considered an expense of the business, and while this is technically accurate, the tax expenses are noted in their account and a different section of the financial statements and are indicated by the accountant at year-end. If an entrepreneur is ending those taxes to a different expense account, it can trigger errors throughout the entire financial statement, because taxes were added is an expense twice.
Business owners should also be aware when they are reviewing their financial statements that the taxes that they pay should not show up on their profit and loss statement. Edmonton bookkeeping says that if taxes have been entered incorrectly elsewhere on the financial statement they can show up on the profit and loss statement which is indicative of other errors. By reviewing this, business owners can be sure that they can catch other errors that may be existing easier.
Matter who is preparing the interim financial statements, whether it is an entrepreneur themselves or Edmonton bookkeeping, business owners should understand that any interim financial statements that are prepared by anyone other than a chartered professional accountant have a higher degree of errors that can exist. By understanding that, business owners should conclude that reviewing their financial statements for errors is of large importance. When entrepreneurs need to make important financial decisions in their business, utilizing financial statements is a great way that business owners can ensure that their decision will not negatively impact their business. However, if those financial statements are not kept up-to-date or error-free, they can have the opposite effect on businesses.
To review their financial statements on the tax accounts, to verify the accuracy, business owners should understand how those tax accountants look at their financial statements. Every tax payment that a business owner needs to make should be entered into the tax payable account that matches its name. Since entrepreneurs will be getting their tax bill until there fiscal year-end, for the rest of the year, they are making tax installment payments. Any time someone prepays a liability, it ends up showing a business a negative balance on their financial statements. This is extremely important to note, because without understanding this when an entrepreneur reviews their financial statements, they may believe that the negative number is an error. However, when the accountant enters that tax bill for the year, it will end up balancing out the tax payable accounts back out zero.
The next thing entrepreneurs should understand according to Edmonton bookkeeping is that they will have 5 different tax payable accounts, that they need to be mindful of so that they do not make errors in entering the information. The federal tax payable account is for CRA payments only, business owners who what to put GST should understand there is a GST account that separate. There is also going to be a provincial tax payable account, and it is the only province where they have both federal and provincial accounts and other provinces insulting care of by Canada revenue agency. Then there are also 2 different payroll accounts, one for source deductions and one for the business ownerís contribution.
By keeping both of these tax payable and tax expense accounts straight, and by understanding how to tell the difference between all of the various payable accounts, business owners can be mindful of putting the right amounts into the right accounts, but even if they make errors, if entrepreneurs know what to look for, they can fix errors so that it does not end up triggering larger errors somewhere down the road. Edmonton bookkeeping says that this is extremely important for entrepreneurs to keep in mind, to verify the accuracy of their financial statements.