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Edmonton Bookkeeping | Should Entrepreneurs Review Tax Payable Accounts
The average Canadian spends 43% of their income on tax, and Edmonton bookkeeping says that taxes are a significant part of an entrepreneurís life as well. They should be mindful of the taxes that they are paying, and ensuring how those taxes appear on their financial statements to minimize errors. The reason why it is important to minimize errors on their financial statements, is because business owners typically use them on an interim basis to make important financial decisions. If a business owner has not reviewed them for errors, the financial decisions they make may have a negative impact on the business.
The section of the financial statements that deal with taxes are the tax payable and tax expense accounts. Business owners should understand that the tax expense account is the section on the financial statement that shows all of the taxes that a business owner is assessed to pay. Since a business owner is only assessed for taxes at the end of their fiscal year says Edmonton bookkeeping, this expense accounts should for most of the year have nothing and it. If business owners see any amounts getting posted to this area, they can be certain that it is an error. At the end of the year, when the business owners accountant is working on the fiscal year end of the corporation, they will get the tax bill, make the entry into the financial statements, which will zero out all of the tax instalments that a business owner has been paying throughout the year.
The tax payable accounts on the other hand according to Edmonton bookkeeping are all of the various accounts representative of all the various taxes that a business owner is going to make instalment payments on throughout the year. A business owner needs to understand that there will be five various accounts that are represented in the financial statements. Those five accounts are, the federal payable accountant, the provincial accounts, the GST account, the payroll wage accountant, and the payroll tax expense account.
Business owners should understand that although in other provinces the federal and provincial tax are sent off to the Canada revenue agency, this is not the case in Alberta. Alberta has the Alberta finance department, which takes the provincial taxes separately. Edmonton bookkeeping says that business owners also need to be aware that despite the fact that the GST is a federal tax, it is not grouped in with the federal tax payments. And that the reason why there are two different payroll accounts, is one is for the source deductions that a business owner takes off of their employees checks, and the other is the business ownerís own contribution to CPP of 1.4% of their staffís contribution.
By familiarizing themselves with all of the various payment accounts that will be on the financial statement, business owners can easily check for errors, because a business owner should know how often and when payments should be made. For example, payroll should have an entry every two weeks or twice a month, while GST may only have once every quarter.
as Jim Collins, the author of six business books including bestseller good to great says, ìthoughtless reliance on technology is a liabilityì – the reason Edmonton bookkeeping says this is important to note, is because if business owners are relying on their accounting software to be accurate, and never check the accuracy of their financial statements, they may discover that those financial statements are extremely incorrect. By relying on their software alone, business owners are increasing the chance of making poor financial decisions in their business. Reviewing the financial statements can be extremely easy, and can help entrepreneurs avoid making financial decisions that could end up harming their business.
The area that Edmonton bookkeeping says can be an extremely easy one for accounting software to make mistakes on is on the tax payable and tax expense accounts. The reason why this has a high instance of errors, is the accounting software may automatically default various tax payments to the expense account of the business. This is incorrect, and if a business owner has the taxes of the business appear on the expense account, they may be indicated doubly on the financial statements which can cause a problem.
In order for business owners to review their financial statements to ensure if and accounting software defaulted to putting the tax payments in an expense account, is by understanding all of the various tax payment accounts that there are. Edmonton bookkeeping says that there are five accounts that business owners need to be aware of. There is the federal tax accountant, the provincial tax accountant, the GST account, and the payroll tax account is split into two. The first one is the component that a business owner deducts off of their employees checks, and the second one is the employerís contribution that they pay. By reviewing all five of these accounts, business owners can easily see if there ever amounts missing. A business owner understands they will be paying federal and provincial tax monthly, GST will probably be paid quarterly, while payroll is paid every two weeks or twice a month. If any of these payments are missing says Edmonton bookkeeping, business owners can understand that they should look in an expense account to find the missing payment.
By understanding how mistakes can be made, and understanding how to find and fix them, can help entrepreneurs find those mistakes, fix them and have fewer errors on their financial statements. Since entrepreneurs often use these financial statements to make important decisions such as purchasing assets, hiring new staff, or even buying a building, the impact on the business can be extremely negative if the business owner makes those decisions based on incorrect financial statements. Edmonton bookkeeping says that business owners can increase the odds of succeeding in business significantly by doing a regular review of their financial statements for errors.