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Edmonton Bookkeeping | The Difference Between Tax Payable And Expense Accounts
Business owners must understand the difference between tax payable accounts and tax expense accounts, according to Edmonton bookkeeping. The reason this is important is that if these accounts are not used correctly, it increases the chance that the financial statements that a business has can have errors on them. Business owners are utilizing financial statements to make important decisions in their business financially, having incorrect financial statements can make it difficult to make those decisions correctly. By understanding what the various tax payable accounts are, and what should be in the tax expense account, entrepreneurs will have a better idea of what information to look for when reviewing their financial statements for errors.
When looking at the financial statements of the business, entrepreneurs need to understand that the tax payable accounts are the accounts that show up on the financial statements where a business owner makes their various tax payments. There are up to 4 different accounts that business owners should be aware of if they are in Alberta. They will have Federal tax payable accounts, provincial tax payable accounts, a GST payable tax accountant and payroll withholding tax accountant. The corporate tax expense account is where their tax that is owed will show up. When business owners are looking at their payable accounts, it should be represented by a negative number. As business owners make tax payments to all of the various accounts, it will reduce the amount owing on those payable tax accounts according to Edmonton bookkeeping.
Business owners in Alberta should be aware that the need to have a provincial and federal tax payable accounts exists only in Alberta. In other provinces, business owners spend all of their tax payments to Canada revenue agency, who then forwards the appropriate amount to the provincial tax departments. In Alberta, there is a separate provincial finance department, that entrepreneurs need to pay directly to. By understanding this according to Edmonton bookkeeping, business owners can keep that straight when looking over their financial statements. This is most important for business owners who are coming out of province to Alberta to operate their business.
Business owners need to understand that the payments that they make to each of the payable accounts do not get reflected in their profit and loss statements. And this is a good thing because business owners will want the payments to match the period that the expense occurred in.
The only time a business owner should ever have an amount going towards the corporate tax expense account is once a year when their accountant does their corporate year-end and calculates the amount of tax that they owe, they will enter it onto the balance sheet. Even though a business owner only has the amount of taxes that they owe at the end of each year, they will be making installment payments throughout the year, which is why it is important to have all of the various payment accounts, so that it can be recorded where each of the payments occurred.
The highest tax rate in Alberta is currently at 48%, with the average Canadian paying 43% on taxes according to Edmonton bookkeeping. 37% of a personís remaining income goes towards paying for all of their necessities. Taxes are a huge way of life for Canadians, and business owners need to understand as entrepreneurs, ensuring that their financial statements are error-free when it comes to all of the various taxes that they are paying. If they do not understand the various tax payment accounts, they will not understand how to verify if those statements have errors on them. If business owners make financial decisions on their basis based on these statements and they are wrong, business owners put their business at risk by making financial decisions without correct financial statements.
The biggest understanding that business owners can have when they are looking at their financial statements and looking at the differences between their tax payable accounts and tax expense accounts, is that the tax expense account is going to be where the taxes that a business owner owes is accounted for. As a business owner makes payments, that balance decreases. Edmonton bookkeeping says that the payable accounts are where business owners indicate what taxes they paid and how much. By understanding the difference between the 2, business owners can start to review them for errors.
By understanding the difference between the tax payable and tax expense accounts, business owners should understand that there are 5 tax payable accounts in total, to account for all of the 5 different taxes that a business owner must pay. There is the payroll withholding account, that an entrepreneur uses any time the make source deductions payments. Since a business owner will deduct CPP and EI from their employee’s checks as well as make their contribution, this account is where the business owner takes note of that. There are the GST payable accounts, and whenever a business owner pays there GST, the amount shows up in this account. Then there is the provincial tax payable accounts as well as the federal tax payable account. This is unique in Alberta, most other provinces just send taxes to CRA, who will then send the correct amount to the province. Since it is different in Alberta, business owners, especially out of province need to take note of that.
By understanding all of the differences between the different payable accounts, Edmonton bookkeeping says that business owners can start to familiarize themselves with each account, and approximately how much should be in each one and how often those payments show up. By doing this, business owners can watch their financial statements for errors, and fix them before those errors make the financial statements completely incorrect. Once business owners understand how they pay their taxes, he can help them significantly in their business.