Edmonton Bookkeeping | The Various Tax Payable Accounts
One of the more important things that a business owner can understand in their business, are the financial statements provide to them by Edmonton bookkeeping. The reason is extremely important to understand the statements and review them for errors, is first because it is common for errors to exist on interim financial statements, and second, because if business owners are using their financial statements in order to make financial decisions in their business, if they are incorrect and they are not aware of it, those decisions that they make may not be to their businesses best advantage.
While reviewing their financial statements, an extremely common area for mistakes to happen according to Edmonton bookkeeping is on the tax payable and tax expense accounts. If a business owner understands what each of those accounts are, and how to watch for errors, business owners can play a huge part in minimizing errors on their financial statements. The first thing that business owners should understand is what is the difference between a tax payable account and a tax expense account. A tax payable account is they account where it is indicated how much tax a business owner paid. The tax expense account, is the account where it is indicated how much tax a business owner owes. The only time a business owner should see an entry made into this account, is once a year during their fiscal year end, by their accountant. All of the taxes that they owed will be indicated here, and every time a business owner makes a payment, the amount that they owe decreases.
The reason why this is a common area for business owners to make errors on, is that the payable account actually has five separate accounts that business owners need to keep separate. Edmonton bookkeeping says that these five tax accounts often get co-mingled by error either human or accounting software error. To extremely important that business owners know the difference between each of the accounts, how often an entry will be made into each one, and approximately how much money should be entered. By understanding these differences, business openers can be far more likely to catch mistakes as they happen.
The five various tax payable accounts are federal tax, provincial tax, GST, payroll employee and finally payroll employer. Alberta is the only province where entrepreneurs will pay their provincial tax separately from federal tax, and even though GST is a federal tax it should be in its own category separate from the federal tax payable account. Also, there are two different payroll accounts, based on source deductions that a business owner takes off of their employees checks, and how much CPP a business owner themselves contribute. Edmonton bookkeeping says that by understanding all of these various accounts, and understanding how often entries should be made and how much, can help keep this error-free. For example, that GST account should only have entries made as often as the business owner pays there GST.
A vital activity that entrepreneurs need to make a priority, is that they need to review the interim financial statements prepared by Edmonton bookkeeping on a regular basis. Interim financial statements are more likely to have errors on them, because they are not being prepared by an accountant, and since business owners use them throughout the year to make important fiscal decisions in their business, if they are using them without pre-checking for errors, can have the business owner end up making financial decisions that could put the business into trouble either by having that business run into a financial crunch, or even running out of money entirely.
When an entrepreneur is reviewing their financial statements, they need to understand that every thing that they make a payment on will have its own account. Taxes are no exception to this rule. However, business owners need to understand that there is not just one big tax accountant where everything that they pay gets pulled together. There are in fact five separate tax accounts that business owners need to be aware of in order to allow them to check the accuracy of their financial statement. Edmonton bookkeeping says that this area often has errors, because as various taxes are paid, if care is not taken to enter those taxes correctly, the right taxes could be entered, but in the wrong account, which could trigger errors.
The five different tax payable accounts that business owners need to be aware of our the provincial and federal tax accounts, these are two separate accounts even though most other provinces pay both federal and provincial taxes to Canada revenue agency then pays the provincial government the taxes that are owed, in Alberta a business owner needs to write two separate checks to means there is two separate tax payable accounts. There is also the GST account, which even though it is a federal tax, it is not counted in with the federal tax payable account. Business owners also need to understand that there are two payroll tax payable accounts. When a business owner takes source deductions from their employees including income tax, CPP and EI, that all needs to get entered into the payroll withholding account. However, business owners need to also understand that there needs to be a separate account as a wage expense which the business owner will put in the account how much they paid for CPP in addition to what was taken off of their employees checks. Since entrepreneurs pay a separate CPP contribution, is needs to be indicated in a different tax accountant.
By familiarizing themselves with the different payable tax accounts, Edmonton bookkeeping says that entrepreneurs can be better prepared to review their financial statements and correct any errors that they may see, because the have a good indication of how much the each of those tax amounts should be and how often they are making those payments.