Edmonton Bookkeeping | Understanding Tax Payable Accounts
When entrepreneurs are using financial statements in order to make decisions in their business, they should always ensure that they are as accurate as possible according to Edmonton bookkeeping. One of the easiest ways business owners can ensure accuracy and those interim financial statements is by checking the corporate tax payable and tax expense accounts. Since a significant portion of business owners finances go towards taxes, and the tax payable and tax expense accounts are an area where errors easily occur, it is a great place for business owners to check to minimize errors and ensure accuracy of their financial statements.
The first thing that business owners need to understand when it comes to their tax payable and tax expense accounts is the difference between the two. The payable account is where the business owner indicates they have made payments of taxes onto the balance owing. The tax expense account is the place where all the taxes that a business owner owes for the year will be put into. As a business owner makes payments onto the payable account, the tax expense account decreases. A great way for business owners to check these accounts to ensure they are correct is since the tax expense account is only going to have one entry into it, that happens by the accountant at year-end, once business owner finds out the taxes that they owe. If there is an entry into the tax expense account by anyone else at any other time, business owners should know that is incorrect.
When it comes to the tax payable account, business owners should understand that there will be a federal and provincial tax payable account. This is different for Alberta business owners then any other business owners in Canada, because Alberta has separate tax departments for federal and provincial. Canada revenue agency takes care of the federal taxes while Alberta finance takes care of the provincial tax. Edmonton bookkeeping says that this is different, because other provinces pay both federal and provincial tax to Canada revenue agency who then sends out the appropriate provincial tax to the province. If entrepreneurs are coming from out of province to Alberta, they need to know this.
Entrepreneurs also need to understand why their tax payments are posted to a payable account and not an expense accounts. Edmonton bookkeeping says the reason for this is because when a business owner makes a tax payments, it does not necessarily mean that the expense happened at that time, it could just be a payment on a pre-existing balance. Tax payments should not be posted to the expense accounts, because they are already indicated in the tax expense account.
When entrepreneurs are reviewing their financial statements for errors, great place to start is reviewing the tax payable and tax expense accounts, because errors easily occur there, and by ensuring the accuracy of these sections of the financial statements, business owners can ensure that the statements are that much more accurate so when they need to make financial decisions in their business, reviewing those interim financial statements can be a great help to ensure that they have the information they need.
The average Canadian spends 43% of their income on tax according to Edmonton bookkeeping, and entrepreneurs pay significant portion of their earnings towards tax as well. Because of this, business owners should always be ensuring the accuracy of the tax payable and tax expense accounts on their financial statements. Since there are so many tax payable accounts, a total of five, that business owners need to be careful that they are not co-mingling the payments by accident. By ensuring the accuracy of these tax accounts on their financial statements, business owners can ensure the overall accuracy of these statements are more correct making them better tools for making important financial decisions in their business with.
When business owners are reviewing their tax expense and tax payable accounts, should understand the difference between all of the various accounts says Edmonton bookkeeping. The tax expense account is where accountants will post once a year the amount of tax that a business owner owes in their business. This happens when the accountant is working on the businesses year end taxes, and has nothing to do with the tax payments that business owners make. Once the accountant gets the amount of taxes that the business owner owes, they make an entry into this account. Throughout the year, business owners should ensure that nothing is being posted to this account accidentally, and it is a great way for business owners to check the accuracy of their statements. If they notice something has been entered here, they can be sure that it is an error that can easily be fixed.
Edmonton bookkeeping says that the tax payable accounts are another area that business owners can easily check. There is the federal tax payable account which is where payments to Canada revenue agency should be posted. The provincial tax payable account which is where provincial taxes should be posted. There is also the GST payable tax accountant where every time a business owner pays GST should be posted, whether that is monthly, quarterly or yearly. There is also the payroll tax payable accounts and there should be 2. One is for when a business owner takes the source deductions from their staffís paychecks, and the other one is for the CPP that the employer contributes. Amounts into these 2 payable accounts should be posted whenever a business owner does payroll, whether it is every 2 weeks, twice a month or monthly.
Edmonton bookkeeping says that if entrepreneurs are familiar with how often payments should be posted to each of these accounts, it can make it much easier to detect errors. If an amount was entered into the GST payable account more than once º, business owners can be ensure that it is an error. If payments are being posted to the payroll account more often then once every 2 weeks, that is also an error. These are easy ways for business owners to detect the accuracy of their financial statements