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Business owners should understand that there are 5 separate tax payable accounts, one for each of the type of taxes that a business owner pays. Edmonton bookkeeping says that that means there is a federal tax payable account, provincial tax payable account, and GST tax payable account and to payroll tax accounts. Many business owners make the error of boasting the GST amount to the federal tax payable account. While this is technically GST is actually a federal tax, it gets its own tax payable account, so business owner can keep separate the federal taxes that they are paying and the GST that they are paying.
Business owners should understand at what point in the year they actually calculate and post their tax expenses. This is usually done at year-end for most entrepreneurs. Large companies may make a monthly tax provision, but this is usually too difficult for business owners of small businesses to accomplish. Therefore, small entrepreneurs typically only know what their tax bill is at the end of the year when they get their accountant to do their corporate tax return. However, business owners need to be making tax instalment payments, without knowing what that final bill will be. Therefore, keeping track of all of the tax payments that they make in their tax payable accounts is extremely important. All of their tax payments that they make, will be indicated on their financial statements as a negative balance, that once they receive their tax bill and it is posted to the account, it zeros out that amount.
Business owners should also understand why there are 2 different payroll tax payable accounts. The reason there are 2 separate accounts is because all of the source deductions that a business owner takes from their staff of their paychecks should be indicated in one payable account. A business owner also must make a contribution to CPP that is 1.4 times the amount that their staff pays. That needs to be posted to a separate account. By verifying the accuracy of these 2 accounts help business owners ensure the accuracy overall of their financial statements.
when entrepreneurs are reviewing the accuracy of their financial statements, they should remember the quote from Jim Collins, the author of 6 business books including good to great who says ì thoughtless reliance on technology is a liabilityî, Edmonton bookkeeping says this is important because if business owners are relying too much on their accounting software, that can create errors especially in the tax payable accounts of their financial statements. By reviewing these tax payable and tax expense accounts on a regular basis, business owners can catch any errors that are made either by human or software, to ensure the overall accuracy of the financial statements.
One of the reasons why the tax payable accounts often have errors because of the accounting software accounting that a business owner is using, is because the software often defaults tax payments to be put into the accounts payable category. This should never happen, every single tax payment that a business owner makes should be input into its own tax payable account. However, Edmonton bookkeeping says that if business owners are aware that accounting software often defaults to the accounts payable, they can review this regularly to ensure that their accounts payable has no extra tax payments that do not belong there.
Another area where mistakes common happen, is in the federal and GST tax payable accounts. The reason why errors happen here frequently, is because business owners sometimes put the GST into the federal tax payable account on the thought process that GST is a federal tax. Edmonton bookkeeping says that while this is true that GST is a federal tax, it deserves its own tax payable account. As on his business owners are being vigilant to watch for that error, they can fix that mistake fairly easily.
Business owners should also understand that payments to the payable accounts do not get reflected on their profit and loss statement. If business owners are watching their profit and loss statement, to be sure that no tax payments get excellently posted there, they can also easily catch that air.
Business owners should also be watching their financial statements in order to ensure that the prophets of their corporation higher than their corporate tax instalments. Edmonton bookkeeping recommends that if business owners see that the prophets are not higher than their corporate tax payments, that is a great indication to business owners that they should cut expenses, engage in some revenue-generating activities, or both. The reason that is important is because if business owner finds that there tax payments are larger than their profits, the business is losing money. By watching their financial statement for this, business owners can be proactive in their business and generate more revenue when needed.
By making regular reviews of their financial statements, business owners can fix errors, and ensure that the tools they used to make financial decisions in their business are as error-free as possible. By doing this, entrepreneurs can make great financial decisions in their business.
