Edmonton Bookkeeping | What Is A Tax Expense Account
By learning how the taxes that they pay and the taxes that they owe appear on their financial statements can help entrepreneurs ensure that their financial statements stay error-free says Edmonton bookkeeping. it is very important that entrepreneurs have as accurate financial statements as possible because anytime a business owner needs to make a decision in their business that involves finances, they should be consulting their financial statements. Decisions on if they have enough money to pay themselves, if they can purchase an asset in their business, they can afford to hire new employees, all should be made by looking at the financial statements to see if a business owner has enough money. If the financial statements are not accurate, a business owner may end up making a decision that can negatively impact their business
By understanding what their tax payable account is on their financial statement, business owners can be checking it as well as tax payable accounts to ensure that section of the financial statements are error-free. According to Edmonton bookkeeping, the tax expense account is the section in the financial statements that indicates how much tax a business owner owes for the year. Since a business owner does not get their tax bill until the end of the year, this tax expense account should remain at zero for most of the year until the accountant enters the taxes that a business owes into that account during the fiscal year end.
Even though business owner will be making payments on their taxes in installments throughout the year, they are doing so without having an tax bill yet. Edmonton bookkeeping says that business owners need to understand that when they are prepaying a liability it will show up on their financial statement as a negative number. This is extremely important for entrepreneurs to understand, because many people who see a negative number beside the tax amounts that they have been paying, may panic, thinking that they have not been paying taxes properly. Once their accountant enters the tax that they owe into their tax expense account, the negative numbers in the tax payable accounts will zero out.
Even though a business owner will have 5 separate tax payable accounts, there is only going to be one tax expense account. This has nothing to do with all of the various tax payments that a business owner makes, it is just the one area on the financial statement where all of the taxes are calculated. By understanding this, Edmonton bookkeeping says that business owners can be prepared when reviewing their financial statements to ensure nothing it has entered into that account that does not belong there.
When entrepreneurs are able to understand what their tax expense account is, and how it appears on their financial statements, they can minimize errors and ensure accuracy of their financial statements. By making informed financial decisions in their business, business owners can avoid running out of money which is one of the top 3 reasons why entrepreneurs in Canada fail.
There are many different taxes that entrepreneurs have to pay in their business from federal and provincial tax, GST and payroll says Edmonton bookkeeping. All of these various taxes are going to show up on the business ownerís financial statements once a year, all in one tax expense account. I understand how their financial statements look, business owners can use that information when they would review those interim statements to fix errors and ensure accuracy.
Business owners should understand that at what point in the year the taxes are actually calculated and are then posted to the tax expense account in their financial statements. Although large companies may be calculating their taxes on a monthly basis, most small businesses and entrepreneurs are only going to be able to tell how much taxes that they owe for their business at the end of the year. When their accountant starts working on their corporate year-end, they will be able to calculate how much tax the business owner owes. Edmonton bookkeeping says that once the accountant knows how much tax that a business owner owes they will enter it into the tax expense account on their financial statements.
Business owners may be tempted to post anything to their tax expense account especially if they know how much certain tax they are going to have to owe. However, Edmonton bookkeeping cautions business owners from doing that, because only one entry should ever be made into that account each year.
Business owners need to be making tax payments in instalments throughout the year, despite the fact that they do not have a tax bill yet, so they need to be making clear indications of all of the various taxes that they are paying on a regular basis, so when they do get their tax bill and its entered into the tax expense account, all of the taxes that have been paid up to that date can help balance that number.
Business owners should be ensuring that the payments that they are making do not exceed the prophets in their business. Edmonton bookkeeping says that when they are reviewing their financial statements, business owners should look at their profits as compared to their tax payments. If tax payments are higher than their profits, this could indicate that a business owner might be losing money and a good indication that they should start generating more revenue in their business as well as potentially cutting expenses. By being able to look at their financial statements, business owners can be helped to make proactive financial decisions in their business that can help them avoid running out of money in their business. Since it is one of the top 3 reasons why entrepreneurs in Canada fail and that 50% of all Canadian entrepreneurs fail within five years, avoiding this, can significantly increase business owners chances of success.