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E-Myth – “Why most small businesses don’t work & what to do about it”

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Edmonton Bookkeeping | Why Accurate Financial Statements Are Important

Financial statements are incredibly important to business owners, says Edmonton bookkeeping, because entrepreneurs need to use them any time they make important financial decisions in their business. If they need to purchase assets, pay themselves, hire employees, or verify if there marketing activities are working, they need to be able to read and understand their financial statements in order to make the best decision possible. However, interim financial statements that are not being prepared by an accountant have higher degree of inaccuracy, that business owners need to take into consideration before they review them to help them make their decisions. By staying on top of their financial statements on a regular basis, business owners can ensure that the financial statements are accurate as possible throughout the year in business, so any time they need to review them to make financial decisions, they can. If they do not stay on top of this, it may take several hours of figuring out all of the errors on their financial statements dating back several months in order to make the decision, and a business owner might not have that time.

Edmonton bookkeeping says that one of the ways that business owners can verify accuracy and watch for errors is in the tax payable accounts of their financial statements. The reason why this is a good place to start, is because business owners have to pay a significant amount of taxes, therefore verifying the accuracy of all those counts can help business owners figure out a good portion of their financial statements and if they are accurate.

In order to review their tax payable account for accuracy, business owners should understand what all the various accounts are. Edmonton bookkeeping says that for every tax that a business owner pays, there is going to be tax payable account to indicate the amount that they paid. There is a federal account, provincial tax accountant, GST account engine to payroll tax accounts one for the amount that the employees pay and one the amount the employer pays. By familiarizing themselves with each account, the amount that goes into each one and the frequency, business owners can significantly minimize errors that happen here. For example, if they are only paying their GST quarterly, and they may see that there is a monthly payment being made on that account, it is most likely an error.

Another way that business owners can verify the accuracy of their tax payable accounts, is to understand how they are going to look on the financial statement. Since business owners will find out how much tax they owe over the year until they finish their year-end financial statements, the tax payable accounts are going to look like a negative number until that bill is entered into the financial statements. Business owners who understand this can review their tax payable accounts and know that negative numbers are okay and are not indicative of a mistake.

Ensuring the accuracy of interim financial statements is of paramount importance to entrepreneurs according to Edmonton bookkeeping. The reason for that, is because as entrepreneurs need to make financial decisions in their business, reviewing these interim statements can help business owners make is informed and good decisions as possible. Since 29% of all failed entrepreneurs in Canada say that the reason why they failed is that they ran out of money, making great decisions in their business financially can help entrepreneurs avoid this fate.

Taking into consideration that errors can happen in financial statements simply by accounting software errors, business owners should be very aware of what these errors are, so that they can first of all watch for that error as their entering payments, and 2nd of all, fix those errors if they have been made already. Edmonton bookkeeping says the first way that a software error can create problems on a financial statement is when tax payments get attributed to accounts payable. This should never be the case, even though business owners may think that it is okay because taxes are a payable of the business, taxes need to be managed separately in the financial statement. However, some software programs default tax payments here, if entrepreneurs are not aware of this while they are making entries, they can end up making this mistake very easily without knowing it.

Another way that accounting software can trigger errors in financial statements according to Edmonton bookkeeping is when tax payments are excellently posted to the general expense account of the business. Again, business owners may not catch this because they might think that since tax payments are expensive the business. However, the tax expenses will be entered into the financial statement by the accountant at year-end, therefore if tax amounts were also added to the businesses expense account, this can mean that taxes are double entered and cause big issues for the rest of the financial statements.

The 3rd way that accounting software can create problems for entrepreneurs who were entering tax payable amounts is when the tax payments get put into the payable accounts for business and then get reflected on the profit and loss statement of their business. This error is easy to watch for, all business owners have to do is review their profit and loss statements on their interim financials that they receive to verify that tax amounts were not put here by mistake.

Business owners should keep this quote in mind when they are utilizing accounting software in their business ìthoughtless reliance on technology is a liability.î Which was set by Jim Collins who is the author of 6 books including the book good to great. Edmonton bookkeeping says that it is very important that business owners do not blindly trust their accounting software to never make mistakes, that no matter who is preparing the financial statement, business owners should always be able to review it and look for inconsistencies to verify the accuracy of that information.