Edmonton Bookkeeping | Why Tax Payments Should Not Show Up On Expense Accounts
Since business owners end up paying a lot of taxes as entrepreneurs, Edmonton bookkeeping says that they should be very aware of how all of those payments show up in their financial statements. The reason this is important is so that business owners can catch any errors that may exist easily, and keep their financial statements as error-free as possible. This is important as business owners may use those financial statements from time to time in order to make business decisions. If business owners use accurate financial statements to make their business decisions, they could end up with a negative result to their business.
When business owners pay all of the various taxes that they are expected to pay is an entrepreneur, they need to understand that those tax payments need to get posted to a specific spot of their financial statement and not in the business’s general expense account. Edmonton bookkeeping says that this is a common error, that business owners need to ensure that they are avoiding. If business owners understand that there are 5 separate tax payable accounts, they can avoid putting tax payments in the incorrect area in their financial statements.
Another common error is when taxes that are paid are indicated in the business’s accounts payable section of their financial statement. The reason why this error happens, is because businesses often have their accounting software defaults taxes into that account. If business owners are not knowledgeable about where they should actually go, they may accept the default setting of their software. As Jim Collins, the author of 6 books including good to great has said, ì thoughtless reliance on technology is a liabilityî. that entrepreneurs can understand how their software can be fallible, they can then review the statements with that in mind to minimize errors.
In order for business owners to review their different tax payments, should understand what each of the 5 tax payment accounts are in their financial statement. Edmonton bookkeeping says that the 5 various accounts are for federal tax, provincial tax, GST, payroll withholding tax and payroll employer contribution. By familiarizing themselves with how much tax is put into each of those accounts and what frequency, business owners can easily watch to see if those patterns were broken or if different amounts were entered. Since there are 5 accounts, it is very easy to accidentally so business owners should be vigilant to watch for that.
By ensuring the accuracy of the various tax payments that they make in business, and ensuring that it shows up properly on their financial statements, is this owners can ensure that their financial statements are as accurate as possible, so if they need to make financial decisions in their business, from how much to pay themselves, to if they can hire a new staff member, or checking revenue to see if they need to increase the revenue-generating activities, the more accurate the statements are, the more impactful those businesses decisions are going to be.
it is extremely important that business owners are mindful of how the various taxes that they pay show up in their financial statements according to Edmonton bookkeeping. The reason for this is because it is very easy for tax payments to get entered incorrectly, in part because there is so many different taxes that business owners pay, but in part due to software error, more accurate business owner can be in their financial statement, the better chance they have at making a financial decision that can impact their business in a positive way. Since half of all entrepreneurs close their business within 5 years, increasing the frequency of good financial decisions in business can positively impact their business.
To understand how to look for errors, business owners should understand but the differences between how the taxes that a business owner owes and pays is indicated on their financial statements. There is the tax expense account, which is where all of the taxes that a business owner owes is entered. Since business owners only get their tax bill at the end of the year, they should only ever be one entry into this account, and it should be done by the accountant that is working on the business owners year end says Edmonton Bookkeeping.
The tax payable accounts and they financial statements are the accounts that exist for each of the 5 taxes that a business owner will pay is an entrepreneur, and each time a business owner makes a payment for each of the taxes that they owe, they should indicate on each one of the accounts what tax payment they made. Because a business owner gets their tax bill at the end of the year, they need to understand very clearly that when they prepay a liability, it shows up on financial statements as a negative number. When entrepreneurs understand this, can avoid panicking when they review their financial statements and see negative numbers next all the tax amounts that they have been paying throughout the year.
By understanding what each of the various tax payment accounts are, business owners can ensure that they are watching each of those accounts for errors. There is the 2 payroll tax payable accounts. One needs to be for the payroll taxes that a business owner is responsible for paying, the 1.4% of CPP in addition to the that the business owner makes himself. There is also the payroll withholding tax payable account, that is for all of the taxes that source deductions that an employer withholds from their staffís paychecks. There is the GST account, that is separate from the federal tax accountant, and there is the provincial tax accountant that only exists in Alberta. Other provinces pay both federal and provincial tax to Canada revenue agency, so any entrepreneurs coming from any other provinces should be aware of this before they start making payments of provincial tax to Canada revenue agency.