Outsourced Accounting Services | Understanding Differences Between Proprietorships And Corporations

The biggest difference between proprietorships and corporations is that a corporation is a separate legal entity that exists for tax purposes. It is separated from the business owner, and shoulders most of the liability of the business. They have different tax filing than the business owner. A proprietorship on the other hand is an unincorporated business, that is legally attached to the business owner and the business owners tax obligations. Outsourced accounting services says that if a business owner does not incorporate their business, that automatically means that they are operating a proprietorship.

A lot of the times, is owners do not incorporates because of the cost associated with it, and they are not sure at what point the threshold makes sense for them to incorporate. So they continue operating a proprietorship, unaware of when it makes sense for their business to incorporates. Outsourced accounting services recommends that business owners incorporate after earning fifty thousand dollars or more per year in their business just benefit from the tax benefits alone. There is many other secondary benefits of incorporating business including limiting the liability of the business owner, being able to protect their tradename, obtaining their own WCB number, and giving legitimacy to their business.

If a business owner is continuing to operate their business as a proprietorship, they should be aware that their personal tax deadline and their business tax deadline will be the same. The tax filing deadline for Canadian citizens is April 30, however entrepreneurs of proprietorships have until June 15 to prepare and file their business and personal tax returns. The one thing that business owners should keep in mind, is even though they have an additional forty-five days to prepare and file their tax returns, if they owe the government in taxes, they will start incurring those taxes on April 30.

The decision of whether to incorporate or not may be very different for each individual business owner, and the decision to continue to operate as a proprietorship can only be made by the business owner, but if they decide to not incorporate their business, they should ensure that they are being aware of the tax filing deadlines so that they can ensure that they are meeting those deadlines and not paying any penalties for filing late, or owing any additional taxes. They say on top of their taxes, when they do make the decision to incorporate their business because it has grown to a certain level, then it will be much easier for them to do that.

Outsourced Accounting Services | Understanding Differences Between Proprietorships And Corporations

There are several things that entrepreneurs should take into consideration when they are starting their business says outsourced accounting services. Deciding to incorporate or not is one of those decisions. If entrepreneurs understand the differences between the two business structures, they not only can make the decision on how to operate their business effectively, but they will also be able to ensure that their accounting needs are met properly, no matter what business structure they have.

The business requirement for accounting when an business owner runs a proprietorship, is called single entry accounting. This type of accounting is much easier than the accounting required for corporations, and one benefit is that entrepreneurs do not need any accounting software in order to do this type of accounting. Outsourced accounting services says that entrepreneurs only need to use a spreadsheet program, but they can even keep track of their expenses, cost of goods sold and revenue on a piece of paper and a pen if they like. All an entrepreneur needs to do, is keep track of all of the revenue that they generate in each of the three revenue streams, all of the expenses of their business in what category make sense, meals and entertainment, supplies, advertising or travel to name a few. As well as the cost of goods sold for each of the three revenue streams. When an entrepreneur can do this, then they are meeting the requirements for accounting for proprietorship.

One thing for entrepreneurs to keep in mind, is that for this type of accounting, even though it is easier, and it does not require typical accounting software like QuickBooks, it is also a lot easier to make mistakes and for those mistakes to not get fixed. For double entry accounting, they ensure that the books balance at the end of the month, which makes it easier to correct mistakes. Outsourced accounting services says that the reason it is easier, because if things do not balance, that means there has been a mistake, and a business owner or the accountant can keep working to fix the mistakes until the accounts balance at the end of month.

When way for an entrepreneur to make their single entry accounting more likely to be correct, is to create a separate business bank account. The reason why this works, is because it provides a way of allowing entrepreneur to double check their entries for accuracy. By using the bank statement, they can compare that to their spreadsheet to verify the accuracy of the numbers. If an entrepreneur is going to do this, outsourced accounting services recommends that they avoid using their business bank account for any personal purchases, to ensure they do not have any personal transactions to have to discount when using this double check system.

When entrepreneurs are operating their proprietorships, they can ensure that there accounting is accurate, and is being done to the level it needs to ensure that they have their requirements for their reporting, and their financial year-end.