concept question - setting up specific accounts


A

A. Toczko

Hello. For a sole propriotorship in Canada, taxes for the business are
accessed and due only as part of my personal income tax. In my accounting
for the business, I have decided to set aside a percentage of my revenue to
provide for the future tax expense. What would be the accounts that I must
set up to record this? Thanks.
 
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?

!-!

Income tax for a sole proprietorship is not a business transaction, it
neither must nor should be part of your business accounting.

If you pay the tax from your business bank account, you charge it to
Owner's Equity (or Draws) the same way you record draws or payment of
personal amounts.

However there is no entry to record for merely "providing for the
future tax", and it is not an "expense" of the business.
 
B

Bill Lentz

Hello. For a sole propriotorship in Canada, taxes for the business are
accessed and due only as part of my personal income tax. In my accounting
for the business, I have decided to set aside a percentage of my revenue to
provide for the future tax expense. What would be the accounts that I must
set up to record this? Thanks.

If you really want to track this separately, set up a separate account
called: "Owner's Draw - Taxes" and put the money in a separate
personal bank account (or pay estimates if that's how it's done in
Canada).

Alternatively, you could Debit an account called "Reserve for Taxes'
and Credit something like 'Accumulated Reserve for Taxes', but these
might confuse your accountant, and could complicate your books.

Best regards
Bill
 
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A

A. Toczko

Thank you both for your replies.

Bill Lentz said:
If you really want to track this separately, set up a separate account
called: "Owner's Draw - Taxes" and put the money in a separate
personal bank account (or pay estimates if that's how it's done in
Canada).

Alternatively, you could Debit an account called "Reserve for Taxes'
and Credit something like 'Accumulated Reserve for Taxes', but these
might confuse your accountant, and could complicate your books.

Best regards
Bill
 

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