Difference Between Tax Accounting And Financial Accounting
WHAT ARE SOME OF THE DIFFERENCES BETWEEN FINANCIAL ACCOUNTINIG AND TAX ACCONTING
Financial accounting keeps track of funds that come in and out of a business while studying the relationship between the numbers. Tax accounting tracks the funds for the purpose of filing and paying state and federal taxes. Tax accounting is reliant on the reports derived from financial accounting. However, financial accounting plays a bigger role in a business. The numbers studied from reports in financial accounting show the financial status of the organization. The information can in turn be used to improve business operations since it shows where the business if making profits or loses.
Payroll accounting keeps track of the hours that employees work and calculates their total earnings. In financial accounting, payrolls are done to ensure that employees get fair and accurate wages and that deductions such as benefit funds, retirement funds and health insurance. The business can also use the payrolls to monitor their expenditure in relation to their overall earnings. In tax accounting, payroll helps account for the amount of funds that should be paid to state and federal tax agencies. Payroll also aids in weeding out anyone who withholds taxes or is owed tax refunds by the government. Payroll is used in filing taxes.
IS FINANCIAL ACCOUNTING BETTER THAN TAX ACCOUNTING
Non of them is better than the other. They are both pillars that support Accounting. Financial accounting uses profit and loss statements to find out how much the company has earned or lost, that is, the net earnings. The profit and loss statements include all the sources of income for the company and the expenses. The companies net profit is the amount that is left over after the expenses are subtracted from the revenue. With these statements, the management knows whether the business is earning them money or losing. In tax accounting, the profit and loss statement are used as the basis for taxation. The amount of tax payable by the company is reliant on the company’s profit and loss.
Cash flow projections are used in financial accounting but they are not used at all in tax accounting. Cash flow projections are predictions of funds likely to flow in and out of the business for a period of time for instance a year or a month. The projections include owner’s draws, any incoming loans and debt repayment. A cash flow projection is meant to help the company plan their finances. This includes ensuring that a company has enough funds for tax payments. However, the projections are not used to decide the company’s tax liability
Balance sheets are used in financial accounting for internal book keeping. The balance sheet assesses the financial health and liquidity of a company at any particular moment. When applying for loans, balance sheets are presented to the lender to show that the business is healthy enough to pay the money back. Balance sheets are not used in tax accounting. However, like with loans, the balance sheet can be used to show that the company has enough funds to pay the taxes they owe. The balance sheet lists the company’s assets and liabilities such as accounts payable and debts.