Tax accounting and financial accounting are two distinct but interrelated fields of accounting. Tax accounting focuses on the tax implications of financial transactions, while financial accounting focuses on the financial statements of a business. Both tax and financial accounting are necessary for companies to report their economic activity and comply with tax laws correctly.
Tax accounting is preparing financial statements and other financial information for tax purposes. A tax accountant must be familiar with the tax laws of the jurisdictions in which their clients operate and must understand how these laws apply to the financial transactions of the businesses they work for.
Financial accounting is preparing financial statements that summarise a company's economic activity. Financial accounting is primarily concerned with the financial health of a business. It is used by shareholders, creditors, and other interested parties to make decisions about investing in or lending to a company.
Tax and financial accounting are essential for businesses reporting their economic activity and correctly complying with tax laws. A tax accountant can use her knowledge of tax laws to help companies to minimise their tax liability. In contrast, financial accountants use their knowledge of financial statements to help businesses make sound financial decisions.
A Definitive Definition
Financial accounting is the process of tracking a business's money. This information ensures the company makes more money than it spends for tax purposes and when applying for loans.
Tax accounting is the process of preparing and filing taxes in a way that maximises your company's tax savings. A tax accountant is an expert in tax law and can help you take advantage of tax breaks and deductions to minimise your tax liability.
Tax accounting is the bookkeeping method used to track money coming in and going out for entities that will pay taxes. It includes businesses, individuals, and other organisations. Even entities that do not owe taxes must participate in tax accounting. The goal is to ensure that the right amount of taxes are paid.
The two sets of principles used in tax accounting are the tax and financial accounting principles. The Australian Taxation Office (ATO), an independent government agency, set the tax accounting principles. At the same time, the Australian Accounting Standard Board (AASB) sets the financial accounting principles and is also an independent government agency.
Recording Transactions vs. Calculating Taxes
Financial accountants keep track of a business's money to show where it came from and where it is going. This information is then used to decide how to grow the business and ensure it is running smoothly. Financial accountants work with numbers and financial reports and must be able to interpret and explain this information to people who may not be familiar with it. On the other hand, income taxes are determined by tax accountants who work with individuals or companies to calculate the taxes owed to the government based on the individual's or company's income and the jurisdiction's tax laws.
Conclusion
Tax accounting and financial accounting are two very different fields. Tax accounting deals with the laws and regulations, while financial accounting deals with a company's financial statements. Both areas require different skillsets and knowledge.
Tax accounting is a more specialised field, and tax accountants are usually more familiar with the tax laws and regulations. Financial accounting is a more general field, and financial accountants are generally more familiar with financial statements and company financials. Both areas are necessary for their ways, and tax and financial accounting are essential for a company to function correctly.
Whether you need a financial or tax accountant, you can rely on The eCommerce Accountant for any of these roles. We can help you create accurate and timely financial statements while ensuring that you can optimise tax deductions. So, contact us now for more information!