What is Financial Accounting?
A particular branch of accounting that entails the process of recording, summarizing, and reporting the diverse transactions resulting from business operations over a period of time is referred to as financial accounting. These transactions are summarized in the preparation of the financial statements which include the balance sheet, income statement, and cash flow statement that record the company's operating period over a specified period of time.
Opportunities for building a successful career as an accountant can be found in both the public and private sectors. The nature of the job of a financial accountant might vary from that of a general accountant who works for herself rather than for an organisation or company.
How does financial accounting Work?
Financial accounting employs a set of established accounting principles. The selection of accounting principles to use during the course of financial accounting depends on the regulatory and reporting requirements that are faced by the business. For the public companies in the USA, the businesses need to do the financial accounting according to the generally accepted accounting principles (GAAP). The establishment of these accounting principles is to provide a consistent source of information to investors, creditors, regulators, and tax authorities.
• Financial accounting are calculated based on either the accrual basis or the cash basis of accounting.
• Financial accountants are employed by non-profit organisations, corporations, and small businesses.
• Financial accounting occurs through the use of financial statements in five distinct areas.
The financial statement used in financial accounting presents the five main principles of the accounting data – expenses, revenues, assets, liabilities, and equity. Expenses and revenues are accounted for and reported in the income statement. This can incorporate everything from R&D to Payroll. Financial accounting results in the determination of net income at the bottom of the income statement the balance sheet consists of information on assets, liability. And equity accounts. To report the company's ownership of future economic benefits, the balance sheet utilizes financial accounting.
Accrual Method vs. Cash Method
Financial accounting may be performed using either the accrual method or the cash method. Or even a combination of the two. Accrual accounting refers to recording transactions when the transactions have occurred and it is easy to recognize the revenue.
Cash accounting refers to recording transactions only upon the exchange of cash. Revenue is recorded only when the payment has been received whereas expenses are only recorded when after the obligation has been paid.
What is Tax Accounting?
Tax accounting is a system of accounting methods that focuses on taxes rather than public financial statements. Tax accounting is administered by the Internal Revenue Code that dictates the specific rules that are to be followed by people and institutions while preparing their tax returns.
• Tax accounting is a subsection of accounting that is concerned with the preparations of tax returns and tax payments.
• Tax accounting is used by individuals, corporations, and businesses, among other entities.
• Tax accounting for an individual gives importance to income, qualifying deductions, donations, and any investment gains or losses.
• Tax accounting is more complex for a business as it entails greater security regarding how funds are spent, and what is or is not taxable.
Understanding Tax Accounting
Accounting for the means of tax purposes is called tax accounting. It is applicable for every aspect – individuals, businesses, corporations, and other entities. Those who are exempted from paying taxes must participate in tax accounting. The purpose of tax accounting is to enable the process of tracking funds - both those coming in and going out – associated with individuals and entities.
Tax accounting Principles vs. Financial Accounting
In the USA there are two sets of principles that are employed when it comes to accounting. The first is tax accounting principles and the other one is financial accounting principles or the widely accepted generally accepted accounting principles (GAAP).
Under GAAP, companies are bound to follow a set of accounting principles, standards, and procedures when they compile their financial statements by accounting for any financial transaction. While preparing financial statements and tax payables, balance sheet items can be accounted for differently. For instance, companies can use the First-In-First-Out (FIFO) method to record their inventory for financial purposes. Nevertheless, they can incorporate the Last-In-First-Out (LIFO) approach for the purpose of tax. The latter method reduces the taxes payable for that particular year.
While accounting involves all financial transactions to some degree, tax accounting focuses solely on those transactions that impact a certain organization's tax burden, and how those items relate to proper tax calculation and tax development preparation. Tax accounting is governed by the Internal Revenue Service (IRS) to make it certain that all tax laws are being followed by the taxpaying professionals and individual taxpayers. The IRS also employs specific documents and forms to properly submit tax information as required by law.
GTIA
The leading institute in Kolkata that provides job-ready courses is George Telegraph Institute of Accounts (GTIA). The training-centric best online accounting courses provided by GTIA prepare them to launch their careers right after the completion of the course. After you finish doing these comprehensive courses you will have a thorough grasp of the relevant modules. The top-class faculty at this institute teaches the students in a way that enables them to pursue a career in their dream industry. If you are interested in doing a certificate course in financial accounting & taxation, you should certainly check out the courses offered by GTIA today.
Comments