Tax accounting is one of the basic branches of accounting, in which a specialist must be appointed for every investor and every institutional entity to manage it according to sound laws and prevent problems and the imposition of fines, either due to a lack of knowledge of the relevant regulations or due to incorrect calculations. Therefore, in our article, we provide complete details regarding tax accounting, its importance, and its types while clarifying the prominent differences between it and financial accounting and the method of calculating it through the Qoyod accounting system.
Tax accounting is a type of special accounting that helps track funds issued and received from institutions and individuals during one tax year, the beginning and end of which are determined according to the institution’s policies. Accordingly, it is a branch concerned with tax and financial transactions. It includes principles and methods that help total revenues and expenses. It measures them to extract the required net income from the institution or individual based on income during the year, by-laws, and regulatory considerations specific to international taxes and accounting.
Tax accounting includes two main components:
Current year commitment: | Next-year commitment: |
It is the component that tracks profits and losses throughout the year while estimating income taxes for the current year. | This component involves calculating the anticipated income taxes for the upcoming year and formulating suitable financial strategies for them. |
Different types of tax accounting differ depending on the type of taxes imposed on the individual or organization, and their types are as follows:
It is concerned with measuring and determining the percentage of taxes imposed on people or investors, and the measurement and determination are based on the individual's source of income and personal property. This type of accounting process does not include commercial institutions owned by individuals; it only measures their income, after which the institution transitions to another type of accounting.
It is another type of tax accounting that is concerned with analyzing the organization's financial data and following it up to find out the money it received and what it spent on investments and businesses to arrive at the value of the tax imposed on it based on net income. Companies need the tax reports we provide in the Qoyod Accounting Program, which show complete and accurate information regarding the organization’s tax data, whether for a past or future year.
Non-profit organizations, often governmental service institutions, are exempt from taxes. Tax accounting helps them organize spending on service projects and manage the funds received while adhering to legislation. These companies also benefit from tax returns, depending on their work circumstances and the tax authority they belong to.
Companies benefit from tax accounting in multiple ways. The differences between the methods stem from the unique characteristics of companies and institutions. Therefore, the most important accounting methods are as follows:
The importance of this branch of accounting stems from the benefits resulting from its application for individuals and companies. The application of tax accounting yields the following results:
There are basic principles that companies must adhere to if they wish to issue their tax reports correctly, and among these principles are the following:
Tax accounting is committed to reviewing the values of revenues and expenditures of a person or institution and then arriving at the difference between expenditures and profits to arrive at total profits, thus being able to reduce the tax burdens on those subject to taxes.
The company's accounting records record the postponement of tax liabilities on assets until their liquidation and conversion into liquid cash. This principle results from the discrepancy between the accounting branches according to which the company is dealt with and the rules specific to each branch.
Tax accounting is based on calculating the required receivables from the entity or individual subject to taxes in an actual manner. This means that once revenues are collected after previously made expenses, they are recorded in the tax records, calculated, and do not wait for another time.
When there is a tax accountant in your company, it provides many benefits that help your business run as intended and enable your company to succeed and achieve its goals. Among the duties of a job accountant in institutions are the following:
Tax accounting differs in some matters from financial accounting because it is more specialized, and we can clarify this in the following table:
Comparison | Financial Accounting | Tax accounting |
Totality | It is a general specialty that includes other branches of accounting. | It is a branch of financial accounting. |
Specialization | It specializes in examining all financial transactions and extracting their official reports, through which the financial statements of institutions are organized. | It looks at financial records only for tax-related matters and does not deal with any financial reports other than taxes. |
principles | GAAP accounting principles are followed by institutions to organize and collect data in a reliable accounting manner, and that data includes all financial transactions conducted during the fiscal year. | The principle of tax accounting is concerned with the financial transactions that are involved in determining the final tax value and preparing their records. |
There are different elements on which the foundations of tax calculation are based, which are:
After obtaining the previous values, the ratio method is followed to obtain the value of the taxes imposed, whether we want to calculate the value of direct or indirect taxes or the tax on income or products.
The application is done by converting the percentage into a decimal fraction. If the tax is equal to—for example—12%, it is converted into a fraction to become 0.12. After that, we multiply the percentage by the value of the products or income, and thus, we are able to extract the value of the taxes imposed on that commodity.
Qoyod tax settings include three types of tax:
VAT: 15%
Exempt tax: 0%
Zero tax: 0%
Taxes
How to create a new tax:
Click on the icon: Create tax +
Then fill in the required fields:
2: The names in Arabic and English
3: The code, which includes 4 tax codes, “Tax Code,” according to the Zakat, Tax, and Customs Authority
4: Percentage: This is the tax rate to be applied.
Important note: The tax code O does not appear on the tax return because it is outside the tax scope.
Tax accounting is a branch of accounting that focuses on tracking money issued and received by organizations and individuals during the tax year. It aims to determine and manage taxes imposed based on tax laws and regulations.
Tax accounting includes multiple types, including:
Tax accounting includes two main components:
Tax accounting methods vary and include:
Tax accounting helps companies and individuals to:
What are the differences between tax accounting and financial accounting?
Qoyod provides comprehensive tax management solutions, such as:
We talked in detail about tax accounting and provided you with details that interested you. For example, the fact that it has multiple types or that there are different ways to extract its value is basic information that helps you manage your company and provides you with a better future outlook. You can use the Qoyod accounting program to collect your company's financial data and organize its reports. What distinguishes it is that it is smooth and simple and gives you a free experience. It also does not require downloading to your devices and is completely reliable. So, sign up for a free trial and see how Qoyod can help you boost your company's success.
Cloud Account Software program
Join our inspiring community! Subscribe to our LinkedIn page and Twitter to be the first to know about the latest articles and updates. An opportunity for learning and development in the world of accounting and finance. Don't miss out, join us today!