Difference Between Tax Accounting and Financial Accounting?

Systematic accounting is an essential fact for the smooth functioning of any organization in the present era. Accounting provides great assistance in terms of resource and employee management and in making necessary decisions for the organization. Financial accounting for any organization, where it is a representative fact of its actual position, whereas tax accounting is a representative fact of the organization's administrative commitments. The success of any organization depends to a large extent on the accuracy and efficiency of financial accounting and tax accounting.

What is financial accounting?

Financial accounting reveals the actual financial position of any organization. It includes the cash flow, and other financial information of the organization including income and expenses. In financial accounting, financial statements are generally prepared. It mainly includes the balance sheet, income statement, cash flow distribution, statement of retained earnings, financial statements in accordance with the accounting standards of the country.

What is tax accounting?

For the smooth functioning of any country, tax collection is done by the government of the concerned country. Timely payment of taxes is an imperative for any organization. Tax accounting focuses on following tax related procedures. Tax accounting deals with the preparation of financial statements for tax planning, tax payment, and tax purposes. Special focus is given on tax related laws and regulations.

Also read; Financial Accounting Vs Management Accounting

What are the Major difference between Tax Accounting and Financial Accounting?

1. At process level:

Tax accounting at the process level where taxable income is calculated, tax filing reports are prepared and the effects of tax laws on business are analyzed. On the other hand, in financial accounting, various financial statements are recorded and analysed, evaluated so that necessary decisions are taken for the organization in the future by taking stock of its financial position at the organization level.

2. In case of necessity:

Tax accounting is essential for any organization. Whether the organization is big, small or medium. Financial accounting is an essential fact for large organizations. Smaller organizations can be somewhat exempt from the imperatives in terms of financial accounting.

3. Depending on the duration:

Tax accounting is prepared on an annual basis for any organization. Whereas financial accounting can be prepared quarterly, annually or on the basis of desired period.

Impact on business

The process of tax accounting has an impact on business that adherence to tax filing procedures, preparation of annual tax statements leads to accuracy. Also, financial accounting reveals the actual position of the organization and enables the top level management to take necessary decisions for the future of the organization.

4. Accounting Service Expenses:

The cost of the service for tax accounting and financial accounting varies according to the location and size of the organization. If the organization is big then the expenditure on accounting service comes more whereas if the organization is small then the expenditure on accounting service comes less.

5. Effect of efficient accounting:

Better tax accounting service helps in collecting tax revenue for the development of the country, then better financial accounting service becomes the basis for the bright future of the organization.

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