Tax Accounting Vs Financial Accounting: Understanding The Differences

When it comes to accounting, there are two main types of accountants: tax accountants and financial accountants. Both accountants work with numbers, but there are several differences that should be considered when deciding which type of accountant you should hire for your company.

In this blog, we’ll be taking a look at some of the differences between tax accounting and financial accounting to help business owners make better decisions about their finances.

Accountant Using A Calculator

Defining Both Forms Of Accountancy

Financial accounting is the process of recording, classifying, and summarising financial transactions. It’s how businesses track their money to make sure they are making more than they spend, so if you want to know where your business stands financially at any given time, this is the place to start. You can also use it for tax purposes or when applying for loans or other financing options.

Tax accounting can help you save money on taxes and ensure that your company is compliant with all local, state, and federal laws. It’s also important to note that tax accountants are experts in their field, which means they will provide expert advice when filing taxes.

Recording Transactions Versus Calculating Taxes

Financial accountants focus on recording transactions within a business or an organisation to provide information on its finances to shareholders, creditors and other interested parties, such as potential investors or government agencies.

On the other hand, tax returns are prepared by tax accountants who work with individuals or companies to determine their income taxes owed based on all relevant laws and regulations governing taxation in a particular jurisdiction.

The Impact They Make On Your Business

Both types of accountancy have a significant impact on a business, but have different benefits. Finance accounting is more about accruing and managing wealth, making responsible business decisions and monitoring business transactions as they happen. The gap in this form of accounting is actual cash flow.

Business transactions could reflect financial growth, but if invoices are not being paid, then the cash reserves may not be as healthy as they appear on the surface. Therefore, tax accountants monitor cash reserves more closely and help a business gather a more detailed picture of its cash flow.

While the two streams of accountancy have significant differences, they also work together in tandem to provide an overall picture of health for your business.

Get The Best Of Both Worlds With Charter Partners

Charter Partners is an award-winning finance and tax accountancy firm that provides finance and tax accountancy services. We’re here to help you with your financial needs, whether it’s filing taxes or getting the right advice on how to grow your business.

Let us take care of all those essential tasks like bookkeeping, payroll management, GST returns, and BAS statements so you can focus on what matters – building a successful company. Get in touch with our team today to learn more.

Author

Anthony McPhee

Anthony McPhee, Principal

B.Bus (Accy) QUT | FCPA, SSA (SMSF Specialist Advisor with the SMSF Association) & Registered Tax Agent

Anthony has over 25 years accountancy, taxation and superannuation (SMSF) experience. He eagerly welcomes a challenge and his passion is in small business accounting, superannuation, consulting and taxation advice. He provides real business benefits for each of his clients and is well regarded for his succinct and accurate accounting skills. Anthony is also a self-managed superannuation fund (SMSF) specialist with Australia’s leading SMSF body, The SMSF Association.

Learn more about Anthony.

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