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.
What is tax accounting?
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.
Elements of tax 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. |
Types of tax accounting
Different types of tax accounting differ depending on the type of taxes imposed on the individual or organization, and their types are as follows:
Tax accounting for individuals
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.
Tax accounting for enterprises
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.
Tax accounting for tax-exempt organizations
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.
Tax accounting methods
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:
- Cash-based accounting depends on tracking income and determining the required taxes based on the value of the money remaining after paying expenses.
- Accrual-based accounting, which is meant here, is the calculation of the tax imposed from the moment income is generated, a spending transaction is made, or revenues are received.
- Tax accounting on a mixed basis combines the last two methods and requires tracking outgoing and incoming funds, in addition to paying attention to when they are due.
The importance of tax accounting
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:
- Planning the financial transactions of companies and individuals, coordinating their expenses, and auditing them make them wiser at handling money.
- Enabling companies to form a comprehensive future outlook for the coming period.
- Keeping the company away from areas exposed to fines, whether due to default or non-transparent reports,.
- Organizing the production process and directing companies to focus on specific products that the country needs in abundance.
- Reducing the debt burden on the state while improving its economy.
- Facilitating business planning and targeting specific areas that suit the market to achieve greater profits and enable the company to reach its goals.
The most important principles of tax accounting
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:
The calculation is based on profit, not total income.
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.
Postponing tax liabilities
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.
Actual calculation of tax dues
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.
The most important tasks of tax accounting
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:
- Issuing official tax reports and submitting them at the correct time and amount.
- If tax laws or regulations change, the tax accountant is the one who enables you to identify them and apply them so that all your actions are legal.
- Giving the organization’s management a broader and more comprehensive vision of the impact of the new legislation on the company’s work.
- Reviewing and auditing the accounts and directing the company to any work that should be carried out to properly implement these laws.
- Predicting the organization’s tax future and collecting appropriate information to improve the organization’s financial condition.
The difference between tax accounting and financial accounting
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. |
Methods of calculating taxes in tax accounting
There are different elements on which the foundations of tax calculation are based, which are:
- Profits include revenues, expenses, costs of products marketed, and losses incurred in them.
- The current year’s obligations include any receivables that the company must pay before it passes.
- Deferred obligations of the company.
- Company stock and its value.
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.
Tax accounting in Qoyod
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:
- Account: It includes current liability accounts.
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
- S: Standard Rate
- Z: Zero Tax Rate
- E: Exempted rate
- O: Out of Scope
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.
Frequently Asked Questions About Tax Accounting
What is tax accounting?
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.
What are the types of tax accounting?
Tax accounting includes multiple types, including:
- Tax accounting for individuals is concerned with determining the taxes imposed on people based on their sources of income and property.
- Tax accounting for enterprises focuses on analyzing enterprises’ financial statements to determine the taxes due based on net income.
- Tax accounting for tax-exempt organizations: concerned with organizing spending and managing funds in non-profit organizations.
What are the elements of tax accounting?
Tax accounting includes two main components:
- Current Year Liability: Measures income taxes for the current year.
- Commitment for the coming year: Measure the taxes expected to be imposed in the coming year and develop appropriate financial plans.
What are the methods of tax accounting?
Tax accounting methods vary and include:
- Cash-based accounting depends on tracking income and determining taxes based on the money remaining after expenses are paid.
- Accrual accounting depends on calculating tax when income is generated or a spending transaction is made.
- Mixed Basis Accounting: Combines cash and accrual basis.
What is the importance of tax accounting?
Tax accounting helps companies and individuals to:
- Planning financial transactions and auditing expenses.
- Forming a future outlook for the coming period.
- Avoid fines by adhering to tax laws.
- Improving money management and organizing the production process.
What are the differences between tax accounting and financial accounting?
- Comprehensiveness: Financial accounting includes all branches of accounting, while tax accounting focuses only on tax matters.
- Specialization: Tax accounting is concerned with financial records related to taxes only.
- Principles: Tax accounting focuses on specific transactions that affect the final tax value.
How does Qoyod help with tax accounting?
Qoyod provides comprehensive tax management solutions, such as:
- Issuing official tax reports.
- Track changes in tax laws.
- Improving financial and tax data management.
- Calculate value-added taxes, exempt tax, and zero tax effectively.
Conclusion
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.
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!
