There are a lot of terms being thrown around in the accounting industry. For example, tax reporting accounting looks into the company’s financial statements to help the accountants prepare, file, and pay a range of federal and state taxes.
Financial Reporting accounting, on the other hand, keeps track of the cash flow of the business and it also focuses on the relationships between these numbers.
As a business owner, a profit and loss statement can help you as it calculates the company’s net earnings by jotting down all of the revenue sources, as well as any deductible expenses, including (but not limited to) rent, payroll, and materials.
Net profit, then, is the amount of money left after subtracting those expenses from the business’ overall revenue.
Profit and loss accounting is important because it tells a business owner if their current business operations are sound and it rakes in all of the profits.
This type of accounting is also beneficial for income tax accounting since the company’s profit and loss statements correlate with taxable income.
The role of payroll accounting is manifold. First, it ensures that employees are paid well as it calculates their total earnings based on individual salary levels and wages and by automatically deducting their payroll taxes and contributions that will benefit their funds, including their health insurance and retirement.
Second, it ensures that all employees are paid on time and they will be getting the money that they deserve after rendering the minimum required time of work.
Third, it provides the basis for payroll tax accounting, which involves paying and withholding taxes to federal and state agencies.
Another indispensable tool in every business, the balance sheet is a financial statement that is used mainly for bookkeeping purposes.
It can be used to assess the company’s financial status and liquidity at the same time. In the event that the business owner wants to take out a loan as a means for company funding, the balance sheet can also be presented to lending agencies and banks (and even potential investors).
Even though some corporate taxes are reflected in this financial statement, balance sheets have no relevance to tax reporting.
It includes different sections that list all of the company’s assets (both tangible and intangible) and liabilities.
Cash Flow Projection
A business can track its cash flow using a technique called cash flow projection. It charts the company’s likely cash flow at a specified time- it can either be a month or a year depending on the company owner.
The amount of money could be taken from debt, repayment, incoming loans, owner draws, and capital infusions.
This is an important technique because it helps the company owner make sure that there is enough money in the coffers to pay for taxes.
However, it is important to note that the money that is listed on a cash flow projection does not directly correlate with the tax liability of the company.
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