Accounting And Bookkeeping Processes During Tax Preparation
The second specialized area of accounting is income taxation
. Preparing an income-tax return or tax preparation, by filling out one or more forms entails collecting information and presenting data in a coherent manner; therefore, both individuals and businesses frequently hire accountants to determine their taxes. Tax rules, however, are not identical with accounting practices. Regulations on taxes are based on laws that are enacted by legislative bodies, interpreted by the courts, and enforced by designated administrative bodies. Much of the information required in calculating taxable income and the amount of tax due, however, is also needed in accounting, and many techniques of computing are common to both areas.
Tax preparation is a process that is supported by other processesone of which is bookkeeping. Bookkeeping encompasses the record-keeping aspect of accounting and therefore provides much of the data to which accounting principles are applied in tax preparation and composition of financial statements and other financial information. Bookkeeping makes use of financial transaction documents such as invoices, payroll records, and receipts, among other. Bookkeeping somehow simplifies the job of accountants because all information is consolidated during the bookkeeping process.
Certified public accountant firms experience their busiest season every April (tax season). Both large and small businesses employ certified public accountant firms to help them with their taxes because regulations annually change in order to avoid loopholes and tax avoidance cases.
Accounting and bookkeeping follows a cycle. Recording a transaction in a journal marks the starting point for the double-entry bookkeeping system. In the next step in the accounting cycle, the amounts that appear in the various journals are transferred to the organization's general ledgera procedure called posting. Bookkeepers generally do this part of the process. Posting data to the ledgers is followed by listing the balances of all the accounts and calculating whether the sum of all the debit balances agrees with the sum of all the credit balances (because every transaction has been listed once as a debit and once as a credit). This determination is called a trial balance. Accountants take charge of this step. Adjustments are also made by accountants to make sure everything is in line. Accounting software like Quick books consulting is usually used for this phase.
The final step is to close noncumulative accounts. This procedure involves a series of bookkeeping debits and credits to transfer sums from income-statement accounts into an owners' equity accounts. Such transfers reduce to zero the balances of noncumulative accounts so that these accounts can receive new debit and credit amounts that relate to the activity of the next business period.
Financial statements are done at a determined time interval (every three months or per annum). Accountants also take part in this process. Accountants aim to prepare and file a statement that summarizes an enterprise's revenues, expenses, gains, and losses. Failure to file correct, timely, and accurate tax returns and financial statements is considered a grave felony and can lead you to a long time in prison.
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