What is the difference between the financial statement and the statement prepared for tax authorities?
Understanding the financial statements of the business is one of the important ways to understand the financial condition of the business. Businesses operating in the UK need to make proper financial statements. Balance sheet, Cash flow statement, Statement of changes in equity, and profit & loss statements are 4 basic financial statements in the UK. The HMRC department expects all the financial statement preparation to be done properly. The financial statement is also prepared for the tax authorities from the taxation point of view. The accounting statements made by you must be in a proper way. Many people get confused about the financial statements and financial statement preparation for tax authorities. We will look into detail about the basic differences between both.
What is the difference between the financial statement and the statement prepared for tax authorities?
Here are some points of differences between the financial statements and the statement prepared for tax authorities:
Financial Statements:
The financial statements show the performance and financial activities of the business in a detailed way.
There are 4 types of financial statements:
1. Balance sheet
The balance sheet shows the view of the liabilities (what you owe) and assets (what you own). It reflects the financial condition of the business properly.
2. Cash Flow Statement
The cash flow statement shows the cash coming in and going out of the business over a period. It records the cash that is gone out and cash that is received from the lenders & investors.
3. Statement of changes in equity
This is the statement of the retained earnings and or shareholder’s equity. It generally shows the money that the business keeps. This amount is usually made for the repayment of the debt or reinvestment wherever necessary.
4. Profit & Loss statements
The profit & loss statement shows the expenses & revenues made by the business. This statement shows the profit by subtracting the expenses from the revenue.
Statement prepared for the tax authorities in the UK:
This statement basically shows all the taxable income that is known to the HMRC. Here, the details of the national insurance contributions and rates of the income tax calculations are done. This statement gives a clear overview of the taxes applicable to the organization that need to be paid.
So, while making the financial statement preparation, it is important to have a proper demarcation of the type of statement that is made. However, many organizations find it difficult to make accounting statements. The complications associated with these statements preparation are the other problems experienced by the organization. So, outsourcing these financial statement preparation tasks to expert agencies can be beneficial.
Meru Accounting provides financial statement preparation services for businesses in the UK. They have proper knowledge of financial statement preparation as per the HMRC guidelines. You can relieve yourself from the complications of preparations by simply outsourcing here. Meru Accounting is a well-known accounting service-providing agency across the globe.
