Dear Entrepreneurs and Leaders,
You see your business running successfully, but deep inside, something doesn’t feel quite right?
If you have this feeling, know that there’s likely an issue with your accounting processes, either directly or indirectly. When there’s a problem with accounting, it adds unnecessary workload to your business, meaning the labor resources you’re paying for are wasted. And that’s not even mentioning the knock-on effects of other losses.
What is accounting, and why is it necessary?
It’s your information system where data is recorded, classified, and gathered to enable sound decision-making for the successful growth of your business.
What types of accounting are used or should be used?
Often, an employee who understands one type of accounting views all other types through the same lens, leading to confusion. This is why accountants struggle to communicate with managers, tax officials misunderstand accountants, and everyone believes they are right. In fact, everyone is right; these issues arise simply because one person doesn’t understand the purpose of another type of accounting, causing conflicts.
Don’t worry—we’ll explain everything in simple terms, because organizing all types of accounting is what we do.
Let’s continue with accounting:
There are various stakeholders in a business’s information. "Stakeholders" refer to individuals and entities such as business owners, employees, partner companies, government bodies, and financial institutions. These stakeholders have different needs for business information, which is why three main types of accounting are used and should be used: Management Accounting, Financial Accounting, and Tax Accounting.
As you can see, the reason for different types of accounting stems from the question, "Who needs what?" While the operations and processes within the business remain unchanged, each type of accounting records the same transaction but tailors the data or approach differently depending on the user. The difference lies solely in the varying information demands of each user.
About Tax Accounting
If Financial Accounting exists, why is Tax Accounting needed? Isn't the tax authority an external party?
Yes, for businesses, it is an external party. However, unlike other stakeholders, the tax authority has a direct interest in business profits and plays a crucial role in business registration and the country's financial regulation. For this reason, the government requires information on financial outcomes based on rules and limitations different from those in Financial Accounting, reflecting the state's financial interests and objectives. This creates the need for businesses to establish a separate accounting system: Tax Accounting.
In Summary:
- Management Accounting is a system for recording information for internal users and internal purposes.
- Financial Accounting is a system for recording information for external stakeholders and standardized objectives universally accepted by all.
- Tax Accounting is a system for recording information for government authorities and state purposes.
Tax Accounting Setup (based on Legislation of AR)
In the 1C software, accounting is set up in accordance with the legislation of the Republic of Azerbaijan and tailored to the specific field of activity. This includes defining Accounting Policies, categorizing Revenue and Expense Centers, identifying business processes for daily transactions, classifying expense and payment items, counterparties, items, and other elements. Additionally, the setup involves preparing the Initial Balance Sheet (Form 1) and providing system guidance and training.
Tax Accounting Execution (based on Legislation of AR)
In the 1C software and state authority portals, tax accounting is carried out based on the daily and monthly official transaction data submitted by the business. The predefined tax declarations, in compliance with legislation, are delivered to you and the relevant state authorities on the specified dates.
Tax Accounting Monitoring (based on Legislation of AR)
In the 1C software, the daily and monthly transaction data of the business is recorded by its accountant and staff. However, our chief accountant reviews the processed transactions for compliance with tax accounting standards, conducts a monthly review, identifies errors, and provides explanations along with recommendations on how to rectify them.
Hurry up to benefit from our Tax Accounting services at CRYSTAL BUSINESS!!!