At Bayou Bookkeeping & Tax Services, we provide bookkeeping, year-end financial statements review, and tax filing services in Baton Rouge. Financial statements communicate a business’s financial health, helps lenders determine whether to loan money, and provides insight into financial operations. The three major types of financial statements include the balance sheet, the income statement, and the cash flow statement. Each of these statements contains taxes in various aspects. This article explains how these statements relate to taxes, financial accounting, and reporting.
The balance sheet includes tax-related items essential to financial reporting. First, long-term liabilities include deferred income tax liabilities. Deferred taxes are considered liabilities when the income is received, but the tax obligation defers to a future date. Deferred tax liability should not defer for more than 12 months. Next, sales tax and use tax also exist as liabilities on the balance sheet. Unlike a deferred tax, these taxes represent current liabilities paid as a percentage of total sales. Sales tax and use tax specifically relate to goods sold and do not apply to services. These taxes accrue monthly and must be paid directly to the government. Businesses should always pay taxes on time when they're due.
The income statement doubles as the profit and loss statement. It shows tax-related expenses, calculates pre-tax income, captures previously made tax payments, and determines the net income after taxes. Income before taxes captures the taxable amount of income after expenses, such as interest payments.
The cash flow statement lists taxes payable as a line item and includes short and long-term tax liabilities. Since the cash flow statement reflects cash entering into and flowing out of the company, taxes payable changes as you satisfy tax obligations. Specifically, taxes payable decreases as taxes paid increase.
Well-prepared and accurate financial statements capture taxes correctly, help lenders and investors make wise decisions, and position business owners to make strategic decisions about the future. When you understand your financial position and tax obligation, you can make better-informed decisions about the upcoming year.
The better shape your financial statements are in, the better off you’ll be when it comes to tax compliance. This is true from an accuracy standpoint as well as an organizational standpoint. If the IRS audits you and you have accurate, up-to-date financial statements, then you will find answering questions much easier. We recommend a professional to perform a year-end financial statements review. If you don’t have a certified bookkeeper, then hire Bayou Bookkeeping. We ensure accurate, timely financial reporting and tax filing for Baton Rouge businesses. If you're in Baton Rouge, then call us today at (225) 442-1137.
Sources
Bushee, Brian. "Financial Accounting: Financial Reporting (Overview). YouTube, 5 Dec. 2014. Web. 9 Jan. 2021
https://www.salestaxinstitute.com
https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits
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