Recognition of income and expenses, accounting practices and methods

[alexa]

The relevance of issues related to taxation cannot be overstated. As we all know, effective management of the tax burden is crucial for the success of any business.

However, the numerous changes and additions to the current tax legislation have led to a lot of confusion and ambiguity. One of these issues is the criteria for recognizing income and expenses, which have a significant impact on the calculation of the corporate income tax base.

I would like to ask for your professional opinion on the following question: What factors have the greatest influence on the process of recognizing income and expenses for the purpose of corporate income taxation? What approaches are currently being used in practice, and how effective are the proposed accounting methods?

I would appreciate it if you could provide well-reasoned answers supported by examples from your own professional experience.

Additionally, I would like to discuss the relationship between accounting principles and tax accounting within the context of this topic. What balance should be maintained between these two systems, and how can we avoid the negative consequences of disrupting this balance?

[ano]

There are really a lot of pitfalls and nuances, and laws are constantly changing, new explanations are emerging, which is why my head is spinning!

Let's look specifically at the criteria for recognizing income and expenses for income tax. This is one of those areas where accounting and tax accounting are very different, causing a lot of problems and misunderstandings.

What influences the recognition of income and expenses?

First, the main focus is on the principle of temporal certainty of the facts of economic life. In other words, income is recognized when the organization has received the right to receive money, and expense is recognized when actual costs have been incurred. For example, if your company shipped goods to a customer, then the income is considered recognized regardless of whether you received the money immediately or later.

But there are difficulties here: different types of contracts have different deadlines for fulfilling obligations, there are advances, prepayments, deferred payments and other problems. Plus, the constant changes in legislation create additional confusion.

Practice shows that the most significant factors are:

Accrual method: Income is recognized upon the provision of services or the transfer of goods, regardless of the receipt of funds.
Cash method: Income is recorded only after the actual receipt of money.
Which method should I choose? The accrual method is used most often by large companies, as it allows you to more accurately reflect the economic situation of the organization. The cash register is more suitable for small entrepreneurs who simplify reporting.

Now imagine what it's like for accountants when they need to keep two parallel accounts at the same time: one for tax purposes, the other for accounting! This is a real test of the strength of the nervous system.

For example, in my practice there was such a story: a large construction company was leading a project to build a residential complex. The purchase of materials took place in stages, and the sale of apartments went parallel to the construction. So I had to closely monitor each stage, checking the facts of economic activity with the requirements of the tax code.

Now let's move on to the second important aspect of your question — the balance between accounting and tax accounting.

The main rule here is that accounting reflects the real picture of the financial and economic activities of a company, while tax accounting is focused solely on the fiscal goals of the state. Therefore, there are often discrepancies between these two types of accounting, and the accountant's task is to properly organize the separate management of both accounts.

What are the consequences for the company if the balance is disrupted? Well, first of all, fines and penalties from the tax inspectorate if they find discrepancies. Secondly, the loss of trust of investors and partners, because accurate financial accounting is an indicator of the reliability of the company.

So my recommendation is the following: regularly update knowledge on changes in tax legislation, attract experienced specialists and use modern accounting automation programs. It is also important to maintain good relations with the tax inspectorate by submitting declarations on time and providing explanations on any issues that arise.