Unit 4 Reading Activity

Listen to the recording as you read the text. Then complete the activities.

Tax Accounting vs GAAP

In the 21st century many laws and regulations have been standardized but there are still some standards which are specific to each country.

If you work in accounting in the US you will have heard of and understand tax accounting, but your European counterpart will have no idea what it is. Unlike a lot of countries where the generally accepted accounting principles (GAAP) is the only method for calculating tax, accountants in America have two options; tax accounting and GAAP.

So to clear up the question: ‘What is the difference between GAAP and tax accounting?’

The primary difference between the methods is that under GAAP, all financial transactions must be recorded and accounted for whereas tax accounting focuses on the transactions which have an impact on the tax situation of the company, with other transactions being omitted.

The Generally Accepted Accounting Principles is the compulsory method of accounting for a public company. Tax accounting can be similar, but with far more options available.

Knowing the differences between these two methods of accounting will help you determine the best method to use for your clients and your business.


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