Tax In company accounts
Tax does not appear as an expense in sole trader account as it is classed a personal expense for a sole trader. In the case of a company it is liable to pay tax on it's profit & therefore accounted for in FS just like any other expense or liability.
At year end a company will make an estimate of how much tax due to be paid. Method will be looke dat in more detail in F1. Tax bill usually finalised months after year end.
This is recorded as tax expense reducing overall profit in SOPL. As not paid yet also recorded as current liability in SOFP. Tax in UK known as corporation Tax FY22 19% rising to 25% for FY23.
DR TAX EXPENSE ACCOUNT
CR TAX LIABILITY
When tax bill finalised may differ to estimation. Any corrections will be made in following year.
Example
Double entry estimate
DR TAX EXPENSE £100,000
CR TAX LIABILITY £100,000
Double entry when actually paid (£105,000)
DR TAX LIABILITY £100,000
CR CASH £ 105,000
DR TAX EXPENSE £5,000
SUMMARY
SOFP = Current yrs tax estimate
SOPL = Current years estimate +/- previous years under or over provision.