IRS Tax debts in accounting: everything you need to know

What are tax debts in accounting?
In accounting, tax and social debts are part of the liabilities, in the balance sheet of your company.

This is all the debts recorded at the close of a company’s financial year .

They take into account:

IRS due to the State ;
The business property tax ( VCAE and CET);
Salaries to be paid ;
Unpaid social security contributions ;
Corporate tax.
Please note: the CVAE will disappear in 2024.

How are tax and social security debts recorded in accounting?
The various tax and social debts appear in the chart of accounts , in section four “Third-party accounts ”.

Within the chart of accounts, a distinction must be made between the different types of debt:

Regarding tax debts, they appear in the accounts:

444 “Taxes on profits”;
445 “State, turnover taxes”;
447 “Other taxes”;
448 “State, accrued charges”;
457 “Dividends payable”.
As for social debts towards employees, they are grouped into the accounts:

421 “Remuneration due”;
425 “Advances and installments”;
428 “Personnel, accrued expenses”.
Finally, the last social debts are those owed to social organizations, they are mentioned in the accounts:

431 “Social security”;
437 “Other social organizations”;
438 “Social organizations, charges to be paid”.

Tax and social debts: what accounting analysis?
All tax and social security debts can prove to be a relevant cash flow indicator, particularly regarding working capital requirements ( WCR ).

This is the amount of liquidity that the company must have at its disposal at all times to finance its activity.

To carry out this analysis, it will be necessary to integrate tax and social debts into the company’s functional balance sheet. This balance sheet is established using the company’s balance sheet, it highlights the financial structure of your company, that is to say how the company manages to finance its investments.

To obtain the WCR for your company, simply carry out the following calculation:

WCR = Inventories + Customer receivables + Other receivables – Financial debts – Tax and social security debts

To analyze the health of your business, you must make a variation of this WCR, from one accounting year to another.

Either the WCR is negative, or operating jobs are lower than the company’s resources. In this case, this is an ideal situation, the company has sufficient liquidity to finance its activity in the short or medium term.
Either the WCR is zero (equal to 0), or the resources are sufficient to cover the company’s jobs.
Either the WCR is positive, or operating jobs are greater than the company’s resources. The company will need to find a way to finance its short-term needs.
Thus, the amount of your social and tax debts can influence your working capital needs. Your company’s strategy will depend on the level of your WCR.

Ghulam Muhammad

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