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Chapter 17
Tax in company accounts
Tax does not appear as an expense in sole trader accounts as this is a personal
expense for a sole trader. In the case of a company, it is liable to pay tax on its profits
and tax is therefore accounted for in the financial statements just like any other
expense or liability.
At the end of each year an estimate is made by the company of the amount of its
taxation liability and an accrual is made in the accounts as follows:
Debit Taxation expense account (SOPL)
Credit Taxation liability account (SOFP)
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