As regulations tighten surrounding fapiao reporting, a new issue arises for small to medium-sized businesses. Many companies must differentiate between fapiao accounting and management accounting for their business.

What is Fapiao Accounting?

Fapiao accounting is a form of accounting designated to show how much tax you have to pay on a fapiao invoice. A fapiao is a tax invoice that proves you officially paid the tax to a vendor. The purchaser of a good or service will ask the vendor for a fapiao tax invoice to deduct the tax on their own tax calculations. Because of the strict requirements surrounding the deductibility of business expenses, businesses can only deduct the tax if they have an official fapiao in case of an audit. Therefore, the government strictly regulates the issuance and claiming of fapiaos, leaving accuracy a necessity.

What is Management Accounting?

Management accounting usually follows an accrual basis of accounting, where revenue and expenses are recorded when goods are delivered regardless of when a fapiao is issued. In addition, management accounting follows the matching principle, where revenue and expenses are recognized in the same period. This allows the company to get an accurate and complete picture of its financial health.

What are the Advantages of Each?

Both methods have their advantages that should be weighed. Fapiao accounting only considers the revenue and costs based on official fapiaos, making it a simpler method of accounting. Moreover, fapiao accounting’s primary purpose is to allow businesses to comply with tax laws surrounding fapiaos, leading to a focus solely on accurate fapiao reporting. Further technological advancements in China have made it easier to report fapiao transactions electronically.

Management accounting also has its fair share of benefits. Management accounting complies with China’s Generally Accepted Accounting Principles. Additionally, management accounting ensures all transactions are recorded regardless of if a fapiao was issued. Therefore, management accounting will allow you to get a clear picture of your business’s financial health since all transactions will be recorded in the proper period, not when payments were made or collected. This can lead to more informed business decisions. Also, the bank balance will match the financials, which is a critical double-check that the government is starting to audit.

What are the Disadvantages of Each?

Fapiao accounting does come with a fair share of disadvantages despite the ease of bookkeeping. Since fapiao accounting only records bookkeeping transactions when a fapiao is issued or received, there could be many missed transactions. Missed transactions can lead to either underreporting or overreporting income, ultimately resulting in poor tax compliance.

Management accounting also has some considerable disadvantages. The first is the heightened amount of work that will be required. Management accounting has much more intricate rules and procedures that need to be followed, resulting in bookkeeping needing to be done daily to ensure no transactions are missed. Additionally, management accounting is a more complex method that requires constant research to stay on top of the recent changes. Despite these disadvantages, management accounting remains a robust method of internal monitoring and reporting for all businesses.

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