Differences between bank, tax and accounting figures arise from three causes: recognition timing, transactions recorded in one source but not another, and late adjusting entries. The review distinguishes a legitimate difference that can be explained from one that requires correction. Abdelhamid & Co (MOE LC0106-01, FTA TAN 30003958) reconciles the three sources.
Why bank, tax and accounting figures differ
Each source measures something different. The bank measures cash in and out on the transaction date. The accounting records measure transactions on the accrual basis. The tax return measures taxable supplies under the date-of-supply rules.
Differences between the three are therefore expected in every company. The problem arises when the owner cannot explain the difference, not from the existence of the difference itself.
The review establishes which source represents the correct position for each item, then corrects the other two.
Accounting sales differing from VAT returns
Legitimate differences arise between sales in the books and sales declared. The known causes include:
- Zero-rated and exempt supplies, which appear in the books without output tax.
- Customer advances, which trigger tax on receipt while being recorded as a liability rather than revenue.
- Returns and credit notes issued in a later tax period.
- The date of supply under the VAT Law differing from the accounting revenue recognition date.
- Fixed asset disposals, which are taxable but do not appear within operating revenue.
Document these differences in a reconciliation memorandum for each tax period. A difference that remains unexplained after excluding these causes indicates unrecorded sales or an incorrect return.
Balances differing from bank statements
Monthly bank reconciliation exposes most of these differences. Test the following:
- Issued cheques recorded in the books but never presented for payment.
- Deposits appearing on the bank statement but never posted to the books.
- Bank charges and interest debited by the bank with no corresponding entry.
- Old reconciling items left unresolved across more than one accounting cycle.
- Transfers between company accounts recorded once instead of twice.
Request statements directly from the bank, since a statement issued by an external party is the strongest audit evidence available.
Deposits that never appear as sales, and unrecorded expenses
Every bank deposit requires a specific explanation. Classify deposits not tied to sales invoices into these categories:
- Collection of receivables from earlier periods.
- Loans or funding from partners or sister companies.
- Customer advances for work not yet performed.
- Refunds from suppliers or government bodies.
- Sales never recorded in the books and never declared in the tax return.
The last category is a direct breach. It falls under Federal Decree-Law No. 28 of 2022 on Tax Procedures, and discovery during an audit carries penalties exceeding the cost of voluntary correction.
The mirror problem is expenses paid in cash and never recorded. Omitting them understates real profit and inflates the declared tax base without cause.
Late adjusting entries
Accountants use adjusting entries to correct errors found after posting. Such entries acquire a different meaning when they cluster at period end.
Test for these patterns:
- Entries posted on or after the last day of the tax period.
- Entries clearing suspense account differences without stating the source of the difference.
- Large round-sum entries with no attached supporting document.
- Entries adjusting a prior period's sales after its tax return was filed.
The last pattern requires a voluntary disclosure to the Federal Tax Authority for the affected period.
Accounting recognition versus tax recognition
IFRS recognises revenue when control of the goods or services transfers. The VAT Law fixes the date of supply under its own rules, which include the invoice date and the payment date.
Federal Decree-Law No. 47 of 2022 on Corporate Tax adds a third layer. Taxable income starts from accounting profit and then applies defined adjustments, including:
- Disallowing expenditure not incurred for the business.
- Adjusting related party transactions to arm's length.
- Specific treatment of entertainment costs and interest expense.
- Excluding exempt income where its conditions are met.
Accounting profit differing from taxable income is therefore a natural consequence of applying the law.
Key facts on reconciling the three sources
| Source | What it measures | Common cause of difference |
|---|---|---|
| Bank statement | Cash in and out on transaction date | Pending cheques and unposted deposits |
| Accounting records | Transactions on the accrual basis | Credit sales and accrued expenses |
| VAT return | Taxable supplies by date of supply | Advances, zero-rated supplies and returns |
| Corporate Tax return | Taxable income after adjustments | Disallowed costs and related party pricing |
| VAT rate | 5% on taxable supplies | Remitted on the return date even if uncollected |
| Corporate Tax rate | 9% above AED 375,000 | Computed on taxable income, not reported profit |
The risk of giving different figures to different parties
Some companies present high figures to the bank to support a facility application and low figures in the tax return. That practice produces three consequences:
- Tax consequence: an incorrect return is a breach subject to penalties under the Tax Procedures Law.
- Banking consequence: the bank may terminate facilities immediately on discovering incorrect information.
- Contractual consequence: the owner loses the ability to rely on either version in a dispute with a partner or buyer.
Voluntary correction resolves the position before an audit does. Its financial impact is lower than discovery by the Authority.
Our methodology for reconciling bank, tax and accounting figures
We perform five sequenced steps:
- Step 1: Collect all three sources for the same period: bank statements directly from the bank, the trial balance from the system, and returns from the tax portal.
- Step 2: Prepare a complete monthly bank reconciliation, classifying each reconciling item and identifying its age.
- Step 3: Reconcile accounting sales to declared sales for every tax period and explain each difference.
- Step 4: Analyse deposits not tied to invoices, schedule unrecorded expenses, and test late adjusting entries.
- Step 5: Issue a reconciliation memorandum separating explained differences from those requiring correction, with the tax impact quantified per period.
Why choose Abdelhamid & Co
- Licensed by the Ministry of Economy under registration LC0106-01 and entered in the Local Auditors Record under No. 956.
- Registered FTA Tax Agent (TAN 30003958, TAAN 20033908), allowing us to represent the company in correction and dispute.
- Accounting reconciliation and tax remediation combined in a single engagement.
- Experience preparing voluntary disclosures and reconsideration requests before the Authority.
- A documented reconciliation memorandum in Arabic or English, suitable for a bank, an investor or the Authority.
Frequently Asked Questions
Which source is correct when bank, tax and accounting figures differ?
Each measures something different, so no single source is absolutely correct. The bank statement shows actual cash, the books show accrual performance, and the return shows taxable supplies. The review determines the correct source item by item.
Does a difference between the books and the tax return mean a breach?
Not necessarily. Legitimate differences arise from zero-rated supplies, customer advances, returns and date-of-supply timing. Only a difference that remains unexplained after excluding these causes requires correction.
What does a bank deposit with no matching sales invoice mean?
It requires a documented explanation. It is usually a receivable collection, a customer advance, or partner funding. A deposit proven to be unrecorded sales is a breach requiring a voluntary disclosure.
How are differences from earlier years handled?
By filing a voluntary disclosure with the Federal Tax Authority for the affected periods and adjusting the accounting entries. Voluntary correction carries a lower financial impact than discovery during a tax audit.
How long does reconciling bank, tax and accounting figures take?
Ten to twenty working days for a small or medium company. The range depends on the number of tax periods being reconciled, the number of bank accounts, and the volume of old reconciling items.
Is the reconciliation memorandum useful beyond tax?
Yes. Investors request it during due diligence and banks request it when assessing facilities. A prepared memorandum shortens the review and prevents differences being read as a red flag.
Related Services
- VAT & Excise Compliance Review — reconciling returns to the books for every period.
- Voluntary Disclosure — correcting differences before a tax audit.
- Accounting & Bookkeeping — record reconstruction and monthly bank reconciliations.
- External Audit Service — independent opinion on annual financial statements.
- Insights — more UAE tax and accounting guidance.
Contact Us
To reconcile your company's figures across bank, tax and accounting records, call Abdelhamid & Co in Sharjah on 00971065610040 or visit our contact page.
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