Chapter 19 (Accounting for Income Tax)

Chapter 19 (Accounting for Income Tax) - 1. Identify...

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Unformatted text preview: 1. Identify differences between pretax financial income and taxable income. 2. Describe a temporary difference that results in future taxable amounts. 3. Describe a temporary difference that results in future deductible amounts. 4. Explain the purpose of a deferred tax asset valuation allowance. 5. Describe the presentation of income tax expense in the income statement. 6. Describe various temporary and permanent differences. 7. Explain the effect of various tax rates and tax rate changes on deferred income taxes. 8. Apply accounting procedures for a loss carryback and a loss carryforward. 9. Describe the presentation of deferred income taxes in financial statements. Topics to be covered Fundamentals of Accounting for Income Taxes Future taxable amounts and deferred taxes Future deductible amounts and deferred taxes Income statement presentation Specific differences Rate considerations Accounting for Net Operating Losses Financial Statement Presentation Review of Asset- Liability Method Loss carryback Loss carryforward Loss carryback example Loss carryforward example Balance sheet Income statement Accounting for Income Taxes Corporations must file income tax returns following the guidelines developed by the Internal Revenue Service (IRS), thus they: Fundamentals of Accounting for Income Taxes calculate taxes payable based upon IRS code, calculate income tax expense based upon GAAP. Amount reported as tax expense will often differ from the amount of taxes payable to the IRS because tax regulations and GAAP rules often differs in regards to many financial statement items. Difference between pretax financial income and taxable income Pretax financial income leading to income tax expense is a financial accounting term while taxable income leading to income tax payable is a tax accounting term. Taxable Income and Pre-tax Financial Income (often referred as income before tax): 1. Taxable income is calculated in accordance with prescribed tax regulations and rules. 2. Pre-tax Financial income is measured and reported in accordance with generally accepted accounting principles (GAAP). 3. Differences between taxable income and pretax financial income occur because tax regulations and GAAP rules are frequently different for many financial statement items. Difference between pretax financial income and taxable income Examples of temporary differences between pretax financial income and taxable income giving rise to taxable or deductible amounts in future years along with the reasons for such differences: [Essentially due to timing difference in recognition of items in two sets of accounting systems.] Revenues or gains recognized in calculating financial income first, and then become taxable in later year (leading to taxable amounts in future-Deferred tax Liability) ....
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This note was uploaded on 10/07/2010 for the course ACC 5115 taught by Professor Mitra during the Spring '10 term at Wayne State University.

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Chapter 19 (Accounting for Income Tax) - 1. Identify...

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