ctax - ACCOUNTING FOR INCOME TAXES Taxable income is...

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ACCOUNTING FOR INCOME TAXES Taxable income is computed in accordance with prescribed tax regulations and rules, whereas accounting income is measured in accordance with GAAP. These are not always in agreement. Consequently, taxable income and financial income may differ. Temporary differences originate in one period and then reverse in one or more subsequent periods . Examples are as follows: Accounting income exceeds taxable income due to revenue – e.g., installment sales Accounting income exceeds taxable income due to expense – e.g., depreciation Taxable income exceeds accounting income due to revenue – e.g., unearned rent Taxable income exceeds accounting income due to expense – e.g., bad debts An example: A company earns $50,000 before depreciation and tax. The company buys equipment for $30,000 and depreciates it straight line for accounting purposes over 10 years. For tax purposes, MACRS is used. Depreciation for the first year for accounting is $30,000 x 1/10 = $3,000; depreciation for the first year for tax is $30,000 x 1/5 x 2 x ½ = $6,000. Accounting income is $50,000 - $3,000 = $47,000; taxable income is $50,000 - $6,000 =
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This note was uploaded on 02/05/2012 for the course MATH 112 taught by Professor Taylor during the Spring '06 term at Texas A&M University, Corpus Christi.

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ctax - ACCOUNTING FOR INCOME TAXES Taxable income is...

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