Intermediate Financial Accounting Kieso Chapter 19 Outline
Chapter 19: Accounting for Income Taxes
Fundamentals of Accounting for Income Taxes
* Intro * Pretax Financial Income- income before taxes, income for financial reporting purposes, income for BOOK purposes * Determine according to GAAP * Taxable Income- amount used to compute income taxes payable * Determine using Internal Revenue Code (tax code) * Differences arise for a simple reason, for financial reporting purposes companies use the full accrual method to report revenues * For tax purposes, use a modified cash basis * Future Taxable Amounts and Deferred Taxes * Temporary difference- difference between tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements, which will result in taxable amounts or deductible amounts in the future * Taxable amounts increase taxable income during future years * Deductible amounts decrease taxable income in future years * Deferred Tax Liability * Deferred Tax Liability (taxable temporary differences)- represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year * Income tax expense has two components * Current tax expense- amount of income taxes payable for the period * Deferred tax expense- increase in the deferred tax liability and balance form the beginning to the end of an account period * Summary of Income Tax Accounting Objectives 1. To recognize the amount of taxes payable or refundable for the current year 2. To recognize deferred tax liabilities and assets for the future tax consequences of events already recognized in the financial statements or tax returns * Future Deductible Amounts and Deferred Taxes * Future deductible amounts- cause taxable income to be less than pretax financial income in the future as a result of an existing temporary difference
Fundamentals of Accounting for Income Taxes
* Intro * Pretax Financial Income- income before taxes, income for financial reporting purposes, income for BOOK purposes * Determine according to GAAP * Taxable Income- amount used to compute income taxes payable * Determine using Internal Revenue Code (tax code) * Differences arise for a simple reason, for financial reporting purposes companies use the full accrual method to report revenues * For tax purposes, use a modified cash basis * Future Taxable Amounts and Deferred Taxes * Temporary difference- difference between tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements, which will result in taxable amounts or deductible amounts in the future * Taxable amounts increase taxable income during future years * Deductible amounts decrease taxable income in future years * Deferred Tax Liability * Deferred Tax Liability (taxable temporary differences)- represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year * Income tax expense has two components * Current tax expense- amount of income taxes payable for the period * Deferred tax expense- increase in the deferred tax liability and balance form the beginning to the end of an account period * Summary of Income Tax Accounting Objectives 1. To recognize the amount of taxes payable or refundable for the current year 2. To recognize deferred tax liabilities and assets for the future tax consequences of events already recognized in the financial statements or tax returns * Future Deductible Amounts and Deferred Taxes * Future deductible amounts- cause taxable income to be less than pretax financial income in the future as a result of an existing temporary difference