Compare and contrast income for taxation purposes and income for accounting purposes.
Compare and contrast income for taxation purposes and income for accounting purposes. |
A company’s accounting profit and taxable income can be different in certain reporting periods because of the differences in financial reporting and tax filing. While accounting profit is computed using the accrual method of financial accounting based on generally accepted accounting principles, or GAAP, taxable income is calculated using the cash method of tax accounting based on tax rules. As a result, companies report accrued revenues and expenses in financial reporting to derive accounting profit, and cash revenues and expenses in tax reporting to obtain taxable income. |
Accrued Revenues Accounting profit may exceed taxable income in certain reporting periods due to accrued revenues. Using the accrual method of financial accounting, companies report revenues when earned in the reporting period even though customers have not paid for the revenue-related sales. Consequently, such revenue recognition increases the accounting profit. On the other hand, using the cash method of tax accounting, companies don’t report any revenues unless they have collected cash from customers for the sales. As a result, the taxable income in the same period is potentially lower than the accounting profit. |
Prepaid Expenses Accounting profit may also exceed taxable income in certain reporting periods due to prepaid expenses. Prepaid expenses are cash expenditures for future expenses but paid in the current reporting period. Using the accrual method of financial accounting, companies report expenses when incurred. As a result, only a portion of the prepaid expenses is reported as the expense incurred in the current period. Thus, the less expense reported in financial reporting, the higher the accounting profit. Using the cash method of tax accounting, companies report the full amount of cash expenditures as the expense in the current period, lowering taxable income. |
Unearned Revenues Accounting profit may be lower than taxable income in certain reporting periods due to unearned revenues. Unearned revenues are cash receipts from customers for receiving goods or services over time through multiple periods. Using the accrual method of financial accounting, companies report only a portion of the total unearned revenues as the revenue earned in the current period, potentially having a lower accounting profit. Using the cash method of tax accounting, companies report the full amount of cash receipts as the revenue in the current period, increasing taxable income. |
Accrued Expenses Accounting profit may also be lower than taxable income in certain reporting periods due to accrued expenses. Using the accrual method of financial accounting, companies accrue and report expenses when incurred rather than when paid. As a result, the more accrued expenses, the lower the accounting profit. Using the cash method of tax accounting, companies don’t report any expenses for tax filing in a period unless cash has been paid for related expense items. Thus, with less expenses reported, the taxable income is potentially higher than the accounting profit in the same period |
Compare and contrast income for taxation purposes and income for accounting purposes.
Write a 750 word response to the topic: "Compare and contrast components and purposes of Information Technology (IT) and Information Systems (IS) in organizations" Use APA style writing as well as examples in the book for your projects ( ESSENTIALS OF SYSTEMS ANALYSIS
When accounting for income taxes, the differences between financial accounting and taxation accounting creates permanent and temporary differences between the expenses and liabilities reported under each regime. Why do these differences exist? What are the reasons that explain why we have one system of accounting for financial reporting, and a second for taxation? Please give an in-depth explanation for the various reasons for why there are two systems for this, instead of one. I am looking for a general explanation...
Compare and contrast the current rate method and the temporal method of accounting for translation exposure.
Compare and contrast the methods that can be used in accounting for investments. How does a company choose a method? What are the advantages and disadvantages of each?
2) Compare and contrast the accounting treatment for error corrections, changes in estimates, and changes in accounting principles. Include examples to illustrate how each of these changes should be reported.
1. Compare and contrast the dictionary meaning and the accounting meaning of depreciation. 2. In a business sense, why do you think the dictionary meaning was not appropriate for businesses to use? 3. Could depreciation be used to commit accounting fraud? What would be the benefit if a business decides to do this?
Taking the idea of comparison/contrast as a strategy. Compare and Contrast the difference between Finance and Accounting.
Net income before taxation is $67,450. A number of items in the profit and loss account have to be treated differently for tax purposes. Accounting Records Taxation Records Interest income earned but not yet received 27,000 NIL Impairment of goodwill 45,000 NIL Transfer to long service leave provision 24,000 NIL Depreciation of machinery 60,000 45,000 Transfer to allowance for doubtful debts 291,000 279,000 An extract from the balance sheet at balance day reveals: Assets Carrying Amount Tax Base Plant and...
Compare and contrast the "life cycle" hypothesis and the "permanent income" hypothesis. What are their respective implications for inequality in the income distribution?
Compare and Contrast the use of return on investment and residual income in evaluating investments centers.