FINANCIAL ACCOUNTING 3

SUMMARY CHAPTER V
INCOME TAX ACCOUNTING (KIESO)

Dosen : Dr.Darmawati,SE.Ak.,M.Si. .

MUH.FERIAL FERNIAWAN(A031191156)

FAKULTAS EKONOMI&BUSINESS
PROGRAM STRATA-1 (S1) AKUNTANSI
UNIVERSITAS SULTAN HASANUDDIN
2021
INCOME TAX ACCOUNTING (KIESO)

REVIEW OF ASSETLIABILITY METHOD FUNDAMENTALS OFACCOUNTING

FOR INCOME TAXES

Future taxable amountsand deferred taxes

Future deductible amountsand deferred taxes
Income statementpresentation
Specific differences
Rate considerations

ACCOUNTING FOR NETOPERATING LOSSES

Loss carryback
Loss carryforward
Loss carryback example
Loss carryforward example

FINANCIAL STATEMENTPRESENTATION

Balance sheet
Income statement
Uncertain tax positions

Up to this point, you have learned the basic guidelines that corporations use
toreport information to investors and creditors. Corporations also must file
incometax returns following the guidelines developed by the Internal
Revenue Service(IRS). Because GAAP and tax regulations differ in a
number of ways, so frequentlydo pretax financial income and taxable
income. Consequently, the amount that acompany reports as tax expense
will differ from the amount of taxes payable to the IRS.
Pretax financial income is a financial reporting term. It also is often referred to
asincome before taxes, income for financial reporting purposes, or income for book
purposes.Companies determine pretax financial income according to GAAP. They
measure itwith the objective of providing useful information to investors and
creditors.
Taxable income (income for tax purposes) is a tax accounting term. It indicates
theamount used to compute income taxes payable. Companies determine taxable
incomeaccording to the Internal Revenue Code (the tax code). Income taxes provide
money tosupport government operations.

To illustrate how differences in GAAP and IRS rules affect financial reporting
andtaxable income, assume that Chelsea Inc. reported revenues of $130,000 and
expensesof $60,000 in each of its first three years of operations. Illustration 19-2
shows the(partial) income statement over these three years.

The differences between income tax expense and income taxes payable in
thisexample arise for a simple reason. For financial reporting, companies use the
fullaccrual method to report revenues. For tax purposes, they use a modified cash
basis.As a result, Chelsea reports pretax financial income of $70,000 and income
taxexpense of $28,000 for each of the three years. However, taxable income
fluctuates.For example, in 2012 taxable income is only $40,000, so Chelsea owes just
$16,000to the IRS that year. Chelsea classifies the income taxes payable as a current
liabilityon the balance sheet.As Illustration 19-4 indicates, for Chelsea the $12,000
($28,000 2 $16,000) differencebetween income tax expense and income taxes
payable in 2012 reflects taxes that it willpay in future periods. This $12,000
difference is often referred to as a deferred taxamount. In this case it is a deferred tax
liability. In cases where taxes will be lower inthe future, Chelsea records a deferred
tax asset.

Reference : KIESO