INCOME TAX ACCOUNTING

Meidyah Indreswari, PhD, CA, CRMA, CCSA, CPMA, CKM, CFrA

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FUNDAMENTALS OF ACCOUNTING FOR INCOME TAXES

 Corporation must file income tax returns following the guidelines

developed by the Tax Office (DJP)
 Because PSAK and tax regulations (UU Pajak) differ in a number
of ways, the amounts reported for the following will differ:
 Income tax expense (PSAK)
 Income tax payable (DJP)

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ACCOUNTING INCOME VERSUS TAX INCOME

PSAK DJP

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FUTURE TAXABLE AND DEFFERED AMOUNTS

 A temporary difference is the difference between the tax basis of

an asset or liability and its reported (carrying or book) amount in
the financial statements that wiil result in taxable amount or
deductible amounts in future years

Future Taxable Amounts Future Deductible Amounts

Deffered Tax Liability represent the
increase in taxed payable in future
years as a result of taxable temporary
difference existing at the end of the
current year
Deferred Tax Asset represent the
increase in taxes refundable (or
saved) in future years as a result of
deductible temporary differences
existing at the end of the current year

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ACCOUNTING FOR INCOME TAXES

 PT X reported revenues of $130,000 and expenses of $60,000 in

each of its first three years of operations. For tax purposes, PT X
reported the same expenses to the IRS in each of the years. PT X
reported taxable revenues of $100,000 in 2020. $150,000 in
2021, and $140,000 in 2022.
 What is the effect on the accounts of reporting different amounts
of revenue for DJP versus Tax?

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 2020 2021 2022 Total
PSAK REPORTING (ACCRUAL BASIS)
Include account receivables
Revenue 130.000 130.000 130.000 390.000
Expenses 60.000 60.000 60.000 180.000
Pretax Financial Income 70.000 70.000 70.000 210.000
Income Tax Expense (20%) 14.000 14.000 14.000 42.000

2020 2021 2022 Total

DJP REPORTING (CASH BASIS)
20,000 10,000
Revenue 100.000 150.000 140.000 390.000
Expenses 60.000 60.000 60.000 180.000
Pretax Financial Income 40.000 90.000 80.000 210.000
Income Tax Expense (20%) 8.000 18.000 16.000 42.000
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COMPARISON OF DIFFERENCE 2021 2021 2022 TOTAL
Income Tax Expense (PSAK)
14.000 14.000 14.000 42.000
Income Tax Expense (DJP)
8.000 18.000 16.000 42.000
Difference 6.000 - 4.000 - 2.000
-

Are the differences accounted for in the financial statements? YES

Year Reporting Requirement

2021 Deffered tax liability account increased to $6000
2022 Deffered tax liability account reduced by $4000
2023 Deffered tax liability account reduced by 2000
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JOURNAL ENTRY

 2020: Income tax expense 14,000

Income tax payable 8,000
Deffered Tax Liability 6,000
 2021: Income tax expense 14,000
Deferred Tax Liability 4,000
Income tax payable 18,000
 2022: Income tax expense 14,000
Deferred Tax Liability 2,000
Income tax payable 16,000

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REPORTED DEFFERED TAX LIABILITY

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FUTURE DEDUCTIBLE AMOUNTS: DTA

 PT Z has revenues of $900.000 for both 2020 and 2021. It also

has operating epenses of $400.000 for each of these years. In
addition, PT Z accrues a loss and related liability of $50.000 for
financial reporting purposes because of pending ligation.
 PT Z cannot deduct this amount for tax purposes until it pays the
liability, expected in 2021.
 Ass a result, a deductible amount will occur in 2021 when PTZ
settles the liability, causing taxable income to be lower than
pretax financial information

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DEFERRED TAX ASSET

Future Years
 Future deductible amounts $50,000
 Tax rate 20%
 Deferred tax asset at the end of 2020 $10,000

INCOME TAX EXPENSE, 2020

 Income tax expense 90,000
 Deferred Tax Asset 10.000
 Income Tax Payable 100,000

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COMPUTATION OF INCOME TAX EXPENSE 2020

 Deferred tax asset at the end of 2020 $10,000

 Deferred tax asset at the beginning of 2020 $0

 Deferred tax expense (benefit) for 2020 ($10,000)

 Current tax expense for 2020 (income tax payable) ($100,000)

 Income tax expense (total) for 2020 $90.000

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COMPUTATION OF INCOME TAX EXPENSE 2021

 Deferred tax asset at the end of 2021 $0

 Deferred tax asset at the beginning of 2021 $10,000

 Deferred tax expense (benefit) for 2021 $10,000

 Current tax expense for 2020 (income tax payable) $90,000

 Income tax expense (total) for 2021 $100.000

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RECORDING TAX ASSET: JOURNAL ENTRY

 Income Tax Expense 2021 $100,000

 Deferred Tax Asset 10,000

 Income Tax Payable 90,000

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INCOME STATEMENT

Revenues 900.000

Expenses 400.000

Ligation loss 50.000

Income before taxes 450.000

Income tax expense

Current 100.000
Deferred 10.000 90.000

Net Income 360.000

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SEKIAN

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