Forum 4: Tax Accounting vs GAAP

Read the text in the module discussing Tax Accounting vs GAAP and answer the questions
below:

1.      Should accounting principles be standardized across the world?

2.      How could GAAP be made simpler?

3.      Is it necessary to have two systems for / why not? accounting for tax? Why?

Give definition to the words or phrases below:

- tax accounting

- taxable income

- depreciation

- accrual-basis accounting

- revenue

Answer

1. Should accounting principles be standardized across the world?

In my opinion, accounting principles not should be standardized because Accounting standards
can be complex and this makes modification of standards difficult. In addition, differing
practices among various nations add to the complications of a unified accounting format.

2. How could GAAP be made simpler?

GAAP is the acronym for generally accepted accounting principles. Detailed reporting standards
and other rules established and organized by the Financial Accounting Standards Board (FASB)
in its Accounting Standards Codification (FASB ASC) Generally accepted industry practices.
GAAP exists to provide accounting principles, standards and practices, which as a result of being
standardised provides financial statements capable of being compared amongst each other. The
Internal Revenue Service (IRS) developed a tax accounting system to levy taxes against net
earnings or taxable income. Taxable income differs from revenue as defined by GAAP.

3. Is it necessary to have two systems for / why not? accounting for tax? Why?
in my opinion, there is no need to have two systems used because both are international
accounting standards that are used as a guide for preparing financial statements in various
countries and both of the aim to create quality financial reports that can be compared or
harmonized financial statements in various countries.
Give definition to the words or phrases below:

 Tax accounting is a structure of accounting methods focused on taxes rather than the

appearance of public financial statements. Tax accounting is governed by the Internal
Revenue Code, which dictates the specific rules that companies and individuals must
follow when preparing their tax returns.

 Taxable income is the portion of an individual’s or a company’s income used to calculate

how much tax they owe the government in a given tax year. It can be described broadly
as adjusted gross income (AGI) minus allowable itemized or standard
deductions. Taxable income includes wages, salaries, bonuses, and tips, as well as
investment income and various types of unearned income.
 Depreciation is accounting method used to allocate the cost of a tangible or
physical asset over its useful life or life expectancy. Depreciation represents how much of
an asset's value has been used. Depreciating assets helps companies earn revenue from an
asset while expensing a portion of its cost each year the asset is in use. Not accounting for
depreciation can greatly affect a company's profits.
 Acrual basis accounting an accounting method where revenue or expenses are recorded
when a transaction occurs rather than when payment is received or made. The method
follows the matching principle, which says that revenues and expenses should be
recognized in the same period.
 Revenue is the total amount of income generated by the sale of goods or services related
to the company's primary operations. Revenue, also known as gross sales, is often
referred to as the "top line" because it sits at the top of the income statement. Income, or
net income, is a company's total earnings or profit.

Thank you,
Novia Laksmita (43219110129)

1.     Should accounting principles be standardized across the world?

Answer : Yes of course, Accounting standards ensure the financial statements from multiple
companies are comparable. Because all entities follow the same rules, accounting standards
make the financial statements credible and allow for more economic decisions based on accurate
and consistent information.

2.         How could GAAP be made simpler?

Answer : GAAP can be simplified in two main ways, namely to make GAAP easier to
understand for readers of corporate financial statements and to the FASB recognizing that the
value of this information to private companies is worth the cost of implementing the rules.

3.     Is it necessary to have two systems for / why not? accounting for tax? Why?
Answer : Yes, we need, because the calculation of ordinary financial statements is different from
financial statements according to tax

Give definition to the words or phrases below:

 Tax accounting : a structure of accounting methods focused on taxes rather than the
appearance of public financial statements
 Taxable income : the portion of an individual's or a company's income used to calculate
how much tax they owe the government in a given tax year.
 Depreciation is the cost incurred due to the use of property, plant and equipment as a
result of a decrease in the benefits of the property, plant and equipment.
 Accrual-basis accounting is a method in accounting that provides a more accurate picture
of the company's financial condition. Accrual-basis accounting is usually used for the
measurement of assets, debt, capital and retained earnings needed by shareholders for the
development of the company's investment in the future.
 Revenue is the total amount of income generated by the sale of goods or services related
to the company's primary operations.

Thank you

Putri Rachel 43219110017

1. Should accounting principles be standardized across the world?

Yes of course, Accounting standards ensure the financial statements from multiple companies
are comparable. Because all entities follow the same rules, accounting standards make the
financial statements credible and allow for more economic decisions based on accurate and
consistent information.

2. How could GAAP be made simpler?

GAAP is the acronym for generally accepted accounting principles. Detailed reporting standards
and other rules established and organized by the Financial Accounting Standards Board (FASB)
in its Accounting Standards Codification (FASB ASC) Generally accepted industry practices.
GAAP exists to provide accounting principles, standards and practices, which as a result of being
standardised provides financial statements capable of being compared amongst each other. The
Internal Revenue Service (IRS) developed a tax accounting system to levy taxes against net
earnings or taxable income. Taxable income differs from revenue as defined by GAAP.

3. Is it necessary to have two systems for / why not? accounting for tax? Why?
Answer : Yes, we need, because the calculation of ordinary financial statements is different from
financial statements according to tax

3. Is it necessary to have two systems for / why not? accounting for tax? Why?
in my opinion, there is no need to have two systems used because both are international
accounting standards that are used as a guide for preparing financial statements in various
countries and both of the aim to create quality financial reports that can be compared or
harmonized financial statements in various countries.

Give definition to the words or phrases below:

 Tax accounting is a structure of accounting methods focused on taxes rather than the

appearance of public financial statements. Tax accounting is governed by the Internal
Revenue Code, which dictates the specific rules that companies and individuals must
follow when preparing their tax returns.
 Taxable income is the portion of an individual’s or a company’s income used to calculate
how much tax they owe the government in a given tax year. It can be described broadly
as adjusted gross income (AGI) minus allowable itemized or standard
deductions. Taxable income includes wages, salaries, bonuses, and tips, as well as
investment income and various types of unearned income.
 Depreciation is the cost incurred due to the use of property, plant and equipment as a
result of a decrease in the benefits of the property, plant and equipment. Depreciation can
also be defined as accounting method used to allocate the cost of a tangible or
physical asset over its useful life or life expectancy. Depreciation represents how much of
an asset's value has been used. Depreciating assets helps companies earn revenue from an
asset while expensing a portion of its cost each year the asset is in use. Not accounting for
depreciation can greatly affect a company's profits.
 Acrual basis accounting is an accounting method where revenue or expenses are recorded
when a transaction occurs rather than when payment is received or made. The method
follows the matching principle, which says that revenues and expenses should be
recognized in the same period. Accrual-basis accounting is usually used for the
measurement of assets, debt, capital and retained earnings needed by shareholders for the
development of the company's investment in the future.

 Revenue is the total amount of income generated by the sale of goods or services related
to the company's primary operations. Revenue, also known as gross sales, is often
referred to as the "top line" because it sits at the top of the income statement. Income, or
net income, is a company's total earnings or profit.