To determine the exact amount to pay to the government, accountants need to adjust the earning before tax to comply with the tax law. After that, they record the income tax expense and income tax payable. It is the accounting rule which determines this amount. When company prepares the financial statement, the accountant needs to record income tax expenses based on the earnings before tax. It means the income tax expense will increase higher than the tax payable in the subsequent period. The difference is due to the temporary difference which will be settled later. So they need to record the deferred tax assets which will be utilized in the future. When the tax paid is higher than income tax expense, it means company needs to pay more than the income tax expense on the income statement. These are the reasons that earning before tax differs from taxable profit. Moreover, the depreciation expense under tax law may be different from accounting. The expenses are recorded when the cash is paid to the suppliers. The tax law requires the business to record revenue when receiving money from the customer even the goods or services not yet provided. The taxable profit arrives from the revenue and expense which comply with tax law. The income tax paid will base on the taxable profit and the income tax rate. ![]() The revenue and expense follow the accounting framework by using accrued basic. ![]() The earning before tax will arrive from the revenue and expense which comply with accounting principles such as IFRS or US GAAP. The income tax expense will be calculated by multiplying the earnings before tax and income tax rates. But the amount that a company pays to the government depends on the taxable profit and the tax rate. In the company financial statement, the income tax expense will be based on the accounting profit and tax rate. However, the EBT or taxable income may be different between accounting and tax law. The income tax expense is simply equal to the earnings before tax (EBT) multiply by the income tax rate. ![]() The tax rate is various from one country/state to another. Income tax is the amount of expense that the company pays to the government or tax authority which depends on company profit and the tax rate. It happens when the income tax expense is greater than the income tax paid to the government. Deferred tax asset is the company asset that will reduce the future income tax expense.
0 Comments
Leave a Reply. |