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ACFM 322 Chapter 16
| Term | Definition |
|---|---|
| Why are there often differences between "accounting income" and "taxable income"? | Different objectives U.S. GAAP - reporting to investors & Govt - reporting to the govt so they get their share |
| Temporary Differences | Differences between taxable income and pretax accounting income that occur when tax rules and accounting rules recognize income in different periods; they originate in one period and reverse in one or more subsequent periods |
| Deferred Tax Liabilities (DTLs) | These exist when tax laws allow a company to postpone paying taxes on activities reported in the current period's income statement; the company anticipates those activities will lead to future taxable amounts |
| Deferred Tax Assets (DTAs) | These exist when tax laws require a company to pay more tax than is indicated by the activities reported in the current period's income statement; they reflect the benefit of future deductible amounts |
| 1. Calculate tax payable based on current year's tax return 2. Calculate ending balances for DTAs & DTLs 3. Calculate changes in DTAs & DTLs 4. Plug income tax expense | What are the 4 Steps to Determine Income Tax Expense? |
| Installment sales of property, unrealized gain from recording investments at fair value, accelerated depreciation, prepaid expenses | Examples of DTLs |
| Estimated expenses & losses, unrealized loss from recording investments at fair value or inventory at LCM, and rent, subscriptions, and other revenue collected in advance | Examples of DTAs |
| DTL | When Book > Tax |
| DTA | When Book < Tax |
| Book Side | These terms refer to what: US GAAP, accounting income, income tax expense, financial statement reporting, carrying value, book value, and net income |
| Tax Side | These terms refer to what: US Tax Law, taxable income, income tax payable, and tax basis |
| Taxable | Use _________ income to determine income tax payable |
| Accounting Records | Use __________ _________ income, if given, to determine income tax expense |
| Deferred Tax Liability | Each year is the tax rate times the temporary difference between the financial statement carrying amount of the receivable and its tax basis |
| Depreciation Expense | To determine taxable income, add back to pretax accounting income any __________ ________ on the income statement, then subtract tax deduction for depreciation on the tax return |
| Tax Basis | Of an asset or liability is its original value for tax purposes, reduced by any amounts deducted to-date on tax returns |
| Valuation Allowance | If it is more likely than not that some or all of a DTA will NOT be realized, a __________ __________ is needed |
| Contra Asset | It is a _________________ that is recorded with a corresponding increase to income tax expense |
| Key Factor | The ______ _________ is whether there will be sufficient future taxable income for the benefit to apply |
| Net | Report on the balance sheet as a ______ amount |
| US GAAP: Record DTA, then record valuation allowance if needed IFRS: Can only recognize when it happens, no prior DTA recorded | Difference Between US GAAP & IFRS |
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MOWGaming04
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