Ch 19 - Deferred Taxes Power Point Slides 2010

GAAP requires that you prepare a “Deferred Tax Schedule” that will show your estimate of deferred taxes every year.
Basic Journal Entries
Deferred Tax Schedule must: a. Estimate the origination and the reversal of differences between current GAAP Income and Taxable Income.
income)
Basic Journal Entries
If GAAP income is HIGHER than taxable income, the journal entry would be the following: (page Ch. 19-2)
Tax Expense Tax Payable $ (Expense based on GAAP income) $ (Amount payable based on taxable
Permanent Differences do NOT cause a deferral of taxes. You adjust these items out of the calculations so that they do not affect your tax calculations.
b. Come up with a total deferred taxes payable balance as of the end of this year.
Possible Differences in GAAP Income and Taxable Income
A. Permanent Differences (page Ch 19-3):
Tax payable comes off the current income tax return so its computation does not have to be estimated.
Basic Journal Entries
Therefore, the key issue for the journal entry becomes: How can the deferred taxes payable best be estimated? (page Ch. 19-2)
Interperiod Tax Allocation
The most important values to come out of the process are: (page Ch. 19-2) 1. Tax Expense, 2. Tax Payable (this year), 3. Deferred Tax Payable.
Ch. 19 - Reporting of Taxes On Financial Statements
Type of Incomes
To get the correct amount of Taxes on your financial statements you must reconcile the differences between: (page Ch 19-1)
Interperiod Tax Allocation
Deferred Tax Payable =
Amount of taxes on current GAAP Income that you have successfully deferred to future years for tax puHale Waihona Puke poses.income)
Deferred Taxes Payable
$
(Taxes on current GAAP Income to be paid in the future)
Basic Journal Entries
GAAP requires that the two payables in the entry be estimated and that the Tax Expense be a plug.
These occur when a revenue or expense affects one of the two incomes but never the other.
Possible Differences in GAAP Income and Taxable Income
A. Permanent Differences (page Ch 19-3):
Interperiod Tax Allocation
Interperiod Tax Allocation is the process of reconciling the differences between GAAP net income versus taxable income to determining the correct GAAP based tax amounts to report in the current year’s financial statements. (page Ch. 19-1)
GAAP Income VERSUS Taxable Income (per tax laws)
Type of Incomes
GAAP Income is primarily based on the ACCRUAL basis. Taxable Income (per tax laws) is primarily based on a CASH basis.
Basic Journal Entries
If GAAP income and taxable income were the same, the journal entry would be the following: (page Ch 19-2)
Tax Expense Tax Payable $ (Expense based on GAAP income) $ (Amount payable based on taxable