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Fundamentals of Tax Accruals |
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Underlying Theory behind the Tax Accrual Process
The basic theory behind tax accrual accounting is to show a tax expense (known as the tax provision) which is related to financial statement income as opposed to the actual corporate tax return. Another way of saying this might be; how much tax would be due if the company had to pay income tax on its financial statement income instead of its taxable income. Thus, the tax provision, in effect, would represent the income tax expense for the period.
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It is important to note that the tax provision on a financial statement includes more than just the federal income tax (FIT) expense. In reality, it can include a provision for state income taxes and foreign income taxes as well. For purposes of this lesson, however, we will confine our discussion to FIT expense. |
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Copyright © 1998 Bizzer Professional Training |
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