Fundamentals of Tax Accruals Bizzer Professional Training


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Please review the information below
Objectives and Principles of Accounting for Income Taxes
The objectives of accounting for income taxes are to recognize:
  • the amount of taxes payable or refundable for the current year and

  • deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an enterprise's financial statements or tax returns.

In carrying out this objective, the following basic principles are applied in accounting for income taxes as of the financial statement date:

  1. A current tax liability (or asset) must be recognized for the estimated taxes payable (or refundable) on a tax returns (tax liability).

  2. A deferred tax liability (or asset) must be recognized for the estimated future tax effects attributable to temporary differences and carryforwards (deferred tax liability).

  3. The measurement of current and deferred tax liabilities (or assets) is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates should not be anticipated unless they are known to be enacted.

  4. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized (valuation allowance).

 

As you can see, the new statement's requirements are based on the liability accounts in the balance sheet. Accordingly this new approach for computing the tax expense of a period is often referred to as the liability method.

 

 

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