Accounting for Income Taxes - 1875 Words

According to Accounting Theory: Contemporary Accounting Issues by Evans, accountants have developed two alternative approaches to accounting for income taxes, which are the cash method and the allocation method. The cash method is described as a simple and direct approach. The amount of income taxes actually paid for the year is reported on the Income Statement. The amount comes from the firm s income tax return and fit is not adjusted in any way. Therefore, the firm s actual transaction to record its income tax liability is the basis for the amount of the income tax expense reported on the Income Statement. The allocation method is a bit different. The actual amount of tax that is paid in the year is ignored when it comes to†¦show more content†¦Because tax allocation was so complex at the time due to changes in the rates, FASB established an implementation group for tax allocation in 1988 and deferred implementation of SFAS No. 96. After FASB issued a special report in 1989 on implementation issues, complications led to the deferral of SFAS No. 96 again, until 1992, which shows the difficulty of obtaining a resolution on tax allocation issues. SFAS NO. 109 FASB issued this statement to replace the complex SFAS No. 96 which was concerned with the recognition of deferred income taxes. SFAS No. 109 requires that deferred tax liabilities for all taxable temporary differences and deferred tax assets for all deductible temporary differences and tax credit and operating loss carry forwards be recognized. The Balance Sheet approach is used. Deferred income tax assets and liabilities represent assets and liabilities instead of residual deferred charges and credits. Under the liability method, an enterprise recognizes a deferred tax asset or a deferred tax liability for the future income tax effects of the difference between the tax basis of the asset or liability and its reported amount in the financial statements. Accounting for income taxes continues to be a source of controversy and difficulty for accounting standard-setters. This is corroborated by the fact that the APB and the FASB have three financialShow MoreRelatedHow Income And Its Impact On Financial Reporting1046 Words   |  5 PagesHow Income taxes developed in the financial reporting I. Intro A. Why I am choosing this topic Effectively managing a company is exclusively important for executives to understand both U.S general accepted accounting principles (GAAP) that govern financial reporting and tax implications of transactions. 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Therefore, it canRead MoreIntermediate Accounting 14 Edition Test Bank – by Kieso1044 Words   |  5 PagesIntermediate Accounting 14 Edition Test Bank – By Kieso Follow Link Below To Get Tutorial https://homeworklance.com/downloads/intermediate-accounting-14-edition-test-bank-by-kieso/ Description: Chapter 1 Financial Accounting and Accounting Standards Chapter 2 Conceptual Framework Underlying Financial Accounting Chapter 3 The Accounting Information System Chapter 4 INCOME STATEMENT AND RELATED INFORMATION Chapter 5 BALANCE SHEET AND STATEMENT OF CASH FLOWS Read MoreTemporary Differences1346 Words   |  6 PagesDifferences SFAS No. 109, â€Å"Accounting for Income Taxes,† requires inter-period tax allocation for temporary differences. Required: a. Define the term temporary difference. b. List the examples of temporary differences contained in SFAS No. 109. c. Defend inter-period income tax allocation. a. 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