A. Describe the diff. between Accting profit and taxable income, and define key terms, including deferred tax assets, deferred liabilities, valuation allowance, taxes payable, and income tax expense Flashcards
Taxable Income
Income subject to tax based on the tax return
Taxes Payable*
The Tax Liability; current tax expense on BS caused by taxable income
Income Tax Paid
Actual CF for income taxes including payments or refunds from other years
Tax Loss Carry Forward
A current or past loss than van be used to reduce taxable income (thus, taxes payable) in the future. It could result in a deferred tax asset.
Tax Base
Net amount of an asset or liability used for tax reporting purposes
Accounting PRofit (Acct. profit. v taxable inc - acct prof is pretax and based on Fin. accting standards. Taxable inc is based on the tax return)
PRetax financial income based on the financial accounting standards; income before tax and earnings before tax
Income Tax Expense*
Recognized on IS, includes taxes payable and changes in deferred tax assets and liabilities (DTA and DTL)
Income tax expense equation = taxes payable + changeDTL - changeDTA
Deferred Tax Liabilities*
Record on BS, =excess of Inc. T expense - taxes payable, expect these to result in future cash outflows
Deferred Tax Assets*
Record on BS, expect future cash inflows, = Excess Taxes payable - income tax expense (just reverse the deferred liab). Can result from a tax loss carry forward.
Valuation Allowance* (Reduces DTA assuming the assets won’t be realized)
Reduction of deferred tax assets based on the likelihood the assets will not be realized.
Carrying Value
Net balance sheet value of an asset or liability
Permanent difference
Taxable income;tax return - pretax income;income state, not reversible
Temporary difference
Tax base - CV of A or L that will = taxable amounts (G’s) or deductible amounts (Losses) in the future.
