ACCOUNTING FOR INCOME TAXES Flashcards
This is the income that appears in the income statement.
Accounting Income
What is the basis of Accounting Income?
GAAP
It is the income appearing on the ITR?
ITR = Income Tax Returns
Taxable Income
What is the basis of Taxable Income?
Tax Laws
Cash Basis
TRUE OR FALSE?
Income tax expense reported in the statement of comprehensive income may be different from the amount of income tax required to be paid to the BIR.
True
This type of difference arises when income and expenses enter in the computation of either accounting income or taxable income but not both.
Permanent Differences
They are the items excluded from the income tax return.
These differences include timing differences, wherein income and expenses are recognized for financial reporting purposes in one period but are recognized for taxation purposes in another period.
Temporary Differences
What are the two types of permanent differences?
- Non-taxable Revenues
- Non-deductible Expenses
What are the two types of temporary differences?
- Taxable Temporary Differences
- Deductible temporary differences
These are recognized as revenue in Accounting, but not recognized as revenue in the BIR.
Non-taxable revenues
These are expenses deducted under accounting purposes, but cannot be deducted under the BIR.
Non-deductible expenses
These are future taxable amounts.
Taxable Temporary Differences
These are future deductible amounts.
Deductible Temporary Differences
What temporary difference brings deferred tax liability?
Taxable Temporary Differences
Note: This is a bigat in the future
What temporary difference brings deferred tax asset?
Deductible Temporary Differences
Note: This is a benefit in the future.
What is the solution to convert the accounting income into taxable income?
Accounting Income
Permanent Differences
Less: Non-Taxable Revenues
Add: Non-Deductible Expenses
—————————–
Equal: Income Subject to Tax
Temporary Differences
Less: Future Taxable Amounts
Add: Future Deductible Amounts
—————————–
Equal: Taxable Income
What is not DTL?
- Goodwill
- Asset/Liability that does not affect accounting or taxable income
- Undistributed profit of subsidiary, associate, or joint venture
Why: There are no cash transactions
This is measured using the tax rate that has been enacted and effective at the end of the reporting period.
Current Taxes
TRUE OR FALSE:
You can reclassify the deferred tax liability and deferred tax asset to current.
FALSE.
TRUE OR FALSE:
Operating losses carry forward when it comes to deferred tax asset.
TRUE.
What are the two conditions that a DTA can be offset against a DTL?
DTA: Deferred Tax Asset, DTL: Deferred Tax Liability
WHEN:
1. The DTL and DTA are levied by the same tax authority
2. The entity has the right to offset
WHAT IS THE CLASSIFICATION TO FORMULA OF TAXABLE INCOME?
Interest Income
What is the treatment?
PERMANENT DIFFERENCE:
Non-taxable Income
TREATMENT: Deduct
WHAT IS THE CLASSIFICATION TO FORMULA OF TAXABLE INCOME?
Life insurance premium
(Entity is the beneficiary)
PERMANENT DIFFERENCE:
Non-deductible Expenses
Treatment: Add
WHAT IS THE CLASSIFICATION TO FORMULA OF TAXABLE INCOME?
Tax penalties and surcharges
PERMANENT DIFFERENCE:
Non-deductible Expenses
Treatment: Add
