Accounting Methods

Question 1

Why doesn’t the IRS follow GAPP?

Answer 1

GAAP is attempting to protect investors and NOT overstate income. The IRS is attempting to create revenue and would like income to be recognized by a company faster (accelerate income).

Question 2

What are our main goes and tax adviors from a I/S and B/S prospective.

Answer 2

Our goals are to look at the B/S debits and try to turn them into I/S debits (more deductions) AND what I/S credits we can turn to B/S items to defer income.

Question 3

What are some common examples of temporary adjustments?

Answer 3

Depreciation, Asset Disposals gains/losses, Amortization, UNICAP, Prepaids, Accruals, Bad Debt

Question 4

What are some common examples of permanent adjustments?

Answer 4

M&E, Non-deductible Dues, Fed Tax, Penalties, Political Contributions, Officers Life Insurance

Question 5

What are the characteristics of a temporary difference?

Answer 5

The difference will reverse itself in the future.

Computation of py difference is key to compute the cy difference

Must know the taxpayers accounting method to properly compute

Most book/tax differences fall into this category

Can fix on 3115.

Question 6

What are the characteristics of a permanent difference?

Answer 6

Stands alone in a given year.

Does not impact prior year or future returns.

Must file an amended return to fix in py.

Question 7

Tax Income < Book Income

Answer 7

Favorable

Question 8

Tax Deduction > Book Deduction

Answer 8

Favorable

Question 9

Tax Income > Book Income

Answer 9

Unfavorable

Question 10

Tax Deduction < Book Deduction

Answer 10

Unfavorable

Question 11

What is a Cumulative Difference?

Answer 11

The total timing differences of tax adjustments.

Question 12

What creates a Deferred Tax Asset?

Answer 12

When book has recognized an expense before tax (unfavorable cumulative)(better way to accelerate expenses for tax?).

OR

When tax has recognized income before book (unfavorable cumulative)(better way to defer income?)

• You want to find these and say what can be done to reverse them so they have current tax benefit.

Question 13

What creates a Deferred Tax Liability?

Answer 13

When tax recognizes an expense before book (favorable cumulative).

OR

When book recognizes income before tax income (favorable cumulative).

OR

Question 14

When you have a cumulative unfavorable adjustment what type of deferred tax is created?

Answer 14

DTA

Question 15

When you have a cumulative favorable adjustment what type of deferred tax is created?

Answer 15

DTL