Analysis of Income Taxes Flashcards
What is accounting profit?
Income before tax expense.
Aka EBT or Pre-tax income.
What is “taxable income”?
The portion of an entity’s income that is subject to income taxes under the tax laws of its jurisdiction.
What is “Income Tax Payable”?
The income tax owed by the company on the basis of taxable income.
What is “Income Tax Paid”?
The actual amount paid for income taxes in the period. Not a provision, but an actual cash outflow.
What is the “Tax Base”?
The amount at which an asset or liability is valued for tax purposes.
What is the “Carrying Amount”?
The amount at which an asset or liability is valued according to accounting principles.
What are “Taxable temporary differences”?
Temporary differences that result in a taxable amount in a future period when determining the taxable profit as the balance sheet item is recovered or settled.
What are “Deferred Tax Liabilities”?
A balance sheet liability that arises when a deficit amount is paid for income taxes relative to accounting profit.
The taxable income is less than the accounting profit AND income tax payable is less than tax expense.
What are “Deductible temporary differences”?
Temporary differences that result in a reduction of or deduction from taxable income in a future period when the balance sheet item is recovered or settled.
What is a “Deferred Tax Asset”?
- A balance sheet asset that arises when an excess amount is paid for income taxes relative to accounting profit.
- The taxable income is higher than accounting profit and income tax payable exceeds income tax expense.
- The company expects to recover the difference during the course of future operations when tax expense exceeds income tax payable.
What are “Permanent Differences”?
Differences that arise between tax and financial reporting of revenue (expenses) that will not be reversed at some future date. These result in a difference between the company’s effective tax rate and statutory tax rate and do not result in a deferred tax item.
What are some examples of permanent differences?
- Interest income on tax-exempt securities.
- Fines and penalties paid to governments for violation of the law.
What is “Tax expense”?
An aggregate of an entity’s income tax payable (or recoverable in the case of a tax benefit) and any changes in differed tax assets and liabilities.
It is essentially the income tax payable determined based on accounting profit rather than taxable income.
