Module 27.1 & 27.2: Tax Terms & Deferred Tax A&L Flashcards
What is taxable income?
income subject to tax based on the tax return
What is taxes payable?
the tax liability caused by taxable income, also known as current tax expense (NOT INCOME TAX)
What is income tax paid?
the actual cash flow of income taxes including payments and refunds from other years
What is tax loss carryforward?
a current or past loss that can be used to reduce taxable income in the future.
What is tax base?
Net amount of an asset or liability used for tax reporting purposes.
What is accounting profit?
pretax financial income based on financial accounting standards.
What is income tax expense? Formula?
income tax expense is recognized int he income statement that includes taxes payable and changes in deferred tax assets and liabilities (DTA and DTL).
income tax expense = taxes payable + change in DTL - change in DTA.
What are deferred tax liabilities?
balance sheet amounts that result from an excess of income tax expense over taxes payable that are expected to result in future cash flows.
What are deferred tax liabilities?
balance sheet amounts that result from an excess taxes payable over income tax expense that are expected to be recovered from future operations.
What is valuation allowance?
reduction of deferred tax assets based on the liklihood the assets will not be realized
What is tax carrying value?
net balance sheet value between tax asset and liability
What is a permanent and temporary difference?
permanent - difference between taxable income and pretax income that will not reverse
temporary - difference between taxable income and pretax income that will reverse.
What are six possible moments that the tax treatment and the accounting treatment could be different/
1) timing of revenue and expense recognition
2) certain revenues and expenses recognized in IS but not in tax return
3) assets / liabilities having different carrying amounts
4) gain or loss recognition in the IS differs from tax return
5) tax losses from prior periods may offset future taxable income
6) financial statement adjustments may not affect the tax return or may be recognized in different periods.
When is a deferred tax liability created? When are they expected to reverse? When are they most usually created?
created when income tax expense (income statement) is greater than taxes payable due to temporary differences.
Expected to reverse and expect future cash outflows.
most often created when an accelerated depreciation method is used on tax return, and straight line used on income statement.
What is a deferred tax asset? When are they expected to reverse? When are they most usually created?
created when taxes payable are greater than income expense in the IS. expected to be reversed through future operations, will be a future tax savings.
Usually created by post-employment benefits, warranty expenses, and tax loss carry forwards.
