Ch 16 Acct for income taxes Flashcards Preview

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Flashcards in Ch 16 Acct for income taxes Deck (6)
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1
Q

Def tax asset

A

Temporary difference between accounting tax expense and actual tax expense.
Future deductible amount
Pretax income < taxable income

2
Q

Def Tax liability

A

Temporary difference between accounting tax expense and actual tax expense.
Future Tax Amount
Pretax income > taxable income

3
Q

Loss contingency journal entries

A

Expense

Liability

4
Q

Why temporary differences?

A

Temporary differences arise because there are two different purposes of Financial statements and tax.

GAAP wants accrual because the users of the financial statements need to understand the current health of the company

IRS wants to collect revenue, on a cash basis to raise national funds

5
Q

Permanent differences

A

Differences between GAAP and IRS expenses that tax doesn’t recognize

Example: life insurance, fees and obligations, Municipal bonds

6
Q

Which are preferable for management? deferred tax asset or liability?

A

liability because we want to delay paying taxes as long as possible.