In this chapter we explore the financial accounting and reporting standards for the effects of income taxes. The discussion defines and illustrates temporary differences, which are the basis for recognizing deferred tax assets and deferred tax liabilities, as well as non-temporary differences, which have no deferred tax consequences. | ACCOUNTING FOR INCOME TAXES Chapter 16 © 2013 The McGraw-Hill Companies, Inc. Chapter 16: Accounting for Income Taxes. Tax laws form the set the rules for preparing tax returns. Financial statement income tax expense. Income taxes payable. IFRS provides the basis for preparing financial statements. Usually. . . Results in . . . The objective of accounting for income taxes is to recognize a deferred tax liability or deferred tax asset for the tax consequences of amounts that will become taxable or deductible in future years as a result of transactions or events that already have occurred. Deferred Tax Assets and Deferred Tax Liabilities Part I IFRS provides the basis for preparing financial statements. Following these principles result in financial statement income tax expense. Part II Tax laws form the set of rules for preparing tax returns. Following the laws results in the income tax payable to the relevant authorities. Usually, the income tax expense determined using the International Financial Reporting Standards and the income tax payable determined using the relevant tax laws do not equal. The rules used to determine taxable income and those for financial reporting purposes often cause amounts to be included in taxable income in a year later—or earlier—than the year in which they are recognized for financial reporting purposes, or not to be included in taxable income at all. For example, interest income is reported on the tax return as it actually is received. This means taxable income might be less than accounting income in the year that the interest accrues but higher than accounting income in later years when the interest income is collected. The situation just described creates what’s referred to as a temporary difference between pretax accounting income and taxable income. The objective of accounting for income taxes is to recognize a deferred tax liability or deferred tax asset for the tax consequences of amounts that will become taxable or . | ACCOUNTING FOR INCOME TAXES Chapter 16 © 2013 The McGraw-Hill Companies, Inc. Chapter 16: Accounting for Income Taxes. Tax laws form the set the rules for preparing tax returns. Financial statement income tax expense. Income taxes payable. IFRS provides the basis for preparing financial statements. Usually. . . Results in . . . The objective of accounting for income taxes is to recognize a deferred tax liability or deferred tax asset for the tax consequences of amounts that will become taxable or deductible in future years as a result of transactions or events that already have occurred. Deferred Tax Assets and Deferred Tax Liabilities Part I IFRS provides the basis for preparing financial statements. Following these principles result in financial statement income tax expense. Part II Tax laws form the set of rules for preparing tax returns. Following the laws results in the income tax payable to the relevant authorities. Usually, the income tax expense determined using the .
