Chapter 18: Income Taxes

Income Tax Expense (GAAP - Accrual)

The expense shown on the income statement

Income Tax Payable (IRS - Cash Basis)

What the company actually pays to the IRS

MACRS

Modified Accelerated Cost Recovery System

True or False: The IRC requires MACRS and its numbers are often larger than depreciation

True

GAAP requires future warranty expenses to be ___________

Estimated and accrued

The IRC requires actually warranty costs to be ____________

Deducted from taxable income

US GAAP reflects the needs of ____________

General users: shareholders, creditors, etc.

The IRC reflects the needs and objectives of _____________

The US government

Temporary Difference

The difference between the tax basis of an asset or liability and its reported carrying or book value in the GAAP-based financial statements that will result in taxable amounts or deductible amounts in future years

A taxable amount ________ taxable income in future years

Increases

A deductible amount _________ taxable income in future years

Decreases

Deferred Tax Liability

The increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year

Deferred Tax Asset

The increase in taxes refundable (or saved) as a result of deductible temporary differences existing at the end of the current year.