Accounting for Income Taxes

These flashcards cover key vocabulary related to accounting for income taxes, focusing on terminology, definitions, and important concepts that are essential for understanding the subject.

Accounting for Income Taxes

The process of accounting for the impact of income taxes on financial statements and recognizing the tax effects of transactions.

Temporary Differences

Differences between pretax accounting income and taxable income that arise when income or expenses are recognized in different periods for accounting and tax purposes.

Deferred Tax Assets (DTAs)

Arise when financial reporting (GAAP) income is less than taxable income, indicating taxes will be recoverable in the future.

Deferred Tax Liabilities (DTLs)

Arise when financial reporting (GAAP) income is greater than taxable income, indicating taxes owed will be payable in the future.

Net Operating Losses (NOLs)

Occur when tax-deductible expenses exceed taxable revenues, allowing companies to offset future taxable income.

Valuation Allowance

Reduces deferred tax assets when it is likely that some portion will not be realized due to insufficient future taxable income.

Permanent Differences

Differences between GAAP income and taxable income that will never reverse, such as tax-exempt interest income.

Instalment Sales

Sales that allow for the recognition of income when cash is collected rather than when the sale is made, creating temporary differences.

Accrued Expenses

Expenses that have been incurred but not yet paid, which can create temporary differences for tax purposes.

MACRS

Modified Accelerated Cost Recovery System, a method of depreciation for tax purposes that allows greater deductions in the earlier years.