Income Tax Expense Financial Statement

Income tax expense is the amount of expense that a business recognizes in an accounting period for the government tax related to its taxable profit the amount of income tax expense recognized is unlikely to exactly match the standard income tax percentage that is applied to business income since there are a number of differences between the reportable amount of income under the gaap or ifrs.

Income tax expense financial statement. Generally a profitable regular corporation s financial statements will report both income tax expense and a current liability such as income taxes. You ve presented your operating results the very core results of your business and everything supporting it and now you show what s the extra bit you do with your funds. Income statement is prepared on the accruals basis of accounting. Another carefully watched indicator of profitability earnings garnered before the income tax expense is an important bullet in the income statement.

What is income tax expense on income statement. Income tax expense is a type of expense which is to be paid by every person or organization on the income earned by them in each financial year as per the norms prescribed in the income tax laws and it results in the outflow of cash as the liability of income tax is paid out through bank transfers to the income tax department. The accrual method of accounting requires you to show expenses in the period that the expense is incurred rather than in the period that the expense is paid. Entering negative liability if a business is fortunate enough to have a negative tax liability due to tax credits the entries vary depending on how the owner wishes to report this.

Financial expenses and income on your income statement are the last group of results presented just after the operating profit. The accounting and financial reporting of a regular corporation s income taxes is complicated because the accounting principles are likely to be different from the income tax laws and regulations. Income tax expense is an income statement account that you use to record federal and state income tax costs. Has a profit as per profit loss statement is 5000 before giving the effect of depreciation and as per the depreciation rate is 20 as per financial reporting purpose and 10 as per income tax purpose.

A corresponding credit entry is then made to the income tax expense account decreasing the amount of expenses for the current year.