CPA Financial Accounting and Reporting (FAR)

Certified Public Accountant Financial Accounting and Reporting examination.

Conceptual Framework of Financial AccountingFinancial Statement Preparation and PresentationRevenue Recognition
Accounting for Income TaxesLeases: Lessee and Lessor AccountingBusiness Combinations and Consolidation
Analyzing Financial StatementsApplying GAAP and IFRS to Real-World ScenariosEthics and Professional Responsibility in Financial Reporting
Mastering Multiple-Choice QuestionsTime Management on Exam DayApproaching Simulations and Case Studies
Conceptual Framework...Financial Statement ...Revenue RecognitionAccounting for Incom...Leases: Lessee and L...Business Combination...Analyzing Financial ...Applying GAAP and IF...Ethics and Professio...Mastering Multiple-C...Time Management on E...Approaching Simulati...
Advanced Topics

Accounting for Income Taxes

Navigating Deferred Taxes

Income tax accounting involves recognizing both current and deferred tax consequences of transactions. Differences between accounting income and taxable income create deferred tax assets or liabilities.

Key Concepts

  • Temporary Differences: Differences between the carrying amount of an asset or liability in the balance sheet and its tax base.
  • Deferred Tax Asset (DTA): Future tax benefit from deductible temporary differences.
  • Deferred Tax Liability (DTL): Future tax obligation from taxable temporary differences.

The formula for deferred tax is:

\[ \text{Deferred Tax} = (\text{Carrying Amount} - \text{Tax Base}) \times \text{Tax Rate} \]

Real-World Application

Companies need to analyze future tax consequences, especially for items like depreciation, warranties, and leases.

Key Formula

\[\text{Deferred Tax} = (\text{Carrying Amount} - \text{Tax Base}) \times \text{Tax Rate}\]

Examples

  • A company with accelerated tax depreciation recognizes a deferred tax liability.

  • Accrued warranty expenses create deferred tax assets for future deductions.

In a Nutshell

Accounting for income taxes bridges the gap between financial and tax reporting, recognizing future tax impacts.

Key Terms

Deferred Tax Asset
A balance sheet item representing future tax savings.
Deferred Tax Liability
A balance sheet item representing future tax payments.
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Leases: Lessee and Lessor Accounting