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Accounting For Income Taxes

Citations are important for a journal to get impact factor. Impact factor is a measure reflecting the average number of citations to recent articles published in the journal. The impact of the journal is influenced by impact factor, the journals with high impact factor are considered more important than those with lower ones. Impact factor plays a major role for the particular journal. Journal with higher impact factor is considered to be more important than other ones. Impact factor can be calculated as average number of citation divided by recent cited articles published in 2 years. Tax accounting is one of the largest subsets or specializations within the field of accounting. In terms of corporate finance, there are several objectives when it comes to accounting for income taxes and optimizing a company’s valuation. First, a company’s income tax accounting should be in line with its operating strategy. That is, to maximize profits a company must understand how it incurs tax liabilities and adjust its strategies accordingly. Secondly, income tax accounting can enable a company to maintain financial flexibility. There are different effects of funding the company’s operations with debt and/or equity, and a company’s capital structure can influence its tax liability. Knowing these effects will allow the company to plan accordingly and transitively maintain their financial flexibility by keeping their options open. Finally, accounting for tax enables the company to manage cash flow and minimize cash taxes paid. It is beneficial to postpone payment of taxes into the future, as opposed to paying taxes today. A company will want to take tax deductions sooner rather than later to maximize the time value of their money. Tax as recorded in a company’s financial statement rarely ever matches the taxes filed in their tax returns. This is because each item (company financials and tax return) has different purposes, users, and accounting treatment. The company’s financials are intended for investors and lenders, and – as such – are made with application and dependability in mind. In contrast, the tax return is intended for the government or corresponding tax body, and is made with the purpose of adhering to public tax policy. The financial statements report a tax expense, but the true tax payable comes from the tax return. The dichotomy in reporting these two items creates differences that need to be reconciled and accounted for. These differences are either permanent differences, which never reverse, or temporary differences, which are timing differences that will reverse over time. In this method, the deferred income tax amount is based on tax rates in effect when the temporary differences originated. The deferred method is an income-statement-oriented approach. This method seeks to properly match expenses with revenues in the period the temporary difference originated. Note this method is notacceptable under GAAP. Due to the nature of pension plans, accounting for them is rather complicated. The first complication is that pension benefits are payable to retirees in the far future, so it is hard to estimate the amount of future payments.

Last Updated on: Jul 03, 2024

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