How Income And Its Impact On Financial Reporting

1046 WordsMay 8, 20175 Pages
How Income taxes developed in the financial reporting I. Intro A. Why I am choosing this topic Effectively managing a company is exclusively important for executives to understand both U.S general accepted accounting principles (GAAP) that govern financial reporting and tax implications of transactions. Corporations with a better understanding of Internal Revenue Code are able to deduct their tax expenses to the government, which will result in more cash to pursue profitable business opportunities. Since the GAAP and IRC differ from each other in objectives, many differences exist between recognized for tax purposes and recognized for financial purposes. This project is designed to deeply research on how these differences affect each…show more content…
After more than 10 years updates on FASB statements, finally in February 1992, FASB Statement that establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years. It requires an asset and liability approach for financial accounting and reporting for income taxes was issued which was thought to illustrate the whole area of Deferred Taxes. III. Approaches to improve financial reporting of Income taxes A. Liability Approach The liability approach, which is that a deferred tax liability represents the increase in taxes payable or decrease in taxes refundable while a deferred tax asset represents the decrease in taxes payable or an increase in taxes refundable in future years as a result of temporary differences and carryforwards that exist at the end of the current year (ASC 740-10-10-3). The concept requires mesasuring the following tax amounts: • The amount of payable or refundable taxes in the future years, including effects of reversing temporary differences and carryforwards • The amount of payable or refundable taxes in the future years, excluding effects of reversing temporary differences and carryforwards The difference existing between these two measurements is because in most
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