Textbook Problem

What source is used to determine income tax expense, and what source is used to determine income tax paid?

To determine

Identify the source used to determine income tax expense and income tax paid.

Explanation of Solution

Internal Revenue Code (IRC): IRC is the source of tax laws, the legislative authority and is prepared by the Department of Treasury and the Internal Revenue Service. IRC regulates tax like income tax, estate tax, payroll tax, and gift tax.

GAAP: GAAP stands for “Generally Accepted Accounting Principles”. It provides the accounting rules and standards those are followed across the globe for reporting practice.

The income tax expense is computed using GAAP, while the income tax paid is computed using IRC.