This document discusses accounting for income taxes in accordance with ASC 740. ASC 740 aims to identify payable or refundable current year taxes and recognize the tax consequences of future deferred tax liabilities and assets by recording them on the company's balance sheet. It applies to domestic and foreign entities preparing financial statements under U.S. GAAP. ASC 740 requires computing book income under GAAP, taxable income under tax code rules, and any temporary or permanent differences between book and tax income to determine the current and deferred tax provision.

1. Taxes
Facts and Principles in
Accounting Income Taxes

2. Accounting for
Income Taxes
2
• Future cash tax payments and refunds
arising from current and past
transactions are recorded as deferred
taxes
• Liabilities and income tax expenses are
recorded in an attempt to accurately
portray the financial position of the
firm

3. Accounting for
Income Taxes
3
• Follows the General Accepted
Accounting Principles (GAAP)
• US companies follow the Accounting
Standards Codification (ASC) 740 in
accounting and reporting the effects of
their income tax

4. What is
ASC 740?
4
• Tax provision that aims to identify the
payable or refundable taxes for the
current year
• Recognizes the consequences for the
future from the deferred tax liabilities
and assets
• These deferred tax liabilities and assets
are recorded on the company’s balance
sheet as future payable or refundable
income taxes.

5. Scope of
ASC 740
5
• Applies to domestic and foreign entities
in preparing financial statements in
accordance with U.S. GAAP
• Domestic federal income taxes and
foreign, state and local taxes
• An entity’s domestic and foreign
operations that are consolidated,
combined or accounted for by the
equity method.

6. Different
Measures of
Income
6
• Book Income or Pretax Financial Income
- Determined using GAAP
- Income tax that is computed and used in
making financial statements
• Taxable Income
- Identified using the rules and regulations
of the Internal Revenue Code
- Amount that the entity will pay for an
accounting period

7. Measures of
Assets,
Liabilities and
Equities
7
• Temporary Book-Tax Difference
- The finances in the reported tax basis
of an asset or liability in the financial
statements that will ensue in taxable
or deductible amounts
- If income tax expense > income tax
liability, the difference is called
deferred tax liability; otherwise, it is
called deferred tax asset

8. Measures of
Assets,
Liabilities and
Equities
8
• Permanent Book-Tax Difference
- Results of items that are either
recorded in the books but not on tax
returns, or items that are not recorded
in books but are recorded on tax
returns

9. Determining
Income Tax
Provision
9
• Conform the pretax income for
permanent differences
• Determine carryforwards and
temporary differences
• Know the deferred liabilities and
assets

10. Determining
Income Tax
Provision
10
• Assess the need for valuation
allowance for deferred tax assets
• Compute for the deferred income
tax benefits or expenses
• Identify changes to liabilities for
uncertain tax positions

11. Good fortune is what
happens when
opportunity meets with
planning.
- Thomas Alva Edison
11
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Dallas, Texas 75001
Phone: 214-545-3965
Fax: 214-545-3966
www.bkmsh.com
For more information about Facts and Principles in Accounting for Income Taxes, please visit: BKMSH Accounting for Income Taxes