Objective-type Question:According to the Accounting Tax Principle, when should taxes be recognized and accounted for?a) In the period they are paidb) In the period they are incurredc) In the period of the tax assessmentd) In the period of financial statement preparation Accounting Tax Principle: Understanding the BasicsIn the realm of accounting, the Accounting Tax Principle serves as a fundamental guideline for recognizing andaccounting for taxes in a manner that aligns with the accrual basis of accounting. This principle is rooted in the idea thattaxes should be recognized and recorded in the financial statements in the period in which they are incurred, regardlessof when the actual payment occurs. This approach ensures a more accurate representation of an entity's financialperformance by matching expenses, in this case, taxes, with the revenue they help generate.Application of the Accounting Tax Principle:When applying the Accounting Tax Principle, businesses consider various types of taxes, including income taxes, salestaxes, and other levies imposed by governmental authorities. The principle guides organizations to reflect the taxliability on their financial statements during the period in which the taxable event occurs or when the economic activitygiving rise to the tax obligation takes place. This stands in contrast to the cash basis of accounting, where taxes arerecognized only when they are paid.Key Components and Considerations:In implementing the Accounting Tax Principle, companies need to consider not only income taxes but also other taxobligations specific to their operations. This includes understanding the timing and nature of tax events, such as taxableincome recognition and the accrual of other taxes like property taxes or sales taxes. Proper documentation andadherence to relevant tax laws and regulations are essential to ensure compliance while applying the principleaccurately.Impact on Financial Statements:The application of the Accounting Tax Principle has a direct impact on an organization's financial statements. Byrecognizing taxes in the period they are incurred, the income statement reflects a more accurate portrayal of thecompany's profitability. This principle contributes to transparency and aids stakeholders in making informed decisionsabout the entity's financial health.

The accrual base of accounting records earnings and charges when they're earned or incurred, anyhow…

Objective-type Question: According to the Accounting Tax Principle, when should taxes be recognized and accounted for? a) In the period they are paid b) In the period they are incurred c) In the period of the tax assessment d) In the period of financial statement preparation

Objective-type Question: According to the Accounting Tax Principle, when should taxes be recognized and accounted for? a) In the period they are paid b) In the period they are incurred c) In the period of the tax assessment d) In the period of financial statement preparation

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

Question

Accounting Tax Principle: Understanding the Basics
In the realm of accounting, the Accounting Tax Principle serves as a fundamental guideline for recognizing and
accounting for taxes in a manner that aligns with the accrual basis of accounting. This principle is rooted in the idea that
taxes should be recognized and recorded in the financial statements in the period in which they are incurred, regardless
of when the actual payment occurs. This approach ensures a more accurate representation of an entity's financial
performance by matching expenses, in this case, taxes, with the revenue they help generate.
Application of the Accounting Tax Principle:
When applying the Accounting Tax Principle, businesses consider various types of taxes, including income taxes, sales
taxes, and other levies imposed by governmental authorities. The principle guides organizations to reflect the tax
liability on their financial statements during the period in which the taxable event occurs or when the economic activity
giving rise to the tax obligation takes place. This stands in contrast to the cash basis of accounting, where taxes are
recognized only when they are paid.
Key Components and Considerations:
In implementing the Accounting Tax Principle, companies need to consider not only income taxes but also other tax
obligations specific to their operations. This includes understanding the timing and nature of tax events, such as taxable
income recognition and the accrual of other taxes like property taxes or sales taxes. Proper documentation and
adherence to relevant tax laws and regulations are essential to ensure compliance while applying the principle
accurately.
Impact on Financial Statements:
The application of the Accounting Tax Principle has a direct impact on an organization's financial statements. By
recognizing taxes in the period they are incurred, the income statement reflects a more accurate portrayal of the
company's profitability. This principle contributes to transparency and aids stakeholders in making informed decisions
about the entity's financial health.

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