0 like 0 dislike
423 views
in Articles by
While some lines of an income statement depend on estimates or forecasts, the interest expense line is a basic equation. When accounting for income tax expense, however, a business can use different accounting methods for some of its expenses than it uses for calculating its taxable income. The hypothetical amount of taxable income, if the accounting methods used were used in the tax return is calculated. Then the income tax based on this hypothetical taxable income is fitured. This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.

Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.

It's incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company's financial reports on many occasions. It's therefore critical that any officer or manager in a company be thoroughly familiar with how the company's financial statements are prepared. Accounting methods and how they're implemented vary from business to business. A company's methods can fall anywhere on a continuum that's either left or right of center of GAAP.

Please log in or register to reply to this topic.

Related topics

0 like 0 dislike
0 replies 419 views
posted in Articles by Butcherry
0 like 0 dislike
0 replies 446 views
posted in Articles by PlaySeal
0 like 0 dislike
0 replies 419 views
posted in Articles by UncleRhino
0 like 0 dislike
0 replies 438 views
posted in Articles by SilkPredator
0 like 0 dislike
0 replies 433 views
posted in Articles by nicejone
0 like 0 dislike
0 replies 472 views
posted in Articles by PlushSeal
0 like 0 dislike
0 replies 374 views
posted in Articles by Oystrich
0 like 0 dislike
0 replies 491 views
posted in Articles by Herogue
0 like 0 dislike
0 replies 359 views
posted in Articles by AfternoonFay
0 like 0 dislike
0 replies 678 views
posted in Articles by Richard S.
0 like 0 dislike
0 replies 432 views
posted in Articles by Robottom
0 like 0 dislike
0 replies 435 views
posted in Articles by Catnip
0 like 0 dislike
0 replies 504 views
posted in Articles by Tomatoad
0 like 0 dislike
0 replies 1,485 views
posted in Articles by Octopixy
0 like 0 dislike
0 replies 591 views
posted in Articles by HairyMagpie
0 like 0 dislike
0 replies 575 views
posted in Articles by ShowDolphin
0 like 0 dislike
0 replies 563 views
posted in Articles by GrizzlyFlash
0 like 0 dislike
0 replies 552 views
posted in Articles by VoyageHooper
0 like 0 dislike
0 replies 595 views
posted in Articles by BeautifulWolf
0 like 0 dislike
0 replies 585 views
posted in Articles by FrighteningTwinkles
0 like 0 dislike
0 replies 568 views
posted in Articles by Wallaby
0 like 0 dislike
0 replies 557 views
posted in Articles by Falconjurer
0 like 0 dislike
0 replies 536 views
posted in Articles by Emufasa
0 like 0 dislike
0 replies 561 views
posted in Articles by Celestiger
0 like 0 dislike
0 replies 582 views
posted in Articles by PositiveVoid
0 like 0 dislike
0 replies 533 views
posted in Articles by OpinionOwl
0 like 0 dislike
0 replies 547 views
posted in Articles by TrustyKitty
0 like 0 dislike
0 replies 577 views
posted in Articles by SleepyFledgling
0 like 0 dislike
0 replies 543 views
posted in Articles by GroundHurricane
0 like 0 dislike
0 replies 546 views
posted in Articles by SwiftHeroine
0 like 0 dislike
0 replies 546 views
posted in Articles by Sumogre
0 like 0 dislike
0 replies 557 views
posted in Articles by Mosquiche
0 like 0 dislike
0 replies 518 views
posted in Articles by Tabooccaneer
0 like 0 dislike
0 replies 535 views
posted in Articles by Sassassin
0 like 0 dislike
0 replies 510 views
posted in Articles by GamerAlpaca
0 like 0 dislike
0 replies 609 views
posted in Articles by MysteryWasp
0 like 0 dislike
0 replies 507 views
posted in Articles by GreedySmile
0 like 0 dislike
0 replies 558 views
posted in Articles by BumblingBee
0 like 0 dislike
0 replies 505 views
posted in Articles by Dingopher
0 like 0 dislike
0 replies 464 views
posted in Articles by HairySeahorse
0 like 0 dislike
0 replies 459 views
posted in Articles by MagicalCyborg
0 like 0 dislike
0 replies 551 views
posted in Articles by HarshThunder
0 like 0 dislike
0 replies 523 views
posted in Articles by Knighthawk
0 like 0 dislike
0 replies 411 views
posted in Articles by Scorpeon
0 like 0 dislike
0 replies 505 views
posted in Articles by Knighttime

55,459 topics

594 replies

3 comments

1,623,835 users

Connect with us:
...