COMMERCE 1AA3 Lecture Notes - Lecture 37: Deferred Income, Accrual
7 Dec 2016
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Document Summary
True earnings can be measured only when business is liquidated. Since users of financial information need more timely disclosure, reported earnings are based on estimates. Some estimates are straightforward, but many are too subjective. Management has incentives to can exploit these estimates: compensation, debt covenants, and political scrutiny. Taxes take away from your disposable income. Nes and penalties are not allowed to be deducted. Income tax expense is treated as an expense deducted from income. The cra calculates income on the cash basis with some exceptions: depreciation expense is an example. Income tax expense = accounting income x tax rate. Income tax payable = taxable income x tax rate. When they are not equal, balance the journal entry either with deferred income tax asset or deferred income tax liability. 2016: provided services for 000: 4000 cash and 6000 on account.
