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Taxes Payable - Income Taxes and Property Taxes Payable in Financial Accounting
The federal government, most state governments, and some cities and towns levy a tax on a corporation’s income. The amount of the liability depends on the results of a corporation’s operations, which are often not known until after the end of the corporation’s fiscal year. However, because income taxes are an expense in the year in which income is earned, an adjusting entry is necessary to record the estimated tax liability. Sole proprietorships and partnerships do not pay income taxes. However, their owners must report their share of the firm’s income on their individual tax returns.
Property taxes are a main source of revenue for local governments. They are levied annually on real property, such as land and buildings, and on personal property, such as inventory and equipment. Because the fiscal years of local governments rarely correspond to a company’s fiscal year, it is necessary to estimate the amount of property taxes that applies to each month of the year.
XYZ’s current liabilities shown in figure 7.1 in "Types of Current Liabilities" include accrued income taxes in the amount of $94.1 million. Business corporations are taxable entities and must file tax returns with the federal and state governments. In fiscal 2000, XYZ reported income before taxes of $904.1 million, and was assessed $343.4 million in income taxes. Of this amount, $94.1 million remains unpaid at September 30, 2000. The remaining $249.3 million ($343.4 million tax expense less $94.1 million remaining tax liability) was paid before the balance sheet date.
Current Liabilities Topics
Managing Liquidity and Cash Flows
- Accounts payable
- Discounts in Current Liabilities
- Notes Payable
- Accrued Liabilities (Accrued Expenses)
- Current Maturities/Portion of Long-Term Debt
- Taxes Payable
- Accrued Restructuring Costs
- Advance Payments from Customers
- Obligations for Warranties
Commitments, Contingencies and Risks
