Tax accrual question - asset or liability?

USA Discussion in 'General Accountancy Discussion' started by KSitton, Aug 11, 2017.

  1. KSitton

    KSitton

    Joined:
    Aug 11, 2017
    Messages:
    5
    Likes Received:
    0
    Hello,

    I would like to create an accrual account on our balance sheet for taxes that are due and payable for the current year and expense a portion due on a monthly basis so there is not a large hit on our monthly P&L statement. The issue is that we don't actually receive the bill until after April. So I'm unsure as to whether I should be creating an asset or liability account. I believe it should be a liability account, since we won't know the exact amount to be paid until April, but was hoping for confirmation.

    Thank you!
     
    KSitton, Aug 11, 2017
    #1
    1. Advertisements

  2. KSitton

    Drmdcpa

    Joined:
    Aug 2, 2017
    Messages:
    72
    Likes Received:
    1
    Asset v liability? Really? How could an amount owed be an asset?
     
    Drmdcpa, Aug 11, 2017
    #2
    1. Advertisements

  3. KSitton

    KSitton

    Joined:
    Aug 11, 2017
    Messages:
    5
    Likes Received:
    0
    Mid year we pay the bill in full, so at that point we've paid in advance. Just looking for some support / clarification. Thank you for the help.
     
    KSitton, Aug 11, 2017
    #3
  4. KSitton

    Drmdcpa

    Joined:
    Aug 2, 2017
    Messages:
    72
    Likes Received:
    1
    Oic. Prepaid tax is an asset.
     
    Drmdcpa, Aug 11, 2017
    #4
  5. KSitton

    KSitton

    Joined:
    Aug 11, 2017
    Messages:
    5
    Likes Received:
    0
    Mid year we pay the bill in full, so at that point we've paid in advance. Just looking for some support / clarification. Thank you for the help.
     
    KSitton, Aug 11, 2017
    #5
  6. KSitton

    KSitton

    Joined:
    Aug 11, 2017
    Messages:
    5
    Likes Received:
    0
    I think the issue I'm looking for clarification on is that from Jan-May I would be accruing for the tax (liability) and paying the entire bill for the year in Jun, at which point it would be prepaid for the remaining months within the year (prepaid). So which is the appropriate method?
     
    KSitton, Aug 11, 2017
    #6
  7. KSitton

    Drmdcpa

    Joined:
    Aug 2, 2017
    Messages:
    72
    Likes Received:
    1
    First half of year

    Debit expense credit liability

    At payment debit liability to zero it out, credit cash, debit asset for prepaid portion.

    Remainder of year debit expense, credit asset.

    This is cumbersome but technically correct.
     
    Drmdcpa, Aug 11, 2017
    #7
  8. KSitton

    KSitton

    Joined:
    Aug 11, 2017
    Messages:
    5
    Likes Received:
    0
    Okay. That sounds right, and also what I was afraid of...thank you for the help. Much appreciated!
     
    KSitton, Aug 11, 2017
    #8
  9. KSitton

    b03liberty

    Joined:
    Apr 25, 2014
    Messages:
    4
    Likes Received:
    0
    Hello KSitton, in computing tax for the current accounting period which the amount is yet to be know like this , you have to make a comparison to what you paid last period and make a provision for this current period.
    Understandable your provision will be "under or " over", any subsequent balance you are having will then be deferred to the next accounting period
     
    b03liberty, Aug 15, 2017 at 4:02 PM
    #9
  10. KSitton

    b03liberty

    Joined:
    Apr 25, 2014
    Messages:
    4
    Likes Received:
    0
    The under provision balance will be Deferred tax liability, then you will add it to the next period while over provision is deferred tax asset which you will deducted
     
    b03liberty, Aug 15, 2017 at 4:06 PM
    #10
    1. Advertisements

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.
Similar Threads
  1. archimail@sbcglobal.net

    Asset and liability basics

    archimail@sbcglobal.net, May 7, 2006, in forum: UK Accountancy
    Replies:
    0
    Views:
    693
    archimail@sbcglobal.net
    May 7, 2006
  2. JG Garabito
    Replies:
    6
    Views:
    14,412
    Angela Thornton
    Feb 17, 2004
  3. Patrick Teffenretter
    Replies:
    1
    Views:
    2,052
  4. jason
    Replies:
    1
    Views:
    607
    Harlan Lunsford
    Jun 1, 2005
  5. ckhamitkar@yahoo.com

    Vacation Liability Accrual

    ckhamitkar@yahoo.com, Feb 16, 2005, in forum: Accounting Software
    Replies:
    3
    Views:
    2,206
    Lance Mertz
    Feb 24, 2005
  6. DoubleJava

    Payroll Liability or Current Liability

    DoubleJava, Sep 6, 2007, in forum: Microsoft Accounting
    Replies:
    0
    Views:
    897
    DoubleJava
    Sep 6, 2007
  7. Ryan Parrish

    UK Offsetting under accrual in operating costs with over accrual in accrued income

    Ryan Parrish, Jul 12, 2016, in forum: General Accountancy Discussion
    Replies:
    2
    Views:
    443
    Fidget
    Jul 17, 2016
  8. JM Enjuto

    USA Accrual for future liability

    JM Enjuto, May 25, 2017, in forum: General Accountancy Discussion
    Replies:
    3
    Views:
    122
    kirby
    Jun 16, 2017
Loading...