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Managing Your Business Finances Your Basic Bookkeeping Closing the Books Adjusting Entries Accruing Income Taxes Payable
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Accruing Income Taxes Payable
If your business is a corporation, it is a separate entity that is required to pay income taxes. After your accountant computes the income tax liability of the corporation, an adjusting entry should be made in the general journal to reflect the income tax expense for the year.
|
| Debit | Credit | |
| Reserve for income. tax | 3,000 | |
| Cash | 3,000 |
Since the four payments were made during the year, there is a debit balance of $12,000 ($3,000 x 4) in the reserve for income tax account on December 31, 2009.
Your corporate income tax return for the year ended December 31, 2009, has been completed, and it shows a tax liability for the year of $13,450. Since you've already paid in $12,000, you owe another $1,450 to the IRS. Make the following adjusting entry to reflect the income tax expense for the year and the amount of tax owed to the IRS at year end:
| Debit | Credit | |
| Income tax expense | 13,450 | |
| Reserve for income tax | 12,000 | |
| Income taxes payable | 1,450 | |
| To record income taxes for the year ended 12/31/2009 | ||
