Deferred tax liabilities are shown as long term liabilities on the balance sheet of a business, and represent obligations to pay income tax at some point in the future arising from temporary timing differences.
Provision Definition in Accounting
Bookkeeping and accounting use the term provision meaning an estimated amount set aside when it is probable that a liability has been incurred or an asset impaired.
Accrued Income Tax
A business has an estimated annual income tax expense of 14,000 due of profits for the accounting period. A demand for the amount has not yet been received from the tax authorities, and the expense has not been recorded in the accounting records. An accrued income tax adjusting entry is made in the accounting records.
Accrued salaries are salaries which has been incurred but not yet recorded in the accounting ledgers at the end of the accounting period.
This accrued salaries journal entry example shows how to record an accrued expense for salaries when an employee has carried out work during an accounting period but has not been paid by the end of the accounting period.
Extended Warranty Accounting
In addition to the standard warranty, businesses often sell an extended warranty for an additional fee. Revenue from the sale of extended warranties is recognized on a straight line basis over the term of the warranty.
Manufacturer warranty costs are both probable and subject to reasonable estimation and therefore create a contingent liability which a business needs to include in its financial statements.
Security Deposit Liability
When a property rental business receives a cash security deposit from a tenant it needs to record this a balance sheet liability and not revenue.
The balance sheet shows a financial snapshot of the business at a specific point in time, usually at the end of an accounting period.
When an owner pays incorporation costs on behalf of a business, a journal entry is needed to record the business expense and the liability to the owner.
Withholding tax refers to process of deducting taxation from an a payment to a person, and paying this over to the government on their behalf. Governments use this method of withholding tax in order to minimize the risk of tax evasion and to reduce the costs of collection.
Accrued Expenses Example
Accrued expenses are expenses which has been incurred but not yet recorded in the accounting ledgers at the end of the accounting period.
A business has an annual premises rent of 12,000 but an invoice has not been received from the landlord and the rental expense has not been recorded in the accounting records.