Definition
The financial accounting term income taxes payable is used to describe money owed to government authorities but not yet paid. Income taxes payable appears in the current liabilities section of the company's balance sheet.
Calculation
Income Taxes Payable = Income before Taxes x Tax Rate
Explanation
Also referred to as taxes payable, this account documents the creation of a liability that is not yet paid to tax authorities. Accounting principles state that companies need to record the creation of the tax expense as it's incurred, even though the money may not be payable in that same time period. This is referred to as the matching principle. Since income taxes are typically paid on a quarterly basis but reported annually, income taxes payable is classified as a current liability.
While the formula used to compute taxes payable appears to be quite simple; it's often a complex calculation involving multiple tax rates, deductions and other adjustments such as deferred income taxes.
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
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The financial accounting term liability is used to describe the debt of a corporation that results from a transaction involving the transfer of an asset or the provision of a service. Liabilities are reported on a company's balance sheet.Moneyzine EditorJanuary 23rd, 2024
The financial accounting term current liabilities are generally defined as any debts that must be paid within one year or one operating cycle, whichever is longer. Current liabilities are a subcategory of liabilities, which appear on a company's balance sheet.Moneyzine EditorJanuary 12th, 2024
Also referred to as "payables," this is the accounting term used to describe balances owed to trade partners for materials, supplies, goods and services that were purchased on credit. Accounts payable recognizes the timing difference between the company's receipt of the benefit or asset, and the payment for this expense.Moneyzine EditorDecember 12th, 2023
The financial accounting term interperiod income tax allocation refers to the distribution of income tax expense between accounting periods. This occurs due to a timing difference between taxable income and the accounting income appearing in the company's financial statements.Moneyzine EditorJanuary 22nd, 2024
The term investment tax credit refers to a number of business credits characteristically used by government entities to stimulate an economy. Typical credits include disaster relief, research and development, non-petroleum fuels, and alternative fuel vehicles.Moneyzine EditorJanuary 23rd, 2024
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