Parts of an Income Statement, Part 3
While some lines of an income statement depend on estimates or forecasts, the interest expense line is a basic equation. When accounting for income tax expense, however, a business can use different accounting methods for some of its expenses than it uses for calculating its taxable income. The hypothetical amount of taxable income, if the accounting methods used were used in the tax return is calculated. Then the income tax based on this hypothetical taxable income is fitured. This is the income tax expense reported in the income statement. This amount is reconciled with the actual amount of income tax owed based on the accounting methods used for income tax purposes. A reconciliation of the two different income tax amounts is then provided in a footnote on the income statement.
Net income is like earnings before interest and tax (EBIT) and can vary considerably depending on which accounting methods are used to report sales
revenue and expenses. This is where profit smoothing can come into play to manipulate earnings. Profit smoothing crosses the line from choosing acceptable accounting methods from the list of GAAP and implementing these methods in a reasonable manner, into the gray area of earnings management that involves accounting manipulation.
It's incumbent on managers and business owners to be involved in the decisions about which accounting methods are used to measure profit and how those methods are actually implemented. A manager can be requires to answer questions about the company's financial reports on many occasions. It's therefore critical that any officer or manager in a company be thoroughly familiar with how the company's financial statements are prepared. Accounting methods and how they're implemented vary from business to business. A company's methods can fall anywhere on a continuum that's either left or right of center of GAAP.
Terms of Use for this Private Label Article
Possibly Related PLR Articles:
Motivate Your Downline with Autoresponders
Many affiliate marketers have a hard time building a
downline - and an even harder time keeping downline
members motivated and selling. If your income
depends on the sales of others, you should strongly
consider keeping them motivated...read more
Financing A Boat
Once you decide to buy a boat, you'll find yourself
wondering how you are going to pay for it. This
type of purchase will involve some type of financing,
whether it's a credit line through the home, an
unsecured loan, or a boat line. ...read more
Hiring a company to move you
Hiring a company to move you is something that you may want to consider if you've got enough money to do so, and can't afford the time to do it yourself, or its impossible for you to pack and move.
Moving companies offer several great reasons...read more
PERMISSIBLE GAMBLING
It's a fact that the legalization of some forms of gambling paved the way for the construction of gaming establishments catering for these services everywhere both public and private. While some argue that gambling forms part of social ills the...read more
California Magic Tan Booth: Tips for a Safe Tanning Procedure
Summertime is again another fun time. Moreover, you always desire to achieve that captivating golden bronze tan all over your body. Who does not want to be gorgeous-looking? Be careful though when going to the tanning salons or taking some tanning...read more
Kitchen Remodeling Safety Tips You Need to Know
Are you a homeowner who is looking to start a kitchen remodeling project? If so, are you doing that project by yourself? While a large number of homeowners make the decision to hire a professional contractor, others do not. Not only will you have...read more
Choosing Resting Spots and Activities in Paris
When visiting Paris as a family or as a couple there is a lot to decide on. In Paris, you have so much to learn. As well, Paris has so offers to offer tourists. Paris has a wide array of landmarks, water cruises and many tours, giving you the option...read more
7 Ways For An Easy & Hassle-Free Meeting Planning
When it comes to meetings, you have to come fully prepared and ready to state your side and then show all the documentation that you have used and collected. There are basically seven ways for you to have an easy and hassle free meeting plan.
...read more
Back Pain and Tendons
The skeletal muscles supplies us movement, which is supported by the posture. Our muscles will shorten, tighten, contract, and promote mobility. The muscles join with bones that attach to the tendons. Once the muscles begin contracting, the muscles...read more
Geilo in Norway
Geilo in Norway stands 800 metres high, and has one of the highest ski lifts in the world, stretching 3,887 feet. Geilo is positioned three and a half hours from the capital city, whilst having good road and rail links to the village. Set amidst...read more