4217209
Description
Flashcards by Stephany Fox, updated more than 1 year ago
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Created by Stephany Fox
over 8 years ago
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| Question | Answer |
| Accrual method of accounting | an overall method of accounting under which revenues are realized in the year the earnings process is complete and expenses are matched against revenues in the year the liability for the expense is incurred |
| all-events test | the test for determining if an accrued expense is deductible. The test is satisfied if the liability on which the accrued expense is based is fixed, the amount of the liability is determinable with reasonable accuracy, and economic performance with respect to the liability has occurred. |
| allowance method | the GAAP method for computing bad debt expense. The expense is based on the estimated losses from current year receivables |
| annualized income | the taxable income reported on a short-period return mathematically inflated to reflect 12 months of business operations |
| cash method of accounting | an overall method of accounting under which revenue is accounted for when payment is received and expenses are accounted for when payment is made |
| constructive receipt | the point at which a taxpayer has unrestricted access to and control of income, even is the income item is not in the taxpayer's actual possession |
| deferred tax asset | the excess of tax expense per books over tax payable resulting from a temporary difference between book income and taxable income |
| deferred tax liability | the excess of tax expense per books over tax payable resulting from a temporary difference between book income and taxable income |
| direct write-off method | the method for determining a bad debt deduction required by tax law. Only receivables that are written off as noncollectable during the year are deductible. |
| domestic production activities deduction | a tax preference deduction for US manufacturers equal to a percentage of net income from a qualified domestic production activity |
| economic performance | the third requirement of the all-events test |
| gross income | realized increases in wealth from whatever source derived. In the business context, gross profit from sales of goods, performance of services, and investments of capital |
| hybrid method of accounting | an overall method of accounting that combines the accrual method for purchases and sales of inventory and the cash method for all other transactions |
| net operating loss (NOL) | an excess of allowable deductions over gross income |
| personal service corporation | Closely held corporation owned by individuals who perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting for the corporation's clientele. Personal service corporations are subject to a flat 35% tax rate. |
| realization | income is taken into account when the earnings process with respect to the income is complete and an event or transaction occurs that provides an objective measurement of the income |
| recognition | inclusion of an item of income or deduction in the computation of taxable income |
| recurring item exception | An exception to the economic performance requirement under which a liability is considered incurred in a taxable year in which it meets the first two requirements of the all-events test and economic performance occurs within 8.5 months after year-end |
| short-period return | a tax return for a taxable year consisting of less than 12 months |
| tax benefit rule | the recovery of an amount deducted in an earlier year must be included in the gross income in the year of recovery |
| taxable income | gross income minus allowable deductions for the taxable year |
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