Chapter 6 Tax Terms

Stephany Fox
Flashcards by Stephany Fox, updated more than 1 year ago
Stephany Fox
Created by Stephany Fox over 5 years ago
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Terms for chapter six of ACT330 at CSU

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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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