Income Taxes in Financial Statements.

Abstract The article attempts to classify and analyze some of the reporting problems created by substantial tax on business income. The first section of the article discusses the points for analysis which include the consideration of income taxes to be an expense by businessmen and accountants, problems concerning the location of the tax provision in a financial statement of a given year, and cases where both accounting convention and tax law agree on items to be recognized as revenue or expense but disagree as to the period in which the item is to be reported. The second section illustrates problems relating to allocation of income tax charges and credits to operating and in operating income and retained earnings and the effects of differences between the time of recognition of revenue and expense under accounting conventions and tax rules. The third section discusses accrual and prepayment of taxes with examples of charge deducted for tax purposes. The fourth section illustrates the principle that taxes should follow income and the major barrier to satisfactory solutions of the problems of tax allocations.