October 30, 2016 admin

Income Taxes—Current Year

Liabilities and Net Worth

INCOME TAXES—CURRENT YEAR LIABILITY ACCOUNT
2205

ACCOUNT EXPLANATION
Corporation income taxes payable to governmental agencies on the earnings of the current year.
TRANSACTIONS
  Jrnl. Dr. Cr.
  Monthly adjustment of income tax provision based on year-to-date book profit SE
    Estimated Income Taxes 9900
      Income Taxes—Current Year 2205
             
  Payment of current federal income tax installment due CD
    Income Taxes—Current Year 2205
      Cash in Bank—General 1001
             
  Transfer of unpaid balance at beginning of year to liability account for prior years G
    Income Taxes—Current Year 2205
      Income Taxes—Prior Years 2200
COMMENTS
  • Financial accounting standards regarding income tax liabilities are very complex. It is strongly suggested that accounting and tax counsel be obtained to determine the proper amount of the income tax accrual.
  • When opening accounts for a new year, the balance in this account should be transferred to Account 2200, Income Taxes—Prior Years.
  • Accounts in the 2206-2209 series may be used if separate accounts for each governmental agency are necessary.
  • No liability for federal income taxes should be recorded by “Tax Option” corporations.