Accounting Terms: Accrual Method, All-event Test, Allowance Method, and More, Quizzes of Business Taxation and Tax Management

Download Accounting Terms: Accrual Method, All-event Test, Allowance Method, and More and more Quizzes Business Taxation and Tax Management in PDF only on Docsity! TERM 1 Accrual method of accounting DEFINITION 1 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. TERM 2 All-event test DEFINITION 2 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. TERM 3 Allowance method DEFINITION 3 the GAAP method for computing bad debt expense. The expense is based on the estimated losses from the current year. TERM 4 Annualized income DEFINITION 4 the taxable income reported on a short-period return mathematically inflated to reflect 12 months of business operations. TERM 5 Calendar year DEFINITION 5 the 12-month period from January 1 to December 31. TERM 6 Cash method of accounting DEFINITION 6 an overall method of accounting under which revenue is accounted for when payment is received and expenses are accounted for when payments are made. TERM 7 Constructive receipt DEFINITION 7 the point at which a taxpayer has unrestricted access to and control of income, even if the income item is not in the taxpayer's actual possession. TERM 8 Deferred tax asset DEFINITION 8 the excess of tax payable over tax expense per books resulting from a temporary difference between book income and taxable income. TERM 9 Deferred tax liability DEFINITION 9 the of tax expense per books over tax payableresulting from a temporary difference between book income and taxable income. TERM 10 Direct write-off method DEFINITION 10 the method for determining a bad debt deduction required by the tax law. Only receivables that are written off as uncollectible during the year are deductible. TERM 21 NOL carryforward DEFINITION 21 a net operating loss allowed as a deduction in the 20 years following the year of loss. TERM 22 Payment liabilities DEFINITION 22 accrued liabilities for which economic performance does not occur until payment is made. TERM 23 Permanent difference DEFINITION 23 a difference between financial statement income and taxable income that does not reverse over time. TERM 24 Personal service corporations DEFINITION 24 closely held corporations 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 percent tax rate. TERM 25 Prepaid income DEFINITION 25 payment for goods and services made in advance of the provision of the goods or performance of the service. TERM 26 Realization DEFINITION 26 income is taken into 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. TERM 27 Recognition DEFINITION 27 inclusion of an item of income or deduction in the computation of taxable income. TERM 28 Recurring item exception DEFINITION 28 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 1/2 months after year-end. TERM 29 Short-period return DEFINITION 29 a tax return for a taxable year consisting of less than 12 months. TERM 30 Tax benefit rule DEFINITION 30 the recovery of an amount deducted in an earlier year must be included in gross income in the year of recovery. TERM 31 Taxable income DEFINITION 31 gross income minus allowable deductions for the taxable year. TERM 32 Temporary difference DEFINITION 32 a difference between financial statement income and taxable income that reverses over time.