Some parts of a profit and loss account, part 3
While a few lines of an account of profits and losses depend on estimates or predictions, the interest of the cost of line is a simple equation. In the accounting for income taxes, can a company, however, the different methods of accounting for a number of its expenditure is used for the calculation of taxable income. The imaginary amount of taxable income, if the accounting methods used have been used in the VAT return is calculated. Then the income tax on the basis of this hypothetical fitured of taxable income. It is the tax on income in the statement of revenues reported. This amount is reconciled with the actual amount of the income tax payable on the income tax accounting methods. A reconciliation of the two amounts different income tax is then given in a note to the profit and loss account.
Income as a net result before interest and taxes (EBIT) and can vary considerably according to which accounting methods are used to report expenditures and revenues from sale. This is where profit smoothing can come into play to manipulate earnings. Earnings smoothing, crosses the line of accounting methods to choose from the list of GAAP and implement these methods in a reasonable manner, in the gray area of management of profit and manipulation of accounting.
It is for managers and entrepreneurs to be involved in decisions which accounting methods are used to measure the benefits and how these methods are actually implemented. A Manager may be necessary to answer the questions concerning the financial reports of the company on many occasions. It is therefore essential that each agent or manager in a company completely familiar with how the company financial statements are prepared. Accounting methods and how they are performed vary from business to the company. Methods of a business can be anywhere on a continuum that left or right of the Centre of GAAP.
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