Taxable income is the supported tax-law base used to compute current tax payable or refundable. Reconcile it from pretax book income through classified current adjustments. Do not back into taxable income from the desired tax expense, payable, or cash payment.
Build a signed bridge
ASC 740-10-30-6 requires the current tax calculation to reflect Topic 740's recognition and measurement rules for tax positions.
Begin with $1,000,000 pretax book income. Under supplied tax facts, subtract $120,000 of additional tax depreciation and add $60,000 of warranty expense that is deductible later. Then subtract $20,000 of tax-exempt interest, add a $10,000 nondeductible penalty, and subtract a permitted $100,000 net operating loss use. Taxable income is $830,000. State the sign convention above the bridge and trace every row to evidence. The arithmetic does not decide whether an item is deductible, taxable, limited, or uncertain.
A final control compares the bridge with the return workpaper and sends every unexplained difference back to its evidence owner.
Put the concept to work
Apply this concept
- Reconcile taxable income from pretax book income and classified return adjustments without using it as the balancing plug in a provision.
Learning resources
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