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Community > Accounting >

Income Tax Expense

Started by Michael K. Cheng -   in Accounting

Hi All,
Just having trouble in terms for presentation of the income tax expense. It seems to keep showing in the expenses category even though I have moved it down into a separate section in the reporting pack. What am I doing wrong????
Place the taxation expense in the equity part of your chart of accounts. Income tax paid cannot be an allowable deduction (an expense), so it will be in the equity section of your Balance Sheet. Cheers
 

Anne Burgess  

I disagree with Anne. It does not belong in Equity, it belongs at the bottom of the P&L. I have been allocating it to the "Non-operating Expenses" section of the report layouts so that it is at the bottom of the list. Perhaps the new report layout functions will have improved this.
 

Peter McCarroll  

I agree with Anne and Peter. For a clients reporting perspective, they like to see a net profit after tax, but from a correct accounting angle it belongs with drawings and capital, i.e. in the equity section.

I would suggest tweaking the layouts - one for presenting to client and one for year end work
 

David Kime  

That's a great suggestion David, covers both correct accounting principles and will benefit the client as well....Cheers Anne
 

Anne Burgess  

I am having the same difficulty but for a trust where the profit is distributed to beneficiaries. The profit and loss should show the profit, but if I put the distributions in equity I get a really silly looking balance sheet with retained earnings and then negative figures for the profit share to each beneficiary in the equity section. The liability section shows the Unpaid present entitlements which is correct.
 

Amanda Fisher  

Not sure where you are, Amanda, as your profile doesn't say, but in Australia the Beneficiaries' Current Accounts are usually in the liabilities section and then trust distributions usually end up in the Equity section negating the amount in Current Year Earnings. There are usually no Retained Earnings when there is a Trust involved. HTH
 

Jacki Knight  

I have found most clients manage their business to net profit before tax line and having this is an essential in the Profit and loss report, followed by a separate line for tax adding down to the Net profit after tax. Tax is not generally regarded as an overhead expense like rent or power. This separation is the way GAAP works and the standard reports need to reflect this IMHO.
 

Graeme McGlinn  

Hi Everyone. I agree with Graeme, I would like to be able to see:
Profit and Loss Before Tax
Income Tax Expense
Profit and Loss After Tax.

Any idea if Xero will do this in the future?
 

Samantha Reid  

showing below 3 lines are helpful when i present the account to directors. Grouping tax expense as ordinary expense is very confusing. Xero team please proivide a timeline/road map when this can be ready

Profit and Loss Before Tax
Income Tax Expense
Profit and Loss After Tax.
 

Paul Ho  

saw this function, please ignore my comment.
 

Paul Ho