Prepaid Taxes
Definition: Tax payments made before due
Scope:NarrowDifficulty:Easy
Tax payments made before due
Common Journal Entries
| Account | Debit | Credit |
|---|---|---|
| 1. Pay estimated taxes | ||
| Quarterly estimated payment of $10,000. | ||
| Prepaid Income TaxAsset+ | $10,000 | |
| CashAsset− | $10,000 | |
| Prepaid asset until actual tax liability is determined. | ||
| 2. Year-end adjustment | ||
| Actual tax = $38,000; four payments of $10,000 made. | ||
| Income Tax ExpenseExpense+ | $38,000 | |
| Prepaid Income TaxAsset− | $40,000 | |
| Income Tax ReceivableAsset+ | $2,000 | |
| Overpayment becomes a receivable (refund due). | ||
T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.
Prepaid Income TaxPrepaid Income TaxAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$10,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$40,000.00
$30,000.00
CashAsset account. Debits increase the balance. Credits decrease the balance.AssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$10,000.00
$10,000.00
Income Tax ExpenseIncome Tax ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$38,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$38,000.00
Income Tax ReceivableIncome Tax ReceivableAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.
DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.
$2,000.00
◀ Normal bal.
CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.
$2,000.00
DurationShort-Term
External Links
- Prepaid expense — Wikipedia