fbm
May 8, 2008, 07:01 PM
How would prepaid expenses be accounted for in determining taxes and accounting for the deferred tax provision.
For example, assuming rental payments are prepaid at the beginning of the year and are not yet expensed by the time taxes are accounted for- would these prepayments be taken as deferred tax assets, reversing in future periods to provide deductible amounts against future net income for tax purposes?
Is it the same for all prepaids?
Also just thought of this, are prepaids, even though considered assets, treated the same as other assets in determining Operation cashflow using the indirect method? i.e. are we going to deduct the increase in the account, and add the decrease? Because, if these are being paid as deferred expenses, shouldn't they effectively be treated as liability accounts as the cash effect is not yet determined in the net income, and we should deduct a decrease, and add an increase in the account? (I'm thinking of it kind of like the accounts payable but backwards) Thanks
For example, assuming rental payments are prepaid at the beginning of the year and are not yet expensed by the time taxes are accounted for- would these prepayments be taken as deferred tax assets, reversing in future periods to provide deductible amounts against future net income for tax purposes?
Is it the same for all prepaids?
Also just thought of this, are prepaids, even though considered assets, treated the same as other assets in determining Operation cashflow using the indirect method? i.e. are we going to deduct the increase in the account, and add the decrease? Because, if these are being paid as deferred expenses, shouldn't they effectively be treated as liability accounts as the cash effect is not yet determined in the net income, and we should deduct a decrease, and add an increase in the account? (I'm thinking of it kind of like the accounts payable but backwards) Thanks