Many non-accountants are confused when they hear that company has a tax refund of $2,000, but reported an income tax expense of $5,000. These individuals believe such a situation results from companies keeping two sets of books. They further believe that keeping two sets of books is illegal and should be prohibited.
Required:
1. Do companies keep two sets of books and, if they do, is this illegal?
2. How can a company have a tax refund when it also reports an income tax expense?

Question

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The Answer of Many non-accountants are confused when they hear that company has a tax refund of $2,000, but reported an income tax expense of $5,000. These individuals believe such a situation results from companies keeping two sets of books. They further believe that keeping two sets of books is illegal and should be prohibited.
Required:
1. Do companies keep two sets of books and, if they do, is this illegal?
2. How can a company have a tax refund when it also reports an income tax expense?

Many Non-Accountants Are Confused When They Hear That Company Has