Two accounting entries are required for income tax: one to provide for the tax; and one to pay the tax. On 28 October 2020, Stevens Ltd pays the tax authorities the $54 000 provided as a liability on 30 June 2020. The correct journal entry to record this payment is:

Question

Quizplus · Accepted Answer

The payment is made to the tax authorities, which means it is reducing the current tax liability. Therefore, the correct journal entry would be to debit the current tax liability account and credit the bank account. Option A is incorrect because it is reversing the original provision journal entry instead of recording the payment. Option B is incorrect because it is recording the payment as an expense instead of a reduction of the liability. Option D is incorrect because it is debiting the expense account instead of the liability account.

Two Accounting Entries Are Required for Income Tax: One to Provide