Two accounting entries are required for income tax, one to provide for the tax and one to pay the tax. If Webmark Ltd wishes to provide for estimated income tax expense on 30 June 2014 of $97 000, the correct entry is which of the following?

Question

Quizplus · Accepted Answer

The correct entry to provide for estimated income tax expense is to debit income tax expense for the amount of $97 000 and credit current tax liability for the same amount. This entry recognizes the estimated expense and sets up a liability for the upcoming tax payment. Option B is incorrect because it would record the liability before recognizing the expense, which violates the matching principle. Option C is incorrect because it would reduce retained earnings instead of creating a tax liability. Option D is incorrect because it credits bank instead of the appropriate liability account.

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