Accruing Income Taxes Payable

If your business is a corporation, it is a separate entity that is required to pay income taxes. After your accountant computes the income tax liability of the corporation, an adjusting entry should be made in the general journal to reflect the income tax expense for the year.

Your corporation has made four estimated income tax payments of $3,000 each for its calendar-year 2011 tax liability. These payments were each recorded during the year in your cash disbursements journal as follows:

	Debit	Credit
Reserve for income. tax	3,000
Cash		3,000

Since the four payments were made during the year, there is a debit balance of $12,000 ($3,000 x 4) in the reserve for income tax account on December 31, 2011.

Your corporate income tax return for the year ended December 31, 2011, has been completed, and it shows a tax liability for the year of $13,450. Since you've already paid in $12,000, you owe another $1,450 to the IRS. Make the following adjusting entry to reflect the income tax expense for the year and the amount of tax owed to the IRS at year end:

	Debit	Credit
Income tax expense	13,450
Reserve for income tax		12,000
Income taxes payable		1,450
To record income taxes for the year ended 12/31/2011