Economic-Reality Factors Are Considered by the IRS in Selection of Returns

question 33

True/False

Economic-reality factors are considered by the IRS in selection of returns for audit only where it has some other evidence that the taxpayer has over reported taxable income for the year.

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Definitions:

Post-Closing Trial Balance

A listing of all balance sheet accounts with balances after closing entries are made, used to verify the equality of debits and credits.

Current Ratio

A financial metric comparing a company's current assets to its current liabilities to assess liquidity.

Short-Term Solvency

A company's ability to meet its short-term obligations, often assessed using liquidity ratios.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances from temporary accounts to permanent ones, preparing the books for the next period.