Describe a Purchase Simulation Test

question 117

Essay

Describe a purchase simulation test.

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Definitions:

Interperiod Income Tax Allocation

The process of allocating income taxes over various accounting periods because of temporary differences that cause taxable income to differ from accounting income.

Deferred Tax

An accounting concept referring to a temporary difference between the tax expense shown in the income statement and the tax payable to the tax authorities, due to timing or methodological differences in recognizing revenue and expenses.

Income Tax Expense

The amount of money that a company or individual owes to the government based on their taxable income.

Deferred Tax Liability

A financial obligation recorded on a company's balance sheet that results from a difference in the timing of when income is earned and when it is taxable.