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Level 3

Balance Sheet - Accrued liabilities

Hello,

In the Accrued Liabilities line item under Current Liabilities:

1.) Should Sales Tax (on sales that have been already made)  that are still due be included?
2.) If Income Taxes are included in this line item - Should the number here be the total of prepaid estimated taxes that were paid in the last tax year, as the current year's taxes are still not final?

 

4 Comments
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Community Champion

Balance Sheet - Accrued liabilities

1. Yes, except sales tax liability and payroll tax liability have each their own account. Short answer is that any unpaid but charged liability should display on balance sheet

 

2. Income taxes can ONLY be a liability once calculated and posted AND ONLY if you are a Schedule C Corporation. No other business entity incurs or pays income tax

 

Presuming you are a corporation any prepaid income tax deposits made would be a Current Asset.

 

If you are a pass through entity then taxes paid ahead are Owner Draw

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Level 15

Balance Sheet - Accrued liabilities

If this is a C Corp, any Prepaid income taxes are Asset, not Liability. You Prepaid = they have your funds and don't have the right to keep it, yet.

 

For any other entity type, Income taxes are Personal and never tracked in the business.

Highlighted
Level 3

Balance Sheet - Accrued liabilities

@john-pero
Can you please explain in more details why if sales tax liability and payroll tax liability have each their own account, then they should not be included in the current liability line item in the balance sheet?
If they each have their own account in the chart of accounts, what type of account should it be?

Highlighted
Level 3

Balance Sheet - Accrued liabilities

One exception would be State Franchise Taxes (also often referred to as income taxes since they are based on income).  These are an expense recorded on S Corp books annually.  In CA, we must pay $800 by March 15 each year for the upcoming year even with zero revenue and that is an expense.  

 

Since at year end we owe 1.5% of net income, most companies must pre-pay estimate quarterly to avoid penalties and interest. These payments are booked as Prepaid expense on balance sheet until year-end when the amount owed is known and that amount is then moved to an expense on P&L.

 

Any overpayment can be refunded or remain in prepaid account to apply to the following year.

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