Income Taxes Payable
Income
taxes payable applies only if your business is
incorporated. If it is a sole proprietorship or
partnership, the income taxes payable are those of the owners, not the business itself. Only
corporations are regarded by the government as
being separate legal entities from their owners,
and therefore liable for filing their own income
tax returns.
This
account tracks the balances owing to the various
levels of government (federal, state,
provincial) that levy income taxes on the
corporation. At the end of every year, you will
calculate your income tax liability and post it into the books like this:
DR Income tax
expense $XXX
CR
Income taxes payable $XXX
When
you pay the amount owing, you will debit the
income tax payable
account and credit the bank.
During
the year, you may be required to prepay income
taxes by paying installments to the government.
You would record these transactions like this:
DR Income taxes payable
$XXX
CR Bank
$XXX
It is therefore
possible to have a debit balance in the income taxes
payable account.
Due
to/from shareholders
This
account will only exist for incorporated businesses.
It tracks the amounts owing to and from the
shareholders of the company. These amounts are
different from the longer-term capital contributions
of the shareholders that appear in the equity
section.
Two
main types of transactions can occur to generate
amounts owing to and from the shareholders: when the
company pays for a personal expense of the
shareholder and when the shareholder pays for a
business expense out of his or her own pocket.
Current
Liabilities
