Taxes appear in some form in all three of the major financial statements: the balance sheet, the income statement and the cash flow statement. Deferred income tax liabilities can be included in the long-term liabilities section of the balance sheet. A deferred tax liability is a liability that is due in the future. Specifically, the company has already earned the income, but it will not pay taxes on that income until the end of the tax year. Long-term liabilities are payable in more than 12 months.

Sales tax and use tax are usually listed on the balance sheet as current liabilities. They are both paid directly to the government and depend on the amount of product or services sold because the tax is a percentage of total sales. The sales tax and use tax depend on the jurisdiction and the type of product sold. These taxes are generally accrued on a monthly basis. Any expense that is payable in less than 12 months is a current liability.

The income statement, or profit and loss statement, also lists expenses related to taxes. The statement will determine pre-tax income and subtract any tax payments to determine the net income after taxes. Using this method also allows companies to estimate their income tax liabilities.

The cash flow statement also includes information on tax expenses. It is listed as "taxes payable" and includes both long-term and short-term tax liabilities. When taxes are paid during the cash flow period reflected in the statement, then this change is shown as a decrease in taxes payable.

  1. What is the difference between an income statement and a balance sheet?

    The balance sheet illustrates a company’s book value, and the income statement shows how assets and liabilities are used. Read Answer >>
  2. How does a company derecognize a deferred tax liability?

    Learn about how deferred tax liabilities arise, when they must be reported in the financial statements, and how a company ... Read Answer >>
  3. How does the Fair Accounting Standards Board (FASB) regulate deferred tax liabilities?

    Learn about the treatment of deferred tax liabilities under the requirements set forth by the Financial Accounting Standards ... Read Answer >>
  4. On which financial statements does a company report its long-term debt?

    Discover which financial statements are used to report a company’s long-term debt, as well as how a company uses debt to ... Read Answer >>
  5. What is the difference between a balance sheet and a cash flow statement?

    Understand the difference between a balance sheet and an income statement. Learn the three components of each of the financial ... Read Answer >>
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