Increased Understanding of Accounting for Income Taxes through Effective Tax Rate Calculations and Reconciliations

Abstract

This paper provides insights on the effective tax rate in order to better understand accounting for income taxes particularly as it relates to SFAS No.109, “Accounting for Income Taxes.� Because of the importance of taxes in key firm decisions and the inherent complexity of the topic, accounting educators should reconsider the adequacy and scope of their coverage of SFAS No.109 in their accounting courses. This paper provides practical and helpful teaching tools for an instructor to implement in the classroom. It also adds to the education literature with a much needed practical analysis of the fundamentals of the effective tax rate, its calculation and its underlying components. Our analysis reveals several interesting findings including the differing effects of certain temporary differences on various tax rates.