Question

Income tax expense is reported in what way on the income statement?

a) As part of general expenses.
b) As a separate line item.
c) As part of other expenses.

Answer 1

Income tax expense is reported as a separate line item on the income statement, making it clear and easily distinguishable for the users of the financial statements.

Step-by-step explanation:

Income tax expense is reported as a separate line item on the income statement. This accounting practice ensures that the tax impact on net income is clearly understood and visible. Income tax expense reflects the amount a company owes in taxes based on its earnings, and it is shown after the calculation of pre-tax income or operating income. Because corporations are separate legal entities, they are required to pay taxes on their profits, as per the corporate tax brackets. Reporting income tax expense separately helps users of the financial statements to discern the effective tax rate and the relationship between pre-tax income and net income. The taxation process involves filing declarations based on income earned over the year, and the reported tax expense on the income statement is a crucial aspect of a company's financial disclosures.