Final answer:
The approach used under current generally accepted accounting principles to determine income tax expense is the Asset and Liability approach, focusing on deferred tax assets and liabilities based on temporary differences.
Step-by-step explanation:
Under current generally accepted accounting principles, the approach used to determine income tax expense is the Asset and Liability approach. This approach involves determining the tax base of assets and liabilities, which is used to calculate any temporary differences that will result in taxable or deductible amounts in the future. Based on these differences, deferred tax liabilities or assets are recognized in the financial statements. The income tax expense reported in the income statement consists of the current tax expense plus any changes in these deferred tax accounts.
To calculate the tax expense, entities must consider their taxable income, which is their adjusted gross income minus allowable deductions and exemptions. The taxable income is then subjected to the tax rates dictated by tax law to derive the current tax expense. Different entities have varying tax rates, and these are usually made public as the effective tax rate, which takes into account any tax credits and benefits that apply in the current fiscal year.