{"id":3017,"date":"2021-05-15T21:27:24","date_gmt":"2021-05-15T21:27:24","guid":{"rendered":"https:\/\/enorcerna.com\/wiki\/definition\/extra-accounting-adjustments\/"},"modified":"2021-05-15T21:27:24","modified_gmt":"2021-05-15T21:27:24","slug":"extra-accounting-adjustments","status":"publish","type":"post","link":"https:\/\/enorcerna.com\/wiki\/definition\/extra-accounting-adjustments\/","title":{"rendered":"Extra accounting adjustments"},"content":{"rendered":"
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\nThe off-the-books adjustments are a series of modifications that are made to the accounting result before taxes to calculate the taxable income of the corporation tax.<\/strong><\/span><\/p>\n

<\/p>\n

On this tax base, the tax rate is applied to calculate the corporate tax. Once the corporation tax has been obtained, the result after taxes can be calculated. In other words, off-the-books adjustments must be applied before calculating the corporate tax.<\/p>\n

It is important to distinguish the extra-accounting adjustments from the accounting adjustments, which are made to correctly allocate income, expenses, assets and liabilities to their corresponding years, that is, to regularize the accounting situation of a period.<\/p>\n

Why are there off-the-books adjustments?<\/h2>\n

The accounting result before taxes (or profit before taxes) is calculated as the difference between income and expenses. Usually both income and expenses are included for the calculation of the accounting result and the tax result (the tax base of the corporate tax).<\/p>\n

However, this is not always the case, the tax laws of each country can establish two extraordinary situations:<\/p>\n

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  1. Non-deductible tax expenses:<\/strong> That there is an accounting expense that is not included in the tax result. This is what is called a permanent positive difference (permanent, because it will never be deductible, and positive because the amount of the non-deductible expense must be added to the accounting result). <\/strong>They have to be used for the calculation of the accounting result but not for the calculation of the income tax. For example: the Spanish Corporate Tax Law establishes fines as a non-deductible expense.<\/li>\n
  2. Tax deductible expense: <\/strong>That there is no accounting expense, but there is a fiscal expense. <\/strong>It is used for the calculation of income tax. Example: accelerated depreciation provided for by Spanish corporate tax law. In accounting if you have machinery for \u20ac 1000 with a useful life of 10 years. <\/li>\n<\/ol>\n

    Types of off-the-books adjustments<\/h2>\n

    These settings can be of two types:<\/p>\n

      \n
    • Positive settings: <\/strong>These adjustments are added to the accounting result and, therefore, a tax base is obtained that is higher than the accounting result. As it is higher, the income tax will also increase. These adjustments are usually permanent, but there are many that are not permanent, such as amortizations. For example, a construction of \u20ac 1,000,000 with Vu = 25 years, but the tax coefficient is 2%: <\/li>\n
    • Negative settings: <\/strong>These adjustments are subtracted from the accounting result and, therefore, a tax base is obtained that is lower than the accounting result. Being lower, the income tax will also decrease. These adjustments are usually temporary, but they are not always, such as income that is exempt from taxation will never be taxed, so that amount would have to be subtracted from the accounting result.<\/li>\n<\/ul>\n

      How are off-the-books adjustments made?<\/h2>\n

      Schematically the steps to follow are the following:<\/p>\n

        \n
      1. We obtain the accounting result (income minus expenses)<\/li>\n
      2. We determine if we have positive or negative extra-accounting adjustments.<\/li>\n
      3. Depending on what type of adjustments we have, we add or subtract from the accounting result. Thus we obtain the taxable base of the corporation tax.<\/li>\n
      4. We obtain the corporation tax from said tax base (provided it is positive).<\/li>\n
      5. We calculate the result after tax (accounting result minus corporation tax).<\/li>\n<\/ol>\n

        The existence of off-the-books adjustments explains the following situations that, at first glance, could seem contradictory:<\/p>\n

          \n
        • That a company presents a positive accounting result (profits) and does not pay corporate tax. <\/strong>Usually when a company presents a positive result it will pay corporate tax. However, the following example shows us that this is not always the case: accounting result of 20, extra accounting adjustments of -30, gives us a negative tax base (of -10), so you will not have to pay income tax.<\/li>\n
        • That a company presents a positive accounting result (losses) and pays corporate tax. <\/strong>Usually when a company presents a negative result it will not pay corporate tax. However, the following example shows us that this is not always the case: accounting result of -20, extra accounting adjustments of -30, gives us a positive tax base (of 10), so you will have to pay income tax.<\/li>\n<\/ul>\n<\/div>\n\n\n
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          The off-the-books adjustments are a series of modifications that are made to…<\/p>\n","protected":false},"author":1,"featured_media":3018,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3017","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-definition"],"_links":{"self":[{"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/posts\/3017","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/comments?post=3017"}],"version-history":[{"count":0,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/posts\/3017\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/media\/3018"}],"wp:attachment":[{"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/media?parent=3017"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/categories?post=3017"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enorcerna.com\/wiki\/wp-json\/wp\/v2\/tags?post=3017"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}