Definition:

Income Tax Payable is a liability on a company's balance sheet that represents the amount of taxes owed to the government but not yet paid. It is calculated based on the taxable income of the company for a specific period.

Formula:

Income Tax Payable = Taxable Income x Tax Rate

How to use the metric:

Income Tax Payable is used by companies to determine the amount of tax liability they need to settle with the government. It helps in financial planning and cash flow management by indicating the amount that needs to be set aside for tax payments.

Limitations:

Income Tax Payable does not account for deferred tax liabilities or assets, which may arise due to timing differences between accounting and tax treatments. It also does not reflect any potential tax credits or deductions that may reduce the actual tax liability.

Applies to:

Income Tax Payable is applicable to all industries as all businesses are subject to taxation based on their income. It is a fundamental aspect of financial accounting and reporting for companies across sectors.

Doesn't apply to:

There are no specific industries where Income Tax Payable does not apply, as all businesses are generally required to pay taxes. However, non-profit organizations may have different tax obligations and may not use this metric in the same way as for-profit entities.

Summary:

Income Tax Payable is a crucial financial metric that represents the tax liability of a company. It is calculated based on taxable income and helps in managing cash flow and financial planning. While it is applicable across all industries, it does not account for deferred taxes or potential tax credits, which can affect the actual tax liability.