Which of the following journal entries correctly records the adjustment for income tax accrued at the end of an accounting period?

• A. Debit Cash; Credit Income Tax Expense
• B. Debit Income Tax Payable; Credit Income Tax Expense
• C. Debit Income Tax Expense; Credit Income Tax Payable
• D. Debit Income Tax Expense; Credit Cash

Answer: (C)

Verified step by step guidance

1. Understand the concept of accrued income tax: Accrued income tax represents the amount of tax expense incurred during the accounting period but not yet paid. It is recorded as a liability (Income Tax Payable) until payment is made.
2. Analyze the correct journal entry: The adjustment for income tax accrued involves recognizing the expense incurred and the liability created. This means debiting the Income Tax Expense account to record the expense and crediting the Income Tax Payable account to reflect the liability.
3. Review why other options are incorrect: For example, 'Debit Cash; Credit Income Tax Expense' is incorrect because cash is not involved in the accrual process; cash is only affected when the tax is paid. Similarly, 'Debit Income Tax Payable; Credit Income Tax Expense' reverses the accrual entry, which is not appropriate for recording the adjustment.
4. Understand the correct journal entry format: The correct entry is 'Debit Income Tax Expense; Credit Income Tax Payable.' This ensures the expense is recorded in the current period and the liability is recognized for future payment.
5. Apply this understanding to similar problems: Whenever you encounter accrued expenses, remember the principle of debiting the expense account and crediting the payable account to properly reflect the financial position.