Taxes payable is more commonly referred to as income taxes payable. Income taxes payable is a term in accounting that records income taxes due to local, state and federal governments. The account tracks how much the company still owes for the year on its tax bill.
Financial Statement Location
Income taxes payable is a balance sheet account. More specifically, income taxes payable is a current liability. A current liability is an amount due to an outside party in the current year.
Proper Journal Entries
When the accountant calculates a company's tax liability, he must record the current liability. The income taxes payable includes local, state and federal taxes. To properly account for recording the payable, debit the "Income Tax Expense" account and credit the "Income Tax Payable" account. This will increase an income statement account, "Income Tax Expense" and increase the current liability, "Income Tax Payable." When paying the taxes, debit "Income Tax Payable" and credit "Cash." This decreases the current liability because the current liability is now paid and decreases "Cash" because the business used cash to pay off the liability.
Cash Flow Statement Impact
Creation of the current liability does not have any impact on the cash flow statement because no cash is changing hands. When the company pays the income tax payable, cash changes hands and a cash flow statement change will ensue. The company would decrease their cash flows from operations because cash leaves the company and Generally Accepted Accounting Principles (GAAP) considers income taxes to be an operational expense.
Balance Sheet Impact
Income taxes payable will increase current liabilities and total liabilities when recording the amount due. When recording paying the taxes, current assets and total assets will decrease due to cash leaving and current liabilities and total liabilities will decrease as the "Income Taxes Payable" account is eliminated.
Income Statement Impact
Recording the current liability and expense will impact the income statement. Recording the expense will increase expenses on the income statement. Then, net income will decrease due to the additional expenses.