Tax And Accounting Treatment Of Advertising Expenses

The competition of modern enterprises can not be separated from marketing, and the important means of marketing is advertising. Therefore, the expenditure of advertising has become an important and huge cost for enterprises. According to the provisions of the enterprise accounting system, advertising fees are included in the "operating expenses" as the deduction of accounting profits.

According to the Circular of the State Administration of Taxation on Issuing the "pre tax deduction method for enterprise income tax" (tax return No. [2000]84), since January 1, 2000, taxpayers' advertising expenses not exceeding 2% of sales (business) income in each tax year can be deducted, and the excess part can be carried forward indefinitely to the next year.

In addition, according to the Circular of the State Administration of Taxation on adjusting the pre tax deduction standard for advertising expenses in some industries ([2001]89), since January 1, 2001, enterprises in pharmaceutical, food, including health care products, beverages, daily chemicals, home appliances, communications, software development, integrated circuits, real estate development, sports culture and furniture and building materials mall will not be able to deduct the advertising expenses incurred in each tax year by 8% of sales (business) income.

However, according to the provisions of the Ministry of Finance and the State Administration of Taxation on the issue of pre tax deduction of grain liquor advertising fees (fiscal and tax [1998]45 number), since January 1, 1998, the advertising expenses for grain liquor can not be deducted before tax.

In addition, the expenses of enterprises or products that may not be advertised according to the relevant laws, regulations or industry regulations of the state, shall be regarded as the expenses for business publicity and shall be deducted according to the prescribed proportion.

In order to support high and new technology industries, high and new technology enterprises engaged in software development, integrated circuit manufacturing and other businesses, Internet sites, venture capital enterprises engaged in hi-tech venture capital investment shall be audited by the competent tax authorities within 5 tax years from the date of registration.

The above-mentioned high-tech enterprises, venture capital enterprises, and new growth enterprises that need to enhance their status are approved by the State Administration of Taxation, and enterprises can deduct or increase the proportion of advertising in the special period of market expansion.

Therefore, because accounting fees and taxable income are not identical in terms of the recognition and deduction standard of advertising expenses, the advertising expenses are inconsistent in the period of taxable income and in the period of accounting income, so that there is a time difference between taxable income and planned income in the same period.

It can be seen that the treatment of advertising expenditure income tax is an intertemporal allocation problem.

Advertising costs can also be attributed to temporal differences in temporary differences. At present, the international income tax accounting methods applicable to temporary differences include deferred tax law, income statement liability method and balance sheet liability method.

China's relevant laws and regulations require enterprises to adopt the balance sheet liability method.

Example: a company's policy of pre tax deduction of advertising expenses is 2%. From 2003 to 2006, the advertising expenses of sales revenue, actual expenditure, advertising expenses before tax deduction, the temporary difference of generation (return), and the adjustment of tax base and cumulative taxable temporary difference are shown in the following table:

Suppose that the accounting income of enterprises from 2003 to 2006 is 1000000 yuan, -500000 yuan, 2000000 yuan and 2000000 yuan respectively. The tax rate in 2003 and 2004 is 40%, 2005 is 30%, and 2006 is still 30%.. This enterprise has only one temporary difference, that is, the difference of advertising cost.

The accounting process of applying the balance sheet liability method is as follows:

At the end of 2003, the impact of the time difference of taxable time was 8000 yuan (20000 x 40%) and accounting treatment was:

Income tax 400000

Deferred income tax assets - deductible deferred income tax 80000

Loan: tax payable - income tax payable 480000

At the end of 2004, the pre tax accounting profit was -500000 yuan, and the difference in the time difference of tax payable was 40000 yuan (100000 x 40%).

No accounting entries are required at the end of this year, but it should be recorded in the accounts book of deferred income tax - not using tax losses. 40000 yuan is recorded.

At the end of 2005, the first calculation of the effect of the taxable time difference is -30000 yuan (-100000 x 30%).

Income tax 600000

Loan: tax payable 570000

Deferred income tax assets - deductible deferred income tax 30000

Secondly, accounting for the adjustment of tax rate changes:

(1) in 2005, the adjustment of tax time difference in 2003 was 20000 yuan (200000 x 40%-200000 * 30%).

Income tax 20000

Loan: deferred income tax assets - deductible deferred income tax 20000

At the end of the term, the balance of deferred income tax assets deductible deferred income tax is 60000 yuan.

(2) in 2005, the time difference of taxable time in 2004 was adjusted to 10000 yuan (40000-30000). As a result of this adjustment, the balance of deferred income tax assets - unused tax losses was adjusted to 30000 yuan.

Suppose that the time difference in the 2004 year of the current sale is 30000 yuan. Since the time difference of 2004 does not substantially affect the tax payment, it is only an auxiliary record of the "deferred income tax assets - not using tax loss" subjects.

Therefore, the "deferred income tax assets - unused tax loss" subjects were sold for 30000 yuan in the current period, with a final balance of 0..

The accounts for 2005 are as follows:

Income tax 600000

Loan: tax payable - income tax payable 600000

At the end of 2006, the impact of discrepancy on tax time was -60000 yuan (-200000 x 30%), and deferred income tax assets were sold for 60000 yuan, accounting for:

Income tax 600000

Loan: tax payable - income tax payable 540000

Deferred income tax assets - deductible deferred income tax 60000