Question

Do IT controls impact the accounting numbers generated in the revenue cycle? Explain your answer and illustrate

Answer 1

Income tax (IT) this is charged on operating income less interest expenses if any.

So it means income tax is charged on all earning less expenses . Balance in revenue account is transferred to retained earning statement and retained earning will shown under common shareholder’s Equity balance.

So when there is income tax is charged on numbers than overall income will reduces and simultaneously it will impact on retained earnings and shareholder’s Equity

Example:

Sales Revenue                                                  $ 1,000

Less: Expenses                                                                  $ 500

Net income                                                        $ 500

Less: Income tax @ 30% (Assume)           $ 150

Net income after tax                                      $ 350

So because of IT as above will impact the revenue generated or reduced the income from $ 500 o $ 350. Simultaneously in retained earnings and shareholder’s will get credited with only $ 350