T account bookings on income statement accounts affect retained earnings ... but what about tax?
Was just analyzing a company and this came to my mind - I know that everytime I book an expense on the income statement (i.e., depreciation, cost of goods sold) the offsetting balance at the end of the year will be retained earnings (i.e., if I book depreciation my asset decreases in value but also my equity/retained earnings).
However, how is tax factored in in this equation. I don't mean VAT but income tax - Income tax is at the end of the income statement and only NET income (after tax of course) flows into retained earnings.
My individual t account bookings don't factor in taxes at all though.
Any ideas ? Could not find anything on this online.
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