Taxes payable are amounts estimated by an accountant to have been incurred during the accounting period.

• A. False
• B. True
• C. It is a current asset
• D. It is a liability

Answer: (B)

Taxes payable reflects the obligation to government for taxes incurred in the current period, recognized under accrual accounting. When the tax expense for the period is recorded, a corresponding liability is established for the amount expected to be paid—this is taxes payable. Even if the exact tax bill isn’t known until filing the return, you estimate the amount due and record it as a liability to reflect the burden of taxes incurred during the period. The liability remains until payment is made, and it may be adjusted later if the final tax return differs from the estimate. Since it represents money owed, it is a current liability, not an asset.