Here are critical definitions for the specified terms:
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Taxable Income: Taxable income is the portion of an individual's or corporation’s income that is subject to taxation by the government. It is calculated by taking the total income earned and subtracting allowable deductions. Taxable income serves as the basis for determining the amount of tax owed to the government for a specific tax period.
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Allowable Deductions: Allowable deductions are specific expenses that the tax laws permit taxpayers to subtract from their gross income to arrive at their taxable income. These deductions can include business expenses, certain types of interest, charitable contributions, and various other costs. Allowable deductions help reduce the overall tax liability.
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Depreciation: Depreciation is the accounting method used to allocate the cost of a tangible fixed asset over its useful life. Businesses use depreciation to match the expense of the asset with the revenue it generates over time. It reduces taxable income as it is recognized as an allowable deduction. Common types of depreciation methods include straight-line, declining balance, and units of production.
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Bad Debts: Bad debts refer to amounts owed to a business that are deemed uncollectible and are unlikely to be paid. For tax purposes, businesses may deduct bad debts from their taxable income, reducing their overall tax liability. It typically occurs when a customer defaults on a loan or credit agreement.
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NPF (Net Profit): Net profit, often referred to as net income or net earnings, is the amount of money that remains after all operating expenses, interest, taxes, and costs have been subtracted from a company's total revenue. It serves as a key indicator of a company's profitability and financial health.
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POSF (Profit on Sale of Fixed Assets): Profit on Sale of Fixed Assets refers to the gain realized when a company sells a fixed asset (such as machinery or property) for more than its book value or carrying amount. This profit or gain is typically included in the financial statements and may be subject to taxation.
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Provisional Tax: Provisional tax is a method of paying income tax in advance on expected taxable income for the current financial year. Taxpayers make periodic payments based on prior year income or estimated current income, which helps to manage cash flow and avoid large tax liabilities at year-end. It is common in many tax systems, especially for self-employed individuals and businesses.
If you have further questions or need additional details on these terms, feel free to ask!