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HomeHomework HelpaccountingDeferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities

The accounting concepts that arise from temporary differences between the carrying value and tax base of assets and liabilities, resulting in either a deferred tax asset (future tax deductions) or a deferred tax liability (future tax payments)

intermediate
2 hours
Accounting
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Overview

Deferred tax assets and liabilities are essential components of accounting that reflect the timing differences between when income and expenses are recognized for accounting purposes versus tax purposes. Understanding these concepts helps in accurately reporting a company's financial position and fu...

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Key Terms

Deferred Tax Asset
A tax benefit that can be used in the future to reduce taxable income.

Example: A company has a loss this year that can offset future profits.

Deferred Tax Liability
A tax obligation that is deferred to a future date.

Example: A company recognizes revenue now but pays tax on it later.

Temporary Difference
A difference between accounting income and taxable income that will reverse in the future.

Example: Depreciation methods differ for tax and accounting purposes.

Permanent Difference
A difference that will not reverse in the future.

Example: Fines and penalties are not tax-deductible.

Tax Rate
The percentage at which income is taxed.

Example: A corporate tax rate of 21%.

Financial Statements
Reports that summarize the financial performance and position of a company.

Example: Balance sheet, income statement, and cash flow statement.

Related Topics

Income Tax Accounting
Focuses on the principles and practices of accounting for income taxes.
intermediate
Financial Statement Analysis
Involves evaluating financial statements to assess a company's performance.
intermediate
Corporate Tax Strategy
Explores strategies companies use to minimize tax liabilities.
advanced

Key Concepts

Tax Timing DifferencesTemporary DifferencesTax RatesFinancial Statements