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HomeHomework HelpaccountingDeferred Tax

Deferred Tax

A type of tax that arises due to temporary differences between the financial statements and the income tax returns, resulting in a deferral of tax payments to future periods, which can be either deferred tax assets or deferred tax liabilities

intermediate
2 hours
Accounting
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Overview

Deferred tax is a crucial concept in accounting that arises from timing differences between when income and expenses are recognized for accounting purposes versus tax purposes. It can manifest as either a deferred tax asset or a deferred tax liability, impacting a company's financial statements and ...

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Key Terms

Deferred Tax Asset
A tax benefit that can be used to reduce future tax liabilities.

Example: A company has a deferred tax asset due to losses carried forward.

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

Example: A company recognizes revenue for accounting but not for tax purposes.

Timing Difference
The difference between the accounting income and taxable income.

Example: Depreciation methods can create timing differences.

Tax Expense
The total amount of tax that a company is obligated to pay.

Example: The tax expense is recorded on the income statement.

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

Example: Balance sheets and income statements are key financial statements.

Accrual Accounting
An accounting method where revenue and expenses are recorded when they are earned or incurred.

Example: Accrual accounting recognizes income before cash is received.

Related Topics

Tax Planning
Strategies to minimize tax liabilities and optimize financial performance.
intermediate
Financial Reporting Standards
Guidelines that govern how financial statements are prepared and presented.
intermediate
Accrual vs. Cash Accounting
Comparison of two accounting methods and their impact on financial reporting.
intermediate

Key Concepts

Timing DifferencesTax LiabilitiesTax AssetsFinancial Statements