Question

What causes deferred income taxes to arise? How are the balances in "deferred income taxes" accounts disposed of?

Answer 1

Answer

Causes of deferred income taxes arise.

1. The amount of tax due according to tax accounting is lower then that according tofinancial accounting. This difference are temporary but company will pay in future his tax liability.

But this liability are usually known deferred tax

2. Deferred tax assets are created due to tax paides or carry forward but not yet recognised in the income statement.

3. A deferred tax liability is it tax that assessed or is due for the current period but has not yet been paid.

Disposal of deferred income taxes balance

We try to understand disposal of deferred tax with example.

If text as per accounting profit $10,000

While text determined by IRS $9,000

Entry will be. Dr. Cr.

Income tax expenses $10000

Income tax payable. $9,000

Deferred tax liability $1000

In the next year.

If text is for accounting profit $15,000

Why text determined by IRS $18,000

Entry will be . Dr. Cr.

Income tax expenses $15,000

Deferred tax assets . $3000

Income tax payable . $18000

Example first and second we show that in the first example deferred tax liability is $1,000 and in the second example deferred tax asset $3,000 we set off deferred tax liability with deferred tax assets and deferred tax asset will be show in the balance sheet.