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Define the term "Deferred Tax". How do we classify it, as an asset or as a liability ?

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Question added by Deleted user
Date Posted: 2014/09/03
Murtaza Kalabhai
by Murtaza Kalabhai , Accountant , Al Raj Mobile Phones Trading L.L.C

1). A deferred tax liability occurs when taxable income is smaller than the income reported on the income statements. This is a result of the accounting difference of certain income and expense accounts. This is only a temporary difference. The most common reason behind deferred tax liability is the use of different depreciation methods for financial reporting and the IRS.

 

2). A deferred tax asset is the opposite of a deferred tax liability. Deferred tax assets are reductions in future taxes payable, because the company has already paid the taxes on book income to be recognized in the future (like a prepaid tax).

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