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Flashcards in Deferred Income Taxes Deck (12):

temporary tax differences

affects taxable income in one period and NI in another
e.g. installment sales method


installment sales method

sale is reported on I/S when earnings process is complete, but, unlike with revenue, profit is deferred until cash is received.


permanent tax differences

reported on either tax return or I/S but not both
1. receipt of cash dividends from one corp. to another
2. paying federal income taxes
3. collecting life insurance


deferred income tax liability (DTL)

less tax now, more tax later.
e.g. recognition of revenue using installment sales method.
depreciation expense.


deferred tax asset (DTA)

more tax now, less tax later
e.g. rent revenue collected in advance


Income Tax Expense- Current formula

- Gain to be taxed later
- Int. rev. from municipal bonds
+ Expenses to be incurred (deducted) later


Handling gain to be taxed later (Inc. Tax Exp. - Current)

1. If 25% of the cash has been collected, then it is assumed that 25% of the gain (or amount of gain * 25%) is taxable.
2. NI - 75% of gain left collect = Taxable income * Enacted tax rate for current period = Inc. tax exp.- current


total income tax expense

IT exp- current + IT exp. deferred.


income tax expense- deferred

1. DTL - DTA
2. It is also the amount to adjust the deferred from beginning to ending balance.


Are DTLs and DTAs usu. current or noncurrent?

They are noncurrent.


If an amount of money can't be deducted...

add it to taxable income.


If an amount of money will never be taxed...

subtract it from taxable income.