What are deferred tax liabilities, and what is the difference between deferred tax liabilities and deferred tax assets? Deferred means that something has been postponed, and liabilities means that we owe something. In this video we explore the underlying concepts of tax deferrals, walk through the journal entries for deferred taxes, and take a look at the balance sheets of three well-known companies to see what is driving their deferred tax assets and deferred tax liabilities positions.
⏱️TIMESTAMPS⏱️
0:00 Introduction
0:29 Deferred tax concept
1:20 Deferred tax journal entries
3:06 Deferred tax assets example
3:30 Deferred tax liabilities example
4:49 Temporary timing differences example
Here’s the main concept for tax deferrals: the profit that you recognize for “book” or financial accounting purposes, is not the same as the profit you recognize for “tax” purposes. One and the same company can have two profit numbers in the same year: the profit per US GAAP or IFRS that is reported to the stock market, and the profit per individual country tax rules that is reported to the tax authorities.
When you prepare financial statements for “book” purposes, or review financial statements prepared on this basis, then remember that “book” profit is the primary perspective, and “tax reality” needs to get fit in. You match tax expense in the income statement to “book” profit before tax, and record deferred tax assets and liabilities on the balance sheet for temporary (timing) differences between “tax” and “book” accounting.
#deferredtaxes is a key concept to understand when you study #corporateincometaxes in accounting.
Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better stock market investment decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
Deferred tax explained
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