[ig1151]

Can someone explain why Rent Receivables and Prepaid Insurance are deferred Income tax liabilities?

AUD - 75, REG - 77, BEC - 79, FAR - 76

After 1 and 1/2 years of studying, I'm a CPA

[Anonymous]

Both situations increase your future taxable income as compared to book income.

Rent receivable will increase the book income as earned but does not yet increase the taxable income until it has been received. Since it will be taxed in the future when received, it is a deferred tax liability.

Prepaid insurance cannot be deducted from the books until accrued but is deducted now from tax income so the taxable income is lower now. Sometime later when it is accrued, tax income will be higher than book income.

Hope that's right, hope it helps.

[ig1151]

Thanks brla,

That does help. it comes down to when will it hit the books. If income hits the books first, then it will hit the tax return later, which causes a liability. If expense hit the books first, then it will hit the tax return later, which will create an asset, and vice versa. That's how I rationalize it in my head. But yes your explanation helped me think through it. Thanks for your help again.

AUD - 75, REG - 77, BEC - 79, FAR - 76

After 1 and 1/2 years of studying, I'm a CPA

[Author]

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