Deductible in the future just means that you will be able to deduct the expense on your tax return in the future.
Defered taxes is really about timing differences between financial and tax accounting. Sometimes an expense will never
be deductible for income tax purposes, which will create a permanent difference. Most times, you have a difference in how you
recognize expenses year over year when you compare book net income to taxable income. This is a temporary difference.
For example:
if taxable income is higher than book income, this creates a defered tax asset.
If book income is higher than taxable income, this creates a defered liability.
Book Income Tax Income
800 1,000
You pay taxes on the extra 200, but when you took a provision for income taxes you did not include the extra 200.
Lets assume a rate of 35%:
800*35%= 280 in income taxe expens per book
1,000*35%=350 income tax expense per return
The $70 difference is a defered tax asset
Entry below:
Debit – Provision for taxes – 280
Credit – Income Tax liability – 350
Debit – Defered tax asset – 70
Temporary Differences – Macrs Depreciation, Prepaid expenses, bad debt, sometimes revenue recognition policies
Permanent Differences – Dividends received deduction, 50% of meals and entertainment, Life insurance, municipal bonds.
FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.
.