[KNVB]

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There are 4 causes of temporary differences:

1. Rev/gains that are included in taxable income, AFTER they have been included in financial accounting income, which results in a deferred tax liability.

2. Rev/gains that are included in taxable income, BEFORE they have been included in financial accounting income, which results in a deferred tax asset.

3. Expenses/Losses deducted from taxable income, AFTER they have been deducted from financial accounting income, which results in a deferred tax asset.

4. Expenses/Losses deducted for taxable income, BEFORE they are deducted from financial accounting purposes, which results in a deferred tax liability.

I’ve included a picture of the page. Could someone explain this to me? I’ve always sucked at tax and I’m finding this very difficult to understand. Could someone explain what F/S income first or tax return alter or visa versa? What does first mean?

FAR - Studying
AUD - 0
REG - 0
BEC - 0

[HopefulCPA0601]

This all just means whether tax or book picks up the income or deduction first.

So for example depreciation, tax uses MACRS (accelerated depreciation) and book uses straight line. This means that tax will have less taxable income than the book. Since they get this benefit now, they will have to owe more money in the future. So they defer the liability –> deferred tax liability

If tax picks up income before books does, they will pay more tax now than book when they apply the enacted tax rates. By doing this, they will get a benefit for it later (like good karma). So they defer the asset for the future – deferred tax asset.

Same idea applies for deductions, except you just do the opposite, if tax takes a big deduction now, they will have to pay liability later in the future.

The future deferred amounts will reverse over time depending on the asset or liability they are related to. The impact they will have on your deferred tax expense (if its a DTL) or deferred tax benefit (if its a DTA) can be calculated by applying the future enacted rate to the dtl/dta.

I hope that helps you a little!!

BEC: 65 - 79* - 84 DONE
AUD: 65 - 76 DONE
REG: 63 - 77 DONE
FAR: 65 - 63 - 67 - 69 - 73 - 71 - 83 DONE

Becker Notes & Flashcards, Wiley Test Bank, Ninja MCQ

[Anonymous]

Taxable Revenues Later = Deferred Tax Liability

[ICE-GI]

1. Involuntary conversion of nonmonetary asset which is recognized under Book but deferred for Tax

2. Contractors Accounting (Percentage of Completion vs. Completed Method

3. Equity Method (Undistributed dividends) for Book and cost method for Tax.

4. G – Gains > Unrealized holding gains under Book (including the FV option), but deferred under Tax.

5. Installment Sales

Deductible Expenses Now = Deferred Tax Liability

[ADD-P]

1. Amortization of Franchise

2. Depreciable Property

3. Depletable Resources

4. Prepaid expenses that are deducted on the tax return in the period paid

Deductible Expenses Later = Deferred Tax Asset

[BOWLLESS]

1. Bad Debts Expense (Allowance vs. Direct Write-Off)

2. Organizational Costs

3. Warranty Liabilities

4. Litigation accruals

5. Loss – Unrealized holding losses under Book (including the use of FV option) but deferred under Tax

6. Estimated liabilities related to discontinued operations or restructurings

7. Stock-Based Compensation Expense

8. Start-up Costs

Taxable Revenues Now = Deferred Tax Asset

[SPS]

1. Subscriptions Received in Advance

2. Prepaid Rent/Interest/Royalties/Contracts

3. Sales and leasebacks under Book (income deferral) but reported as sales under Tax

P.S.

For the specific 20 examples of temporary difference that are listed above, I STRONGLY suggest to every candidate before testing for FAR, to make sure to MEMORIZE if a certain example is (↑-FS ↓- IRS) or (↓-FS ↑-IRS).

[Anonymous]

Book income > Taxable income = DTL

Book Income < Taxable income = DTA

[Author]

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