Deferred tax explained

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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!

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As a Tax Director, I use your video's to train in house Accounting colleagues on the concepts. That's how good they are. Thank you Philip!

Faska_

for the first time in my 10 years as an accountant - Deferred Tax accounting makes sense! than you for your video!

zenanancynyagabona-zaharia

Thanks! Taking the CPA FAR exam tomorrow and your explanation cleared it up for me!

manamejeff

Thank you soooo much..! Finally I understood these concepts. I am preparing for my CMA certification exam and, thanks God, I found your video. Explanation is crystal-clear, like no other. Thanks again.

enriquegonzaleznieto

*This is great. Thank you!* _And thank you for the real-life examples._

jamesperry

I listened at .75 speed to keep up. I need to go over this subject a few more times to feel comfortable with it. An example of how a company might encounter this issue for the very first time would be helpful.

TomKaren

excellent, no nonsense, explanation right to the point.

houshangy

now this is how you explain something! thanks

zander

What are current tax assets in balance sheet?

KrishanSingh-gzop

Please post a video on Valuation allowance booked against DTA.

MsYA

Thank you so much for this.
I studied IAS 12 3 years back and completely forgot 😂

muhammadumer

Quick question.
If the book tax = 35K
But the actual tax = 40k
How is that an expense? It should be a liability right?

If book tax = 40k
But actual tax = 35k
Then it would actually be an asset, because you paid accounted for 5k too much.

Am i missing something here?

MercedesBenxx

I see some missing links on the other arm of dta ot dtl ...hence confuses pipo

ronaldluwis

Is keeping the balance between Asset and Equity side major reason for this? For example, if we calculated 1000 tax for this year, and tax authorities 2000. Liability will increase by 2000, since we recognized our tax expenses 1000, retained earning will be decreased by 1000. Overall there is 1000 increase in Capital+Liability side, for keeping balance we create Defferred tax asset on the Asset side of 1000. Is this approach true or there is something else lies behind this?

elbaymammadyarov

Hi Phillip, are you Dutch? (From your acccent)

LuxxomannLU

If you calculate an income tax expense at 10.000 and the actual bill is 12.000, then you've sold yourself short of 2.000. How is that an asset for you? You pay 12.000 which is 2.000 more than you accounted for. Those 2.000 are paid because thats what you owe. How do you have 2.000 'left over' to expense at a later time?

kanalensomermads

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