Deferred Tax Accounting: Comprehensive Guide with Examples

Name: Deferred Tax Accounting: Comprehensive Guide with Examples
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Master deferred tax accounting with real-world examples and expert guidance to enhance your financial reporting accuracy

Created byEDUCBA Bridging the Gap

Last updated 10/2024

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What you'll learn

The differences between GAAP and tax accounting.
How to recognize and calculate deferred tax liabilities and assets.
Practical examples of deferred tax in action, covering both profit and loss scenarios.
The concept of valuation allowances and their application.
The treatment of net operating losses and the reversal of deferred tax assets.
The impact of revalued assets on deferred tax accounting.

Course content

5 sections • 27 lectures • 2h 46m total length

Introduction1:57
Discover the basics of deferred tax, including how to calculate and record it. Learn how tax expense, valuation allowances, and net operating losses affect financial reporting.

Calculation of Profit6:40
Calculate profit by subtracting expenses from income and understand how book profit differs from tax profit under US GAAP, including deferred tax and timing differences.
Matching Concept5:33
Apply the matching concept in accrual accounting by aligning revenue with expenses in the same period, and learn how credit sales, payables, and tax rules affect profits.
GAAP Vs. Tax Accounting4:41
Compare GAAP and tax accounting differences in depreciation methods (straight-line vs. Msrs), basis options (accrual vs. cash or modified), and accrual treatment of expenses.
What Creates Deferred Tax8:17
Learn how temporary timing differences and permanent differences cause deferred tax assets and liabilities, with examples from depreciation, bad debt, municipal bonds, goodwill amortization, and meals and entertainment.
Deferred Tax Liability4:11
Identify timing differences between book profits and tax profits, and explain how permanent differences from tax-exempt income tilt tax outcomes, with deferred tax liability arising from depreciation method divergences.
Working on Example 15:41
Calculate the deferred tax liability arising from depreciation differences between financial and tax reporting for a 70 lakh pre-tax income, using a 40% tax rate.
Working on Example 1 Continue5:16
Continue working on example 1 in deferred tax accounting by calculating taxable income, preparing the t account, and determining current and deferred tax expense and the journal entry.

Deferred Tax asset5:29
Learn how deferred tax assets arise from differences between book value and tax basis, creating future tax benefits, and how they differ from deferred tax liabilities in temporary differences.
Working on Example 27:33
Explore example 2 of deferred tax accounting, tracing temporary differences from depreciation and installment sales under tax versus financial reporting, and prepare the journal entries for current and deferred tax.
Working on Example 39:21
Compute the book-to-tax differences for warranty and unearned rent, determine taxable income and tax payable, and prepare the associated journal entries for deferred tax assets and liabilities.
Working on Example 46:55
Compute taxable income from the end-of-year temporary difference and record 36,000 income tax payable, 54,000 deferred tax liability, and 90,000 tax expense on the balance sheet and income statement.
Working on Example 56:27
Calculate taxable income and income tax for 2012, record the deferred tax asset and journal entry, and illustrate its presentation on the income statement and balance sheet.
Working on Example 68:21
Learn to record deferred tax assets and valuation allowances when temporary differences exist, calculating the current tax provision and payable with a focus on a realistic realization assumption.

Valuation Allowance8:57
Explore how conservative accounting governs recognizing deferred tax assets and uses a 50 percent threshold to set valuation allowances, with impact on income tax expense.
Valuation Allowance Continues5:12
Assess unfavorable circumstances and limited carryforwards to determine a valuation allowance for deferred tax assets, and write off when realization is not likely, including regulatory reporting considerations.
Sources of Taxable Income3:07
Identify the four sources: prior carryback years, future reversals, future taxable income excluding reversals and carryforwards, and tax planning strategies; apply a valuation allowance to the deferred tax asset.
Reversal of Deferred Tax Asset1:28
Reversing a deferred tax asset or credit yields a one-time boost to net income by reducing income tax expense, signaling analysts to adjust for reversals in financial statements.
Net Operating Losses7:43
Explains net operating losses and how they create a deferred tax asset through carry forward. Covers carry back, carry forward options, and the impact of tax-rate changes.
More on Operating Losses5:26
Analyze how to carry back a 2015 operating loss against earlier profits, calculate refunds at 30 percent, and then carry forward remaining losses as a deferred tax asset.
Working on Example 78:31
Prepare a net operating loss schedule for 2009–2015, apply carry back to 2010, compute tax refunds, and journalize income tax receivable and benefit due to loss carry back.
Working on Example 7 Continues5:54
Explain how to carry back 2013 losses against 2011 and 2012, then carry forward the 2013 losses; compute deferred tax assets and related journal entries at 40%.
Working on Example 86:22
Learn to adjust a deferred tax asset for JC Corp in 2014, with a 450,000 temporary difference at 40%, recording income tax expense, tax payable, and a 30,000 valuation allowance.
Working on Example 910:24
Adjust pre-tax income for future taxable amounts and deductibles to calculate taxable income and tax payable, then assemble a deferred tax assets and liabilities schedule and T accounts.
Working on Example 9 Continues8:31
Analyze the deferred tax liability and asset in t-accounts, compute net deferred tax expense, and record the journal entry debiting income tax expense and asset, crediting liability and tax payable.

Revalued Assets1:40
Recognize the deferred tax implications of asset revaluation, adjust the temporary difference, and record the entry debiting the revaluation reserve and crediting the deferred tax liability in comprehensive income.
Conclusion7:11
Identify temporary and permanent differences, determine deductible and taxable amounts, compute deferred tax liabilities and assets, apply valuation allowances, and record journal entries for current and non-current positions.

Requirements

Basic Understanding of Accounting Principles: Students should have a foundational knowledge of accounting, including concepts like profit, loss, and the matching principle.
Familiarity with Financial Statements: Students should be comfortable reading and interpreting financial statements such as balance sheets, income statements, and cash flow statements.
Interest in Tax Accounting: While prior experience in tax accounting is not mandatory, a basic understanding of tax systems and how taxes affect businesses will be beneficial.
Willingness to Work on Practical Examples: The course involves several hands-on examples, so students should be ready to engage with real-world scenarios involving deferred tax calculations.

Description

Deferred tax accounting can be complex, but it is essential for businesses and financial professionals to understand how taxes affect financial statements. This course provides an in-depth exploration of deferred tax liabilities and assets, guiding you through their calculation, recognition, and application using real-world examples. By focusing on the fundamental concepts and providing practical scenarios, students will gain a clear understanding of the deferred tax framework and its importance in accounting.

Section 1: Introduction

The course begins with a brief Introduction that lays the foundation for deferred tax accounting. In Lecture 1, you will get an overview of how deferred tax fits into financial accounting and reporting, highlighting its role in ensuring accurate profit representation. This sets the stage for understanding how taxes differ between financial accounting and tax reporting.

Section 2: Calculation of Profit

In this section, we dive into the calculation of profit and how deferred taxes come into play. Lecture 2 introduces the Calculation of Profit, emphasizing the concept of tax adjustments. Lecture 3 covers the Matching Concept, which ensures that revenues and expenses are recognized in the same period. Lecture 4 explains the key differences between GAAP vs. Tax Accounting, helping you understand how financial and tax accounting differ. In Lecture 5, we explore What Creates Deferred Tax, followed by a detailed breakdown of Deferred Tax Liability in Lecture 6. To solidify these concepts, Lectures 7 and 8 provide a practical example, showing you step-by-step how deferred tax liabilities arise and are calculated.

Section 3: Deferred Tax Asset

Building on the previous section, this part of the course focuses on Deferred Tax Assets. In Lecture 9, we define and explain how deferred tax assets are recognized. The section features multiple real-world examples, starting from Lecture 10 through Lecture 14, where students work through various scenarios that highlight the importance of timing differences and how deferred tax assets can arise from losses or deductible temporary differences.

Section 4: Valuation Allowance

Valuation allowances are a critical concept in deferred tax accounting, particularly in determining whether a company can utilize its deferred tax assets. Lecture 15 introduces Valuation Allowance, explaining why and how it is applied. Lecture 16 continues with more in-depth analysis. In Lectures 17 and 18, you will learn about the Sources of Taxable Income and how the reversal of deferred tax assets affects financial reporting. Lectures 19 and 20 discuss Net Operating Losses, while Lectures 21 to 25 provide additional examples to reinforce understanding, showing how valuation allowances and operating losses interplay in tax accounting.

Section 5: Revalued Assets and Conclusion

The final section wraps up the course by discussing Revalued Assets in Lecture 26. This lecture highlights the implications of revaluing assets for tax purposes and how deferred taxes are adjusted accordingly. Lecture 27 concludes the course with a summary of key concepts and takeaways, reinforcing the importance of deferred tax accounting in maintaining accurate financial records.

Conclusion:

By the end of this course, students will have a comprehensive understanding of deferred tax accounting, including the calculation of deferred tax liabilities and assets, the application of valuation allowances, and the impact of revalued assets. Through practical examples, you will gain the confidence to apply these principles in real-world scenarios, ensuring that your financial statements reflect accurate tax positions.

Who this course is for:

Accounting Students and Graduates: Those looking to deepen their understanding of deferred tax, asset valuation, and tax accounting principles.
Finance Professionals: Accountants, auditors, and financial analysts who want to improve their knowledge of deferred tax calculations and the impact of tax on financial statements.
Business Owners and Entrepreneurs: Individuals running their own businesses who need to understand how tax liabilities and deferred taxes affect their financial health.
Tax Consultants and Advisors: Professionals providing tax advisory services, especially those looking to specialize in deferred tax assets, liabilities, and valuation allowances.
Anyone Interested in Corporate Taxation: Individuals with a general interest in tax accounting and corporate financial structures, even with minimal prior experience.

Deferred Tax Accounting: Comprehensive Guide with Examples

What you'll learn

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Course content

Introduction1 lecture • 2min

Calculation of Profit7 lectures • 40min

Deferred Tax Asset6 lectures • 44min

Valuation Allowance11 lectures • 1hr 12min

Revalued Assets and Conclusion2 lectures • 9min

Requirements

Description

Who this course is for: