deferred

income

tax

Liabilities caused by an income that has been included in the accounting account but not included in the tax account are recorded in the balance sheet.

classify

Deferred income tax is divided into deferred income tax liabilities and deferred income tax assets in accounting subjects.

Literally, deferral means postponing income tax to a later stage. So, since it is an extension, that is the time difference. Permanent differences will not be postponed. If you don't pay, you don't pay, and if you pay more, you pay more.

Generally speaking, there is income tax payable on the tax return adjusted according to the tax law. The income tax payable is calculated according to the taxable income stipulated in the tax law, including the permanent difference of accounting profits and timing difference.

[Edit this paragraph] The relationship between deferred income tax and income tax payable

There are two ways to confirm income tax expenses (tax payable-enterprise income tax payable): tax payable method and tax impact accounting method. No matter what accounting method the enterprise adopts, the tax payable-income tax payable is the same. Under the taxable amount method, deferred income tax assets or liabilities arising from timing difference are not recognized, so the income tax expense recognition is consistent with the payable enterprise income tax. Under the tax impact accounting method, income tax expenses should be recognized according to the time difference.

Accounting treatment of deferred income tax;

The income tax payable has been determined (the data is subject to the final settlement of the tax return), but how is timing difference reflected in the books? Therefore, through the adjustment of "deferred income tax assets" and "deferred income tax liabilities", the income tax expenses attributable to the later period will be moved forward, so there is an entry:

Debit: deferred income tax assets

Credit: income tax expense

Debit: income tax expense

Credit: deferred income tax liabilities

Popular understanding: in addition, from the perspective of income, assets increase, expenses decrease, liabilities decrease, and total net assets should increase. However, the tax law does not recognize this increase. If this increase is true, then we should pay more taxes for this increase and form deferred income tax liabilities.

Similarly, when assets decrease, expenses increase and liabilities increase, total assets decrease accordingly. But the tax law does not recognize this reduction. But it has indeed decreased. The tax law will not be confirmed for the time being, but will be confirmed later. This reduction will make the future tax less and form deferred income tax assets.