Of the following temporary differences, which one ordinarily creates a deferred tax asset? Rent received in advance. Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset? Revenue collected in advance.
Which temporary difference would result in a deferred tax asset?
Transitively, having lower book income than tax income will result in the creation of a deferred tax asset. Deferred Tax Liability/AssetA deferred tax liability or asset is created when there are temporary differences between book tax and actual income tax.
What creates a deferred tax asset?
A deferred tax asset is often created when taxes are paid or carried forward but cannot yet be recognized on the company’s income statement. These assets help reduce the company’s future tax liability.
What are examples of deferred tax assets?
Another example of Deferred tax assets is Bad Debt. Let’s assume that a company has a book profit of $10,000 for a financial year, including a provision of $500 as bad debt. However, for the purpose of taxes, this bad debt is not considered until it has been written off.
Which of the following creates a temporary difference between financial and taxable income?
A temporary difference exists because depreciation deduction for tax purpose and financial reporting purpose. creating a deferred tax asset. All of the following can result in a temporary difference between pretax financial income and taxable income except for. payment of premiums for life insurance.
What are examples of temporary differences?
Temporary differences arise when business income or expenses are recognized in different periods on the financial statements than on the tax returns. These differences might include revenue recognition, expenses incurred but not yet paid or depreciation calculation differences, reports Finance Train.
Which of the following is a temporary difference classified as a revenue or gain?
Temporary Differences: Revenues or gains are taxable BEFORE they are recognized in financial income. Ex. Advance Subscriptions, Rental Receipts, Sales/Leasebacks, Prepaid Contracts Expenses or losses are deductible BEFORE they are recognized in financial income.
What is temporary difference?
A temporary difference is the difference between the carrying amount of an asset or liability in the balance sheet and its tax base. A deductible temporary difference is a temporary difference that will yield amounts that can be deducted in the future when determining taxable profit or loss.
What is a deferred asset?
A deferred asset is an expenditure that is made in advance and has not yet been consumed. The expenditure is made in advance, and the item purchased is expected to be consumed within a few months. This deferred asset is recorded as a prepaid expense, so it initially appears in the balance sheet as a current asset.
What causes deferred tax assets and liabilities?
As per AS 22, deferred tax assets and liability arise due to the difference between book income & taxable income and do not rise on account of tax expense itself. MAT does not give rise to any difference between book income and taxable income.
What are deferred taxes?
A deferred income tax is a liability recorded on a balance sheet resulting from a difference in income recognition between tax laws and the company’s accounting methods. For this reason, the company’s payable income tax may not equate to the total tax expense reported.
What is a deductible temporary difference?
Deductible temporary differences are differences which cause the taxable income and hence income tax payable in current period to be higher than the accrual income tax.
Which of the following causes a permanent difference between taxable income and pretax accounting income?
Which of the following causes a permanent difference between taxable income and pretax accounting income? Interest income on municipal bonds. In reconciling net income to taxable income, interest earned on municipal bonds is: A permanent difference.
What is the difference between tax expense and tax payable?
The tax expense is what an entity has determined is owed in taxes based on standard business accounting rules. This charge is reported on the income statement. The tax payable is the actual amount owed in taxes based on the rules of the tax code.
Which of the following is an example of a permanent difference?
Five common permanent differences are penalties and fines, meals and entertainment, life insurance proceeds, interest on municipal bonds, and the special dividends received deduction.