deferred tax assets & liabilities someone, assets, please, Hello

mfleming1983

Hello,
Can someone please help me grasp the concept of deferred tax assets and liabilities.
Ty for any replies.

kkn006

For whatever reason, this was very difficult for me to grasp as well. I finally got it, but it took a while. I'll try to take a stab at an explanation tomorrow when I have some time, but my advice is to give that section a break and come back to it later. The second time through might make a little more sense (as it did for me).

SkipE99

Hey I'll basically tell you what my intermediate two teacher old....

"THE GOVERNMENT DOESN'T CARE IF YOU'RE GROWING FUNNY PLANTS IN YOUR BASEMENT, THEY WANT THEIR MONEY."

With that said remember that THE GOVERNMENT WANTS THEIR MONEY. This means that if you receive money for 'unearned revenue' they want to tax it. But, that makes no sense, why would they tax you on money that you haven't fully earned/reported on your income statement? Answer (look above if you forgot): THE GOVERNMENT WANTS THEIR MONEY.

Basically anytime you are getting money they want their peice. Sometimes, you can defer your tax liability by paying more up front. You have to consider the two books that profits are being accounted for in. The real book, and the tax book. For tax purposes people will tax at accelerated rates and lower their current tax expense. This creates a future liability because the government missed out on the money they should have gotten.

Opposite case. You sell widgets and warrantys for widgets. The government gets to tax the widgets when you sell them, but they also get to tax the warranty money. The warranty money is still considered a liability by your company because you might have to actually fix the widget. However, THE GOVERNMENT WANTS THEIR MONEY, so you will need to put this in your tax books revenue.

I hope these examples explain to you the basic concept. If you have a specific question let me know. I will try to tell you the rationale.