What are the Deferring taxes? from sarah39s song bagpipe sheet music Watch Video

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✓ Published: 26-Apr-2024

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Deferred taxes, also known as deferred tax liabilities or deferred tax assets, arise from temporary differences between the accounting treatment of certain items and their tax treatment. These differences can result in taxes being payable or recoverable in future periods. Deferred taxes reflect the concept that taxable income and accounting income may differ for the same transaction or event in a given period.<br/><br/>Here's how deferred taxes work:<br/><br/>Temporary Differences: Temporary differences occur when the way an item is treated for tax purposes differs from its treatment in the financial statements. For example, depreciation methods used for tax reporting may differ from those used for financial reporting, resulting in temporary differences in the timing of recognizing expenses.<br/>Deferred Tax Liabilities: If taxable income is expected to be greater than accounting income in future periods due to temporary differences, a deferred tax liability is recognized. This represents the amount of income tax that will be payable in future periods when these temporary differences reverse.<br/>Deferred Tax Assets: Conversely, if taxable income is expected to be less than accounting income in future periods due to temporary differences, a deferred tax asset is recognized. This represents the amount of income tax that will be recoverable in future periods when these temporary differences reverse.<br/>Recognition and Measurement: Deferred tax liabilities and assets are recognized and measured using enacted tax rates expected to apply when the temporary differences reverse. They are adjusted for changes in tax rates or tax laws.<br/>Presentation: Deferred tax liabilities and assets are reported on the balance sheet and classified as non-current assets or liabilities because they represent future tax consequences.<br/>Reversal of Temporary Differences: When temporary differences reverse, deferred tax liabilities or assets are adjusted accordingly, leading to changes in income tax expense or income tax recovery in the period of reversal.<br/>Deferred taxes play a significant role in financial reporting because they reflect the timing differences between when transactions affect taxable income and when they affect accounting income. Understanding and appropriately accounting for deferred taxes are essential for accurately presenting a company's financial position and performance.