When doing a statement of Cash Flows using the indirect method, the adjustment to net income for a decrease in deferred tax liability is: A. No adjustment B. Negative adjustment I thought it was A, because DTL is a non-current liability. The “answer people” think it is a negative adjustment. Any ideas? thanks.
Deferred tax liability is like any other liability. If it reduces, you must have paid it out as income taxes.
But you only adjust Net Income for changes in CURRENT assets and CURRENT liabilities. Ahhh! I got it! I was thinking of an increase or decrease in tax rates. (Can’t remember which would lower DTL- any help with that concept?) Thanks smeet- that does make sense.
definitly B! the decrease of tax lib contributes positively when calculating net income. however, since this is not a cash flow, it needs to be deducted.