deferred tax liability is liability (if reversable in future)

CFA Level I
#1

but it’s a credit? how is it a credit, if it’s a liability? similarly, defferred tax asset is asset, if reversal expected…but it’s a debit. how is it a debit if it’s an asset?

#2

Credit Balance is + in liabb While Debit balance is + In assets…

#3

grrr…still don’t get it…guess just have to memorize it

#4

an asset is a debit, a liability is a credit DTA DTL

#5

Deferred tax is all about the timing of expense recognition in the ACCOUNTS. It might help you to think of it in this way: In an accounting period, a deferred tax liability arises when for ACCOUNTING purposes you have to make a taxation charge to the income statement, but for TAX purposes the cash payment is not yet due in that period. So: Dr. Income Tax (I/S) Cr. Deferred Tax Liability (B/S) Then when the tax becomes due you have the provision (liability) against which to settle the cash payment without affecting the I/S. A deferred tax asset is the opposite (ie Tax (cash) is paid to the tax authorities before it is due to be recognised as an expense from an accounting perspective). You can consider deferred tax assets to be a sort of “prepaid expense”.