Deferred taxes and unearned revenue

CFA Level II
#1

Why do deferred taxes rise with increases in unearned revenue? Thanks

#2

If we get deposits from customers today, we have to pay taxes on those deposits, even though we don’t include them in our net income. Thus, our future taxes (when we earn the income) will be lower: lower future taxes means a deferred tax asset.

Take a look at the article I wrote on DTAs and DTLs; it may help: http://financialexamhelp123.com/dtas-and-dtls-how-to-keep-them-straight/.

#3

Why do we pay taxes on unearned revenue when it is recorded on the balance sheet as a liability and not on the income statement?

#4

Because we get cash for it. Governments tend to tax us on the cash we receive, not on the revenue we earn.

#5

thanks

#6

You’re welcome.