If you increase the current periods Deferred Tax Asset, you subtract the change from Cash Flow from Operations calculated via the Direct Method. And if you increase the Deferred Tax Liability for the current period, you add the change in the Liability in the Direct Method. Is this correct?
From my humble understanding, it is correct.
Not quite correct. You are sorta talking about the indirect method, I believe. In the direct method, you write a check to the IRS for $xxx, that’s your cash outflow. You don’t worry about chnages in balance sheet accounts. In the indirect you are adjusting for the non-cash lelements of income tax expense which are offsetted on the balance sheet.
I would think that in the direct method you only look at the tax expense in the income statement – you seem to be talking about the indirect method as Super I pointed out.
adb258 Wrote: ------------------------------------------------------- > I would think that in the direct method you only > look at the tax expense in the income statement – > you seem to be talking about the indirect method > as Super I pointed out. adb258 - Remember, you can’t just look at the income statement figure since it includes the effects of deferred taxes, as well as simpler situations where you end up paying the last installment of taxes for the year in question after year end, and thus have a taxes payable balance as of 12/31.