Question

The following information is available for ABC Corporation. All differences between book income and taxable income are related to depreciation ( a timing difference )

The tax rate is 20%

BOOK TAX

DEC.31 2017 100,000 70,000

DEC.31 2018 100,000 100,000

DEC.31 2019 100,000 130,000

Record the journal entries for taxes for each of the three years

Answer 1

Many times the financial numbers does not match with the numbers that are to be reported to the tax authorities.

This difference occurs because of temporary issues that get resolved in coming time.

So if the tax income in books is less than the income that has been taxed there will be a case of deferred tax liabilities

In other case if the taxable income is more than the booked income than this will be a case of “ Deferred tax asset”

Year	book income	Tax income	Difference	tax rate	Nature
2017	100,000	70,000	30,000	6,000	Deferred tax liability
2018	100,000	100,000	-	-	NIL
2019	100,000	130,000	(30,000)	(6,000)	Deferred tax asset

date	General Journal	Debit	credit
31.12.2017	Deferred tax expenses AC DR	6000
	To deferred tax liability		6000
	[being less income has been taxed
31.12.2019	Deferred tax asset Ac DR	6000
	To deferred tax expenses AC CR		6000
	[being more of income has been taxed]