Question

Which of the following best describes how to account for the difference between a company's financial income and taxable income, under generally accepted accounting principles?

Computation of deferred income tax based on temporary and permanent differences.

Computation of deferred income tax based on permanent differences.

Computation of income tax expense based on taxable income.

Computation of deferred tax assets and liabilities based on temporary differences.

Answer 1

Answer : Computation of deferred tax assets and liabilities based on temporary differences.

Explanation

Deferred Tax asset is Item on a company' s Balance sheet that is used to reduce taxable income in future year and Deferred tax liability is the opposite of Deferred tax asset ,which can increase the amount of income tax owed by company.