When a temporary difference causes cumulative taxable income to rise faster than accounting income reported to date, a Deferred Tax Asset (DTA)will be recognized (Assume that the Taxes Payable Method)is NOT used.

Question

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When cumulative taxable income rises faster than accounting income, it results in a Deferred Tax Liability (DTL), not a Deferred Tax Asset (DTA), because it indicates that more taxes have been paid or are payable in the short term than what is expected based on the accounting income.

When a Temporary Difference Causes Cumulative Taxable Income to Rise