An increase in a deferred tax liability is recognized when
A)the tax accountant omits taxable revenue from the tax returns.
B)net income measured under GAAP is greater than taxable income on tax returns because of temporary timing differences.
C)the amount of tax paid to the government is more than that calculated by the accountant on the company's tax return.
D)a tax audit by the IRS causes an increase in taxes due from a previous year's tax return.

Question

Quizplus · Accepted Answer

An increase in a deferred tax liability is recognized when there is a temporary timing difference between income reported on financial statements and income reported on tax returns. This occurs when net income measured under GAAP is greater than taxable income on tax returns, which causes the company to owe more in taxes in the future. Option A is incorrect because omitting taxable revenue would result in a decrease in deferred tax liability. Option C is incorrect because paying more tax than calculated would result in a decrease in deferred tax liability. Option D is incorrect because a tax audit that leads to an increase in taxes due would result in a current tax liability, not a deferred tax liability.

An Increase in a Deferred Tax Liability Is Recognized When