Deferred income taxes arise because

Question

Quizplus · Accepted Answer

Deferred income taxes arise when a company reports different amounts of income or expenses for tax purposes than for financial reporting purposes. This can occur because companies can use different accounting methods for tax and financial reporting purposes. For instance, a company might use accelerated depreciation for tax purposes, which lowers taxable income and reduces taxes owed, but use straight-line depreciation for financial reporting purposes in order to spread the cost of the asset over its expected life. This results in a temporary difference between the amount of taxes owed and the amount reported on the financial statements, which creates deferred tax assets or liabilities. Therefore, option B is the correct answer.

Deferred Income Taxes Arise Because