Assume both current and deferred taxes are positive values.Given this,deferred taxes will
A)reduce the current tax expense and thus increase net income.
B)increase expenses and increase operating cash flows.
C)increase expenses and lower operating cash flows.
D)reduce net income but not affect the operating cash flows.
E)reduce both net income and operating cash flows.

Question

Quizplus · Accepted Answer

Deferred taxes represent the difference between the tax expense incurred in the income statement and the taxes actually paid to the government, and are recognized when there are temporary differences between the carrying amount and tax basis of assets and liabilities. Deferred taxes may reduce net income, as they can increase income tax expenses, but they generally do not affect operating cash flows, as they do not represent cash outflows. Therefore, the correct choice is D, which indicates that deferred taxes reduce net income but not affect operating cash flows.

Assume Both Current and Deferred Taxes Are Positive Values