Question

what are deffered income taxes and why night we observe so many companies reporting this account?

Answer 1

Differed income taxes are taxes that the company will have to pay in future on its taxable income and it arises because of the difference in the taxation framework and accounting framework. There can be differed income tax assets and differed income tax liabilities but the important thing to notice here is the deferred tax assets as well as liabilities are temporary difference and eventually will be settled in subsequent years. One simple example because of which differed income taxes can arise is the depreciation method used, a company might use straight line depreciation but the tax regulation requires you to use double declining balance or vice-versa. We often observe many companies reporting differed income taxes because of certain difference in the accounting framework and tax regulatory framework.