Final answer:
Under the asset-liability method, a deferred income tax asset or liability is classified on the balance sheet as a current or long-term amount, depending on the timing of the expected reversal of the underlying temporary differences.
Step-by-step explanation:
Under the asset-liability method, a deferred income tax asset or liability is usually classified as either a current or long-term amount on a company's balance sheet, depending on when the underlying temporary differences are expected to reverse. This approach requires that companies recognize future tax consequences of temporary differences between the book and tax bases of assets and liabilities. Deferred tax assets and liabilities should be recognized for the future tax consequences attributed to those differences.
A T-account helps to visually represent the balance sheet with assets on the left side and liabilities and net worth (or equity) on the right side, ensuring that assets always equal liabilities plus net worth. Therefore, in a T-account, a deferred tax asset or liability is included on the side of the balance sheet that will match the future reversal of the temporary difference.