Question

when revenue is taxed when collected, but recognized in income statements in later years when the performance obligation is satisfied, what is created? multiple choice question. deferred tax liability deferred tax asset deferred tax revenue

Answer 1

A deferred tax liability is created when revenue is taxed upon collection but recognized in income statements in subsequent years when the performance obligation is fulfilled.

Step-by-step explanation:

When revenue is taxed when collected, but recognized in income statements in later years when the performance obligation is satisfied, what is created is a deferred tax liability. This situation arises because the company has received cash and thus has the tax obligation from that revenue before it has reported the income in its financial statements. According to accounting principles, this creates a liability because the company owes taxes on revenue that, for accounting purposes, has not yet been earned. In this case, the revenue is not recognized for tax purposes until the performance obligation is satisfied, leading to a temporary difference between taxable income and accounting income.