Final answer:
Deferred income taxes resulting from temporary differences in depreciation methods should be classified as a current liability on Pittman's balance sheet.
Step-by-step explanation:
When a company, such as Pittman Co., utilizes different depreciation methods for financial statement reporting and income tax purposes, it results in temporary differences that are expected to reverse in the subsequent year. These temporary differences create deferred income taxes, representing the future tax effects of these timing variances. To accurately reflect the expected timing of their reversal, these deferred income taxes should be appropriately classified on Pittman's balance sheet.
In this case, since the differences are anticipated to reverse within the next year, the deferred income taxes should be presented as a current liability. Classifying these deferred income taxes as a current liability aligns with the principle of matching expenses with revenues in the period in which they occur. As the temporary differences are expected to impact taxable income in the near term, recognizing them as a current liability provides a clear representation of the company's short-term financial obligations.
This classification also offers transparency to stakeholders, such as investors and creditors, by providing insights into the timing of anticipated tax payments associated with these temporary differences. It allows financial statement users to understand the company's current tax obligations and aids in assessing its short-term financial health.
In summary, presenting deferred income taxes resulting from temporary differences as a current liability on the balance sheet is a prudent accounting practice. It accurately reflects the expected timing of their reversal and enhances the transparency of the company's financial position for stakeholders.