Question

Which of the following cause a deferred tax liability to occur?

1) Temporary differences between taxable income and accounting income
2) Taxable income being greater than accounting income
3) Taxable income being less than accounting income
4) Permanent differences between taxable income and accounting income

Answer 1

Deferred tax liability occurs when there are temporary differences between taxable income and accounting income.

Step-by-step explanation:

A deferred tax liability occurs when there are temporary differences between taxable income and accounting income. These temporary differences arise when income or expenses are recognized for tax purposes in a different period than they are recognized for accounting purposes.

For example, if a company receives income in one year but recognizes it as revenue for accounting purposes in the following year, a deferred tax liability will be created. The company will need to pay taxes on the income in the future, even though it has not been included in the current accounting income.

Therefore, option 1) Temporary differences between taxable income and accounting income, causes a deferred tax liability to occur.