Final answer:
Deferred tax liabilities are netted against deferred tax assets on a company's balance sheet to represent the net expected future tax impact. These figures account for timing differences between accounting income and taxable income and help present a transparent financial position.
Step-by-step explanation:
Deferred tax liabilities should be netted against deferred tax assets. Deferred tax liabilities and assets are both accounting measures used to match taxes payable or refundable in future periods where the income is actually earned. When the net amount is calculated, it represents the expected future tax payment or receipt.
Companies report these figures on their balance sheet to provide a more accurate picture of their financial position. Deferred tax liabilities generally arise when there's a difference between the accounting income and taxable income due to timing or differences in recognition of certain transactions. On the other hand, deferred tax assets are recognized when it is anticipated that a firm will have future taxable income against which these temporary differences can be deducted.
It is crucial that a company accurately assesses and presents the net position of its deferred tax assets and liabilities to provide transparent financial information to stakeholders. This presentation is guided by various accounting standards, including the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP) in the United States.