Final answer:
Deferred tax liabilities occur due to timing differences between accounting and tax recognition of revenue and expenses. Examples include different depreciation methods or recognition timing of revenue and expenses. These liabilities impact future tax payments and financial reporting.
Step-by-step explanation:
Differences that can create deferred tax liabilities for the taxes to be paid on future taxable amounts arise when there are temporary differences between the tax base of an asset or liability and its carrying amount on the financial statements. These differences occur due to variances in the timing of when revenue and expenses are recognized for accounting purposes as opposed to when they are recognized for tax purposes. A classic example could be when a company uses different depreciation methods for accounting and tax purposes; the accelerated depreciation method might reduce taxable income upfront leading to higher taxes in the future when the accounting depreciation catches up.
Other scenarios that may lead to deferred tax liabilities include having revenues that are recognized for financial reporting purposes before they are taxable, or expenses recognized in the financial statements after they have been deducted for tax purposes. Furthermore, companies can estimate certain expenses differently for financial reporting than for tax reporting, such as warranties or bad debt expenses, which can also result in the establishment of deferred tax liabilities.
It is important for entities to track these differences because they will eventually settle in the future, potentially impacting the company's future tax payments and financial position. This accounting concept ensures that the company's financial statements reflect the future tax consequences of current transactions.