Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

Which of the following situations is most likely to create a deferred tax asset?

A company recognizes an expense for financial reporting purposes before it is deductible for tax purposes.

A company recognizes an expense for tax purposes before it is recognized for financial reporting purposes.

A company recognizes revenue for financial reporting purposes before it is taxable.

A company recognizes revenue for tax purposes before it is recognized for financial reporting purposes.

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Verified step by step guidance

Understand the concept of a deferred tax asset: A deferred tax asset arises when a company pays more taxes upfront (or recognizes less taxable income) than it owes based on its financial reporting. This creates a future benefit because the company will owe less tax in the future.

Analyze the first option: 'A company recognizes an expense for financial reporting purposes before it is deductible for tax purposes.' This situation creates a deferred tax asset because the company has recognized an expense that reduces its financial income but has not yet reduced its taxable income. The tax benefit will be realized in the future when the expense becomes deductible.

Analyze the second option: 'A company recognizes an expense for tax purposes before it is recognized for financial reporting purposes.' This situation does not create a deferred tax asset; instead, it may create a deferred tax liability because the company has reduced its taxable income before reducing its financial income.

Analyze the third option: 'A company recognizes revenue for financial reporting purposes before it is taxable.' This situation creates a deferred tax liability because the company has recognized revenue that increases its financial income but has not yet increased its taxable income. The tax obligation will be realized in the future when the revenue becomes taxable.

Analyze the fourth option: 'A company recognizes revenue for tax purposes before it is recognized for financial reporting purposes.' This situation does not create a deferred tax asset; instead, it may create a deferred tax liability because the company has increased its taxable income before increasing its financial income.