Account showing estimated amount of future taxes on income earned and recognized for accounting purposes but not yet for federal income tax purposes. Thus, book income will exceed taxable income. In interperiod income tax allocation , this will result in tax expense being greater than tax payable.As a result, a deferred income tax liability will occur. It will eventually write itself off when the period for the temporary difference is fully reversed. Assume book income and taxable income are both $10,000.
However, straight-line depreciation is used for book purposes amounting to a charge of $1,000 while an accelerated depreciation method is used for tax purposes amounting to $1,500. The corporate tax rate is 34%. Relevant computations and journal entry follow:

See also deferred income tax charge.

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Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.

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