Deferred Tax Assets and Liabilities

Balance-sheet amounts arising principally when accounting carrying amounts and tax bases differ temporarily, causing future tax deductions or taxable amounts if the underlying assumptions are realized.

Why It Matters

Deferred taxes affect acquisition accounting, asset valuation, losses carried forward, effective tax rates, book equity, and the bridge from accounting earnings to cash taxes. Their recognition can depend on expectations about future taxable profit and therefore contains information as well as estimation risk.

Reading the Measure

A working relation and an interpretive limit for corporate-finance use.

Interpretive caution

A deferred tax liability is not necessarily a near-term tax bill, and a deferred tax asset is not cash. Timing, jurisdiction, realization probability, and tax-law change must be assessed.

Accounting reference: SEC: Beginners' Guide to Financial Statements