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What is the journal entry to record a deferred tax liability?

A deferred tax liability occurs as a result of a temporary difference between taxable income and financial income under U.S. GAAP. A deferred tax liability is when financial income is greater than taxable income, which means that the entity pays a lower tax amount now and will have higher taxes in the future.

As the visual below illustrates, when a company has a deferred tax liability, current income tax expense is a debit for the amount of tax the company expects to pay, which is based on taxable income. The other debit is to income tax expense deferred, which is the amount of income tax that will need to be paid in future periods. The offsetting credit is to the deferred tax liability and the income tax payable. In the subsequent year when the deferred income tax is paid, the deferred tax liability reverses and is eliminated from the balance sheet.


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