Deferred Tax Asset & Deferred Tax Liability | Intermediate Accounting CPA Exam FAR

What are deferred tax assets and deferred tax liabilities? This introduction explains DTAs and DTLs, why GAAP income differs from taxable income, income tax expense as a plug, the journal entries, and the valuation allowance — taught by Professor Farhat for CPA candidates and accounting students in intermediate accounting and the FAR section. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Professor Farhat explains how temporary differences between GAAP pre-tax income and IRS taxable income create deferred tax liabilities and assets, how income tax expense equals current tax plus deferred tax, how to record the journal entries, and when a valuation allowance is required. Video Timeline & Key Concepts: 0:00 — Introduction 1:42 — The core difference between GAAP income and taxable income 13:36 — Deferred tax liability 18:47 — Income tax expense as the plug 26:37 — Journal entries 38:58 — Deferred tax asset 54:03 — Valuation allowance Frequently Asked Questions: Why does book income differ from taxable income? Financial statements follow GAAP while tax returns follow IRS rules, and the differences in timing of revenue and expense recognition create temporary differences. What is a deferred tax liability? A deferred tax liability is an obligation to pay more tax in the future because of a temporary difference, such as recognizing revenue for books before it is taxable. What is a deferred tax asset? A deferred tax asset is a future tax benefit from a temporary difference, such as warranty or litigation expense recognized for books before it becomes deductible. Why is income tax expense called a plug? Income tax expense equals current tax payable plus the change in deferred tax accounts, so it is recorded as the balancing figure in the journal entry. When is a valuation allowance recorded? A valuation allowance is recorded when it is more likely than not that a company will not realize the benefit of some or all of a deferred tax asset. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #FAR #deferredtax #valuationallowance #incometax #intermediateaccounting #ProfessorFarhat