Deferred Tax Liability DTL

Definition: Future tax obligation

Scope:ModerateDifficulty:Difficult

Future tax obligation

Common Journal Entries

Account	Debit	Credit
1. Record deferred tax liability
Taxable income < book income due to accelerated depreciation; timing difference × 25% = $5,000.
Income Tax ExpenseExpense+	$5,000
Deferred Tax Liability		$5,000
Future tax obligation from temporary difference.
2. Reverse as difference unwinds
In later year, book depreciation < tax depreciation.
Deferred Tax Liability	$2,000
Income Tax ExpenseExpense−		$2,000
Liability decreases as timing difference reverses.

T-AccountsA visual representation of a ledger account shaped like the letter T. Left side shows debits, right side shows credits.

Income Tax ExpenseIncome Tax ExpenseExpenseA cost incurred in the process of earning revenue. Normal balance: debit. Debits increase, credits decrease.

DebitLeft side of a journal entry. Increases assets and expenses. Decreases liabilities, equity, and revenue.

$5,000.00

◀ Normal bal.

CreditRight side of a journal entry. Increases liabilities, equity, and revenue. Decreases assets and expenses.

$2,000.00

$3,000.00

Deferred Tax LiabilityDeferred Tax LiabilityAssetA resource owned by the business. Normal balance: debit. Debits increase, credits decrease.