Deferred Income Tax Liability.

Abstract When the income tax treatment of any sort of income or expense differs from conventional accounting, problems of various types arise. The more complex the situation, the harder the teaching job involved. A case in point is the matter of accounting for deferred income tax liability resulting from accelerated amortization of emergency facilities for income tax purpose coupled with conventional depredations for other purposes. The treatment and illustrations that follow have been found to be effective in the classroom. If the installment method of accounting is used on tax returns and the accrual method is used for financial statements, a deferred tax liability on unrealized profits should be provided by debiting income tax expense with the estimated tax that will be paid on unrealized profits accumulated during each year when they ultimately were realized. In any other situation where profits reported in income statements are deferred on income tax returns the same practices should be applied.