I discuss the basic concept of accounting for income taxes and deferred income taxes using the following sample data. Thus, it's only a matter of timing. Most transactions are accounted for the same way for accounting and IRS purposes, but most companies have from one to ten classes of transactions that are accounted for differently.
Depreciation is a typical difference.
Next, the differences have to be dealt with. After I have discussed the sample data, I make journal entries for each year and use T-accounts to track Deferred Income Taxes. I always refer to an annual report with respect to this topic. South-Western College Publishing. All Rights Reserved.