Question

The asset-liability approach for recording deferred income taxes is an integral part of generally accepted accounting principles. (b) Discuss the nature of the deferred income tax accounts and the manner in which these accounts are to be reported on the balance sheet.

Short answer

Accounting principles are those accounting rules that every organization should follow while preparing the book of accounts. One of the famous accounting principles is going concern.

Step-by-step solution

Nature of deferred income tax

The nature of deferred income tax strictly depends on its amount to be reported under the organization balance sheet under the head of assets or liabilities. The deferred income tax can be in two forms, i.e., deferred tax assets and deferred tax liability.

Reporting of the amounts

The deferred tax asset will be reported under the non-current assets section (other assets) in the organization's balance sheet. In contrast, the deferred tax liability will be reported under the balance sheet's non-current liabilities (long-term liability).