Deferred Tax Liabilities in Financial Accounting

This video shows what a deferred tax liability is in Financial Accounting. A deferred tax liability is an increase in tax payable in future years due to a temporary timing difference. For example, if a firm uses straight-line depreciation for book purposes this will lead to a temporary tax difference because accelerated depreciation is used for tax purposes. Thus, in the early years of the asset's life the amount of depreciation recorded for tax purposes wil exceed the amount of depreciation for book purposes (the excess tax depreciation over book depreciation multiplied by the tax rate is the increase in the deferred tax liability account). This difference will reverse in the later years of the asset's life when the book depreciation exceeds the tax depreciation (this will decrease the deferred tax liability account).

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