Im using the indirect method to calculate the cash flow statement. should i subtract increase in deferred tax asset and add back increase in deferred tax liability?
What is a Deferred Tax Asset (DTA)?
A Deferred Tax Asset is an asset on a company's balance sheet that reduces taxable income for a business. This represents a temporary difference between the cash taxes that are paid and the taxes that are reported under GAAP accounting. The DTA is found under current assets on the balance sheet. The concept is explained further in the video below.
Increase in Deferred Tax Assets Impact on Statement of Cash Flow (SOCF)
In the operations section of the statement of cash flow, we record the cash expenses and income.
When a deferred tax asset increases, a company has paid out more taxes now and they do not need to pay out later - therefore this is a current cash expense.
- Increase in a DTA - decrease in cash balance
- Decrease in a DTA - increase in cash balance
Read More About Accounting Interview Questions
- Interview Question - Effect on all three financial statements
- Crash course on the 3 financial statements
- Deferred revenue decreases by 10, 3 statements?
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