Advanced Accounting

Question 1

What causes deferred tax liabilities?

Answer 1

Deferred tax assets and liabilities are caused by temporary timing differences between the accounting of expenses/(income) for book purposes and tax purposes.

2 components of Taxes reported on the I/S:

Cash paid to the IRS

Deferred Tax assets and liabilities

Question 2

Cash flow statement of Deferred Taxes?

Answer 2

Increases in DTA (lower than the real tax obligtaion) are reflected as negativ adjustment to net incom in CFO

Increases in DTL (higher than the real tax obligation) are reflected as pos. adj. to net income

Question 3

Deferred Taxes can be commonly created by?

Answer 3

DTA: Revenue recognition due to acrrual accounting (Subscription based model)
Increase –> neg CFO

DTL: Tax differences between IFRS or US-GAAP and actual Taxes paid

NOLs: Net operating losses. Will create DTA

Question 4

What are NOLs

Answer 4

Net operating losses

Creates a tax benefit. But taxes have to be paid. Later down the road you can offset the loss against future income.

Question 5

Ratios for working capital management?

Answer 5