The deferred income tax account -
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A. B. C. D.A
The difference between income tax expense (based on accounting income) and the actual income taxes payable (based on taxable income) is reconciled in an account called deferred income taxes.
The deferred income tax account is a financial statement account used to record the temporary differences between the tax base of an asset or liability and its carrying value for accounting purposes. These temporary differences arise due to differences in timing between when items are recognized for financial reporting purposes and when they are recognized for tax purposes.
Now, let's go through each answer choice and evaluate its accuracy:
A. is where the difference between income tax expense and income tax payable is reconciled. This statement is accurate. The deferred income tax account is used to reconcile the difference between income tax expense and income tax payable. Income tax expense is the tax provision recorded in the financial statements based on accounting rules, while income tax payable is the actual tax liability owed to tax authorities. The deferred income tax account represents the temporary timing differences between these two amounts.
B. is always reported as a long-term liability since the tax is not due until the next fiscal year. This statement is incorrect. The classification of deferred income tax account depends on the expected timing of the reversal of temporary differences. If the reversal is expected to occur within one year (current fiscal year), it is reported as a current liability. If the reversal is expected to occur beyond one year, it is reported as a long-term liability. Therefore, the classification can be either current or long-term, depending on the specific circumstances.
C. is reported as an other asset even though it has a credit balance. This statement is incorrect. The deferred income tax account typically has a debit balance rather than a credit balance. It represents future tax benefits that will reduce future tax payments. As such, it is reported as an other liability on the balance sheet, not as an other asset.
D. none of these answers is correct. This option is incorrect as there is at least one correct answer, which is answer choice A.
Therefore, the correct answer is A. The deferred income tax account is where the difference between income tax expense and income tax payable is reconciled.