Question

Bikram Yoga Natick pays taxes on a cash basis so annual membership fees received during the year are included in determining their Taxable Income. However, for financial reporting purposes, they are only treated as revenue as time passes and the memberships are expiring. This creates a temporary timing difference which causes Taxable Income to be greater than Income Before Taxes in years when the Deferred Revenue increases; 2013 was such a year. What will the entry be in 2013 to record this difference?

Answer 1

Answer: Credit the deferred tax access account

Explanation:

Due to the temporary timing difference, the taxable becomes lower than the income before taxes, In this scenario, the credit is going to be a decrease to the deferred tax asset account due to the previous year.