Chona company failed to recognize accruals and prepayments since the inception of its business three years ago.  The earnings before tax, accrual and prepayments at the end of the current year are: Income before tax   504,000 Prepaid insurance       7,200 Accrued wages       9,000 Rent revenue collected in advance     10,800 Interest receivable     18,000 What is the corrected income before tax? Answer: 509,400 Pls provide solution and explanation for the answer above

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.