On December 31, 2017, Winston Inc. has determined that it is more likely than not that $240,000 of a $600,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a debit to Income Tax Payable of $240,000. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000. debit to Income Tax Expense for $360,000. credit to Income Tax Expense for $360,000

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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.