Scarlet Company had pretax accounting income of P2,400,000 during 2020. Scarlet Company’s temporary difference for 2020 relates to a sale made in 2019 and recognized for accounting purposes at that time. However, Scarlet Company uses the installment method of revenue recognition for tax purposes. During 2020, the company collected a receivable from the 2019 sale which resulted in P600,000 of income under the installment method. 1. What is Scarlet Company’s taxable income for 2020?

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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.