Shear Co.'s Year 1 financial statements included profit from an installment sale of $2,600 that was recognized but not received and credit loss expenses of $1,400. No receivables were written off during the year. It is anticipated that both items will be recognized for tax purposes in Year 3. The enacted tax rates are 30% in Year 1 and 25% in Year 3. What amount should Shear report as deferred income tax expense in its Year 1 income statement?

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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.