Skysong Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. Year Pretax Income (loss) Tax Rate 2018 123,300 17% 2019 113,000 17% 2020 (282,000) 19% 2021 303,000 19% Prepare the journal entries for 2020 and 2021, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized.

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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.