Accounting & the 3 Statements
Walk me through how a $40 increase in a deferred tax liability flows through the three statements in the year it arises (no other activity).
Model answer
Income statement: the $40 is recorded as additional DEFERRED tax expense, so book tax expense rises $40 and net income falls $40. Cash flow statement: start at net income −$40, then ADD BACK the $40…
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