Deferred Method vs. Asset Liability-Method

Deferred Method
It is an income-statement-oriented approach that emphasize matching of expenses with revenues in the period when a temporary difference created. It is not acceptable under GAAP.

The amount of deferred income tax is based on tax rates in effect when temporary differences originate.

Asset-liability Method
The amount of deferred income tax is based on the tax rates expected to be in effect during the periods in which the temporary differences reverse. It is a balance-sheet-oriented approach that emphasizes the usefulness of financial statements in evaluating financial position and predicting future cash flows. It is the only method accepted by GAAP.

Adjustmentsto the deferred tax accounts related to a change in the tax rate
To adjust tax rate change, DT asset and liability are calculated directly and income tax expense is a result of the calculation.

DT liability:
· take all the instances which cause pretax income > taxable income.
· The cumulative difference x tax rate

DT asset:
· Take all instance which cause pretax income< color="#009900">Calculate Tax expense = Taxes payable + Change in deferred tax liability - Change in deferred tax asset.