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Mueller Corp. determines that it is more likely than not that $100,000 of its $500,000 deferred tax asset will not be realized in future years. Mueller should record a journal entry that includes a Debit to Income Tax Expense.
What is Debit?
A debit is an accounting entry that creates a decrease in liabilities or an increase in assets. In double-entry bookkeeping, all debits must be offset with corresponding credits in their T-accounts. On a balance sheet, positive values for assets and expenses are debited, and negative balances are credited.
A debit can signify an increase in asset, an expense, and the owner's drawings. A debit can also signify a decrease in a liability, revenues and owner's equity.
What is Income Tax Expenses?
Income tax expense is the amount of expense that a business recognizes in an accounting period for the government tax related to its taxable profit.
The amount of income tax expense recognized is unlikely to exactly match the standard income tax percentage that is applied to business income, since there are a number of differences between the reportable amount of income under the GAAP or IFRS frameworks and the reportable amount of income allowed under the applicable government tax code.
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