What is a deferred tax liability?

A deferred tax liability is accurately described as an account that reflects a company's future tax obligations. This arises when a company recognizes revenue in its financial statements before it is required to pay taxes on that income. In other words, the timing of taxation differs from when the income is reported. This situation typically occurs due to differences in accounting methods used for financial reporting versus tax reporting.

In essence, deferred tax liabilities indicate that a company will owe taxes on certain income in future periods due to the timing differences that exist. For instance, if a company receives cash for services to be rendered in the future, it may report this cash as revenue immediately, while tax laws may dictate that the tax on that revenue is deferred until the service is actually performed.

Other options do not accurately define a deferred tax liability. A financial statement showing current operating income pertains to current earnings rather than tax obligations. Deductions relating to taxable income for the current period do not involve future tax payments. Lastly, revenue received before services are performed relates more to unearned revenue than to deferred tax liabilities, as this does not address the tax implications of the timing of income recognition.