The answer is, of course, we do have to show this amount—but where? This is where the fun begins. The delicate balance between the tax provision on the income statement and the tax liability on the balance sheet is the heart of the tax accrual process. As you can well imagine, these two numbers are rarely the same.

The difference between the tax provision and the tax liability is known as a deferred tax. Deferred taxes (discussed later in this lesson) are made up of timing differences and can have both a positive and a negative balance. If deferred taxes net to a positive balance, we refer to that balance as a deferred tax liability. If the net has a negative balance, we refer to the balance as a deferred tax asset. Deferred tax assets and deferred tax liabilities will also be discussed later in more detail.