Deferred Tax Liability (DTL)
What is Deferred Tax Liability (DTL)?
How Does Deferred Tax Liability (DTL) Work?
When the tax becomes due (i.e. when it is "realized"), both the DTL account and the firm's cash account will be reduced by the same amount (since taxes must be paid in cash).
Why Does Deferred Tax Liability (DTL) Matter?
For investors and analysts, the most important question to ask about DTL is, "will it reverse in the future, and if so, when?" For example, if the DTL is expected to decrease, the company will need to make an actual tax payment to the government and its cash account will decrease.
In general, the difference between taxes owed and taxes paid will reverse themselves over time. Only in rare cases will DTL persist or grow.