Storage networking and Ethernet supplier Brocade has grown its latest quarter's revenues but swung from profit to loss after changes to the state of California's tax code. It reckons it will soon be doing even better now on the back of its 16GBit/s Fibre Channel kit and added that software-defined networking has opened up a …
I'm merely a small-business-level non-tax-code-reading California bookkeeper, so perhaps I do not have enough external knowledge to understand the above accounting glimpse. It sure didn't make sense to me.
Pre-paid taxes are an asset. Deferred taxes would be a liability. A non-cash charge? I gather that means that this shows up in accrual accounting only.
Normally they would expect...? No, they should know the gross and pre-tax profit numbers. Is the imprecision theirs or the author's?
Actually a company can have a deferred tax asset or a deferred tax liability. It's an accounting mechanism to 'smooth' out the impact of timing differences, where the tax code starts taxing things in a different way to the accounting standards. Without accounting for deferred tax, these differences would lead to unexpected volatility in your profit & loss account, so a company recognises a deferred tax asset or liability on its balance sheet, then unwinds that against the current tax differences in future years.
If the accounting and tax code differences will benefit you in the future, you can recognise a deferred tax asset; if you'll be worse off in the future, you recognise a deferred tax liability.
In this case, it looks like the company had a deferred tax asset that was no longer going to crystallise a benefit in the future due to the recently changed law - hence they reduce the asset. Cr Deferred tax asset (B/S), Dr Tax charge (P&L). It's not a cash tax or a mistake with their tax calculation for the year.