A Deferred Tax Asset arises when a company pays taxes on income that has not yet been fully recognized in its financial statements or when there are deductible temporary differences that will result in tax benefits in the future. This often happens due to discrepancies in the timing of recognizing income or expenses for accounting purposes versus tax reporting purposes. For example, if a business incurs a net operating loss (NOL) in one tax period, it may carry forward that loss to offset taxable income in future periods, creating a deferred tax asset. Similarly, overpayment of taxes or prepayment of some obligations that provide for tax credits can also create a deferred tax asset.

In simpler terms, it’s like a credit the business can use to reduce its future tax liabilities. Companies report these assets on their balance sheet, and proper management of deferred tax assets is crucial for effective tax planning.

Example: "Due to our previous net operating losses, we have a Deferred Tax Asset that we can utilize to lower our potential taxable income in upcoming financial years."