This video discusses how to account for the effects of Net Operating Losses in Financial Accounting. The IRS permits taxpayers to carry a Net Operating Loss (NOL) back two years or forward twenty years to offset taxable income. An NOL carryback allows a firm to receive a refund of taxes previously paid, whereas a carryforward allows a firm to offset future taxable income (thus, the firm recognizes a deferred tax asset). This video shows the journal entries that are used to record an NOL carryback as well as an NOL carryforward.