Temporary Difference
Temporary difference refers to the difference of one income recognized by the tax rules and accounting rules of a company in different periods. Consequently the difference between the amount of assets and liabilities reported in the financial reports and the amount of assets and liabilities as per the company’s tax records, is known as temporary difference.
When the Income Tax Expense account is more than the Income Tax Payable account, this difference is known as Deferred Tax Asset.
When the Income Tax Expense account is less than the Income Tax Payable account, this difference is known as Deferred Tax Liability.
To explain: The future deductible amounts and describe two general situations that have this effect.
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INT. ACCOUNTING<CUSTOM>W/CONNECT 2-YEA
- Which of the following is a temporary difference that normally is recognized for accounting purposes before being reported as an expense for tax purposes? Unearned revenue Product warranty costs Depreciation Fines resulting from violations of the law.arrow_forwardWhen the temporary differences result to financial income higher than taxable income, they are known as taxable temporary difference or future deductible amounts True or false?arrow_forwardwhat types of taxes are deductible in full or in part?arrow_forward
- Which of the following should be considered as nonmonetary? Group of answer choices Taxes payable Accrued expense and other payables Trade receivables Deferred tax liabilitiesarrow_forwardFor tax purposes where interest expense on margin loan is deductible for investment purposes , can capital gains or increased borrowing be withdrawn somehow or segregated to determine prorated deductibility?arrow_forwardWhat is a deductible and how does it work?arrow_forward
- Temporary differences result in future taxable or deductible amounts when the related asset or liability is recovered or settled. Some differences, though, are not temporary. What events create temporary differences? What events create permanent differences? Please provide examples.arrow_forwardWhat is a temporary difference related to deferred taxes?arrow_forwardWhy should executory contracts be disclosed in the financial statements? Group of answer choices They create current income tax obligations They create an obligation contingent upon the occurrence of a past event They represent a possible outflow of economic resources None of the above PreviousNextarrow_forward
- Classify the following items that may cause discrepancy between accounting profit and taxable income, into the following types of differences. Also, provide an explenation why that is their classification. A. Non-deductible expenses B. Non-taxable revenues C. Deductible temporary difference D. Taxable temporary difference Interest earned on investments in tax-exempt government securities. Interest earned on deposits with bank. Excess of profit earned over the profit reported under the installment method for income tax purposes.arrow_forwardWhen the amount of rebate on bills discounted shown in the adjustments, then it has to be: a. Deducted from discounts received on bills and shown in other liabilities b. Deducted from discounts on bills purchased and shown in fixed assets c. Deducted from discounts received on bills and shown in other assets d. Added to discounts received on bills and shown in other liabilitiesarrow_forward2. Which of the following situations will result in a future deductible amount? Carrying amount of the asset > tax base of the asset Tax base of the asset > carrying amount of the asset Carrying amount of the liability < tax base of the liability Financial income > Taxable incomearrow_forward
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub