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Fundamentals of Tax Accruals |
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Temporary Differences
Temporary differences are caused by reporting items of revenue or expense in one period for accounting purposes and in either an earlier or later period for income tax purposes. Temporary differences occur because one method of accounting is used for financial accounting purposes while another method is used for tax purposes. These differences normally exist because business enterprises attempt to minimize their taxable income and postpone the payment of income taxes.
Because the application of different accounting methods to the same event(s) causes many of these differences, we assign them a label. Temporary differences that begin in one accounting period are often referred to as originating differences, which can be offset by corresponding differences in the "reverse" direction in future periods. These corresponding differences are referred to as reversing differences. The process, which accounts for the tax effects of temporary differences, is known as interperiod tax allocation.
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Copyright © 1998 Bizzer Professional Training |
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