Does bad-debt expense typically create a temporary tax difference?
Yes. For tax purposes, the company must use the direct write-off method, while under U.S. GAAP, the company must use the allowance method.
As a result of using difference methods, the company may have a timing difference that results in a temporary difference and could create a deferred tax asset or deferred tax liability.
Back To All Questions
You might also be interested in...
-
What method is allowed under U.S. GAAP to estimate uncollectible accounts receivable?
Under U.S. GAAP, only the allowance method is an allowable method to estimate uncollectible accounts receivable. The allowance method recognizes bad debt expense when the company believes there is a high likelihood the receivable will not be collected, which follows the matching principle. The direct write-off method violates the matching principle.
-
What is a temporary difference in tax accounting?
Temporary differences are differences that will be recognized for book in one period and tax in another period. Eventually these differences will balance out and there will not be a difference in the future. Examples will include: A) Expenses or losses deducted either before or after they have been deducted from book income. B) Revenues...
What method is allowed under U.S. GAAP to estimate uncollectible accounts receivable?
Under U.S. GAAP, only the allowance method is an allowable method to estimate uncollectible accounts receivable. The allowance method recognizes bad debt expense when the company believes there is a high likelihood the receivable will not be collected, which follows the matching principle. The direct write-off method violates the matching principle.
What is a temporary difference in tax accounting?
Temporary differences are differences that will be recognized for book in one period and tax in another period. Eventually these differences will balance out and there will not be a difference in the future. Examples will include: A) Expenses or losses deducted either before or after they have been deducted from book income. B) Revenues...
