Ask Joey ™ a Question

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 or gains that are included in taxable income either before or after they have been included in financial accounting income.


You might also be interested in...

  • When can a PSC deduct payments made to owner-employees?

    The general rule is that personal service corporations (PSC’s) will be able to deduct owner-employee payments made in the same year that it is includible in their gross income for individual tax purposes. 

  • What do accountants mean when they say revenue can be recognized under the accrual basis of accounting?

    Under U.S. GAAP, which requires the use of accrual basis accounting, a company cannot recognize revenue until their performance obligation is satisfied. The visual below illustrates that key steps to revenue recognition:

  • What is the relationship between volume and variable cost per unit?

    If the variable cost per unit remains fixed, then any increase or decrease in unit volume will result in an increase or decrease in total variable costs for a business. For example, if variable cost per unit was steady at $5, then if unit volume were to increase from 100 to 200 units, then total […]