Accounting for Temporary Differences In Financial and Taxable Income

Although a majority of income and deduction items encountered by a business enterprise are treated identically for financial reporting and tax purposes, there are numerous items that are treated differently.  They are known as book-tax differences and are classified as either temporary or permanent. 

This course covers temporary differences, including:

• How to identify and account for temporary differences
  
  • an income/expense book-tax difference relating to financial income that will be recognized in the future is known as a deductible temporary difference creating a deferred tax asset. 
  • an income/expense book-tax difference relating to taxable income that will be recognized in the future is known as a taxable temporary difference creating a deferred tax liability. 

• The balance sheet presentation of the deferred tax assets and deferred tax liabilities arising from these transactions

• How to prepare the journal entry to record the income tax expense (also called the income tax provision) including the deferred tax benefit/liability due to book-tax differences. 
  
  • What to do when these items reverse in a future period. 

Note:  a subsequent course on Illumeo covers permanent differences and should be taken after this course has been completed.