Question
Are the following statements correct? If it is incorrect, please modify it. A temporary timing differences are differences between pretax book income and taxable income
Are the following statements correct? If it is incorrect, please modify it.
A temporary timing differences are differences between pretax book income and taxable income that will eventually reverse itself or be eliminated. To put this another way, transactions that create temporary differences are recognized by both financial accounting and accounting for tax purposes, but are recognized at different times. Example will be cash received for future rent. Under the financial standards, revenue will only be recognized when the services are performed, thus when the cash is received, no revenue will be recorded. While on the basis of tax law, revenue recognition will based on the period the money is received. There is a timing difference of when will the revenue be recorded. Taxable income will be higher than the financial income, because revenue is already recorded on the tax return, then a deferred tax asset is created.At a future period when the rental revenue is finally earned, the company will record that revenue under book income but not on its tax return, thereby reversing and eliminating the initial difference. So having lower tax income than book income will result in the creation of a deferred tax liability.
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