In any given accounting period, the amount a firm reports as income before income taxes for financial reporting in comparison to the amount of taxable income that appears on its income tax return may differ due to temporary differences.Temporary differences include

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Temporary differences arise when an item is recognized in different periods for financial reporting purposes and tax purposes. Bad debt expense is deductible for tax purposes when it is actually written off, whereas for financial reporting purposes, it is estimated and recorded as an expense when the sale is made. Similarly, the depreciation of long-lived assets is recognized over their useful lives for financial reporting purposes, while tax purposes allow for accelerated depreciation methods. Therefore, both bad debt expense and depreciation on long-lived assets can result in temporary differences between income before income taxes for financial reporting purposes and taxable income on the income tax return. Interest revenue on municipal bonds and certain fines and penalties do not generally give rise to temporary differences.

In Any Given Accounting Period, the Amount a Firm Reports