If an accrual basis taxpayer receives a prepayment of rent income, the receipt results in an unfavorable temporary book/tax difference.

Question

Quizplus · Accepted Answer

Since the accrual basis taxpayer recognizes rental income when it is earned, receiving a prepayment of rent income creates a temporary book/tax difference as the taxpayer recognizes the income for book purposes in the current period but does not recognize it for tax purposes until the rent payment period.

If an Accrual Basis Taxpayer Receives a Prepayment of Rent