Earl Company uses the accrual method of accounting. Here is a reconciliation of Earl's allowance for bad debts for the current year. $\begin{array}{llr}
\text { Beginning allowance for bad debts} &\$950,000\
\text { Actual write-offs of accounts receivable during the year} &(899,600)\
\text { Addition to allowance} &845,000\
\text { Ending allowance for bad debts } &\$895,400\
\end{array}$
Because of the difference between the GAAP rules and the tax rules for accounting for bad debts, Earl Company has a:

Question

Earl Company uses the accrual method of accounting. Here is a reconciliation of Earl's allowance for bad debts for the current year. $\begin{array}{llr}
  \text {  Beginning allowance for bad debts} &\$950,000\
 \text {  Actual write-offs of accounts receivable during the year} &(899,600)\
 \text {  Addition to allowance} &845,000\
 \text { Ending allowance for bad debts } &\$895,400\
\end{array}$
 Because of the difference between the GAAP rules and the tax rules for accounting for bad debts, Earl Company has a:

Quizplus · Accepted Answer

The reconciliation of Earl's allowance for bad debts suggests that there is a temporary excess of book income over taxable income, which means that Earl Company has recognized more bad debts expense for book purposes than for tax purposes. This results in a temporary difference between book income and taxable income, which will reverse over time, leading to a lower taxable income in future years. Therefore, the correct answer is D) $54,600 temporary excess of book income over taxable income.

Earl Company Uses the Accrual Method of Accounting Because of the Difference Between the GAAP Rules and the a Reconciliation