Earl Company uses the accrual method of accounting.Here is a reconciliation of Earl's allowance for bad debts for the current year. 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.  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 shows that Earl Company has a temporary excess of book income over taxable income of $54,600. This is because GAAP requires Earl to estimate and accrue for bad debts using a percentage of accounts receivable, while tax rules require Earl to only deduct actual bad debts that have been written off during the year. Therefore, the allowance for bad debts on the books will be higher than the amount of bad debts deducted for tax purposes, resulting in a temporary excess of book income over taxable income.

Earl Company Uses the Accrual Method of Accounting