Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. $$\begin{array} { l l }
\text { Begirruing allowarce for bad debts } & \$ 61,150 \
\text { Actual write-offs of accourts receivable during the year } & ( 80,000 ) \
\text { Addition to allowarce } & \$ \underline { 88,500 } \
\text { Erdirig allowarce for bad debts } & \$ 9,650 \
\hline
\end{array}$$ Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

Question

Monro Inc. uses the accrual method of accounting. Here is a reconciliation of Monro's allowance for bad debts for the current year. $$\begin{array} { l l } 
\text { Begirruing allowarce for bad debts } & \$ 61,150 \
\text { Actual write-offs of accourts receivable during the year } & ( 80,000 ) \
\text { Addition to allowarce } & \$ \underline { 88,500 } \
\text { Erdirig allowarce for bad debts } & \$ 9,650 \
\hline
\end{array}$$ Because of the difference between the GAAP and the tax rules for accounting for bad debts, Monro Inc. has an:

Quizplus · Accepted Answer

The addition to the allowance for bad debts exceeds the actual write-offs of accounts receivable during the year, resulting in a temporary excess of taxable income over book income. This is because for tax purposes, bad debts can only be deducted once they are actually written-off, while for GAAP purposes an allowance is established based on estimation of expected losses. Therefore, the addition to the allowance is not yet deductible for tax purposes, leading to a temporary excess of taxable income.

Monro Inc Uses the Accrual Method of Accounting Because of the Difference Between the GAAP and the Tax