Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

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This is a deductible temporary difference because the book basis of the net accounts receivable is less than the tax basis due to differences in how the allowance for bad debts is accounted for. Over time, as bad debts are written off, this difference will reverse, and the company will be able to deduct these amounts for tax purposes.

Davison Company Determined That the Book Basis of Its Net