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 the allowance for bad debts increased by $54,600 during the year. This means that Earl Company recognized $54,600 more in bad debt expense for book purposes than for tax purposes. Since this difference is a timing difference and not a permanent difference, it creates a temporary excess of book income over taxable income. Therefore, the correct answer is (D) $54,600 temporary excess of book income over taxable income.

Earl Company Uses the Accrual Method of Accounting