Temporary differences create either a deferred tax asset or a deferred tax liability.

Question

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Temporary differences arise due to differences in the recognition of taxable income and accounting income. These differences create timing differences in the recognition of tax liabilities or assets, which result in the creation of deferred tax liabilities or assets. In other words, temporary differences give rise to deferred tax liabilities when taxable income exceeds accounting income, and deferred tax assets when accounting income exceeds taxable income.

Temporary Differences Create Either a Deferred Tax Asset or a Deferred