4. Temporary versus Permanent Differences
f. distinguish between temporary and permanent differences in pre-tax accounting income and taxable income;
What are the two ways that the difference between accounting profit and taxable income are permanent?
A revenue or expense item is recognized ...
1. ...for tax reporting but never for financial reporting
2. ...for financial reporting but never for tax reporting
What are two ways that can create a temporary difference between accounting profit and taxable income?
1. Taxable temporary differences (TTD) - results in more taxes due in the future
2. Deductible temporary differences (DTD) - results in less taxes due in the future