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Difference between an originating temporary difference

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Why is it important to understand the difference between an originating temporary difference and permanent difference in a company? Explain if this concept is relevant for personal finance.

See Chapter 19 of Intermediate Accounting.

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Your tutorial is 408 words and includes an example of a permanent and temporary difference. The comments about explain how this is relevant to personal finance.

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First, let me explain the difference between a permanent difference and a temporary one. A "difference" between earnings (GAAP) and taxable income (tax return) arises because revenue is in one and not the other or a deduction is in one and not the other. If the difference is going to "turn around" in a future period, it is a timing difference. If the difference is never going to "get fixed" so that it is reported eventually in both earnings and taxable income (tax return), it is a permanent difference.

Why is it important to understand this difference? The type of difference impacts the journal entry for recording tax expense and deferred ...

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  • MSc, University of Virginia
  • PhD, Georgia State University
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