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.© BrainMass Inc. brainmass.com March 4, 2021, 11:20 pm ad1c9bdddf
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 ...
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.