Temporary difference and permanent 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.
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Solution Summary
The 344 word, cited solution first defines the two differences and then provides three business examples and one personal example of the importance of timing differences.
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First the definitions:
A temporary difference is a timing issue meaning that a difference between financial income and taxable income is temporarily not the same. That difference will reverse itself in time.
A permanent difference will never turn around because an event that is include-able or deductible for financial income will never be a taxable event.
Deferred income taxes are calculated to show the reduction or increase in future taxes when a temporary difference reverses itself.
Why is it important to understand the difference ...
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