Start with the financial-statement amount and the supported tax treatment for the same entity, jurisdiction, and period. Record why they differ before deciding where the difference belongs. A difference can affect current taxable income, reverse later, remain permanent, create a carryforward, or enter the uncertain-position model.
Classify before measuring
ASC 740-10-25-20 connects book recovery or settlement of reported assets and liabilities to future tax consequences. Use that recovery or settlement question to distinguish temporary effects from items with no future reversal.
Suppose book warranty expense is $60,000 but tax law, as supplied, permits deduction only when claims are paid. The current bridge adds $60,000, and the ending unpaid liability can create a deductible temporary difference. By contrast, a supplied $10,000 nondeductible penalty changes taxable income without creating deferred tax. Keep origin, current adjustment, ending difference, reversal date, character, and evidence owner in separate fields. This concept classifies supported facts; it does not interpret tax law.
Put the concept to work
Apply this concept
- Classify each book-tax difference as temporary, permanent, carryforward, credit, uncertainty, or another supported route before measurement.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.