A temporary difference links a reported amount with the future tax consequence of recovering an asset or settling a liability. Some temporary differences arise from deferred tax deductions or income without a directly paired book asset or liability. Classify the future amount as taxable or deductible and schedule when it reverses.
Map origin and reversal
ASC 740-10-25-22 gathers the timing differences and income-tax-balance-sheet differences described in the surrounding guidance under the temporary-difference term.
Suppose accelerated tax depreciation creates a $120,000 current deduction beyond book depreciation. If the opening taxable difference was $220,000, the ending difference becomes $340,000 before other changes. Current tax uses the $120,000 period adjustment; deferred tax measures the supported $340,000 ending future amount. “Temporary” does not mean next year. Preserve origin, reversal calendar, tax character, jurisdiction, enacted rate, and evidence. A schedule tie does not establish tax basis or a recognition exception.
Put the concept to work
Apply this concept
- Map a temporary difference to its recovery or settlement mechanism, reversal period, character, jurisdiction, and enacted rate.
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