temporary difference between years in which a transaction affects taxable income and accounting (book) income. Temporary differences originate in one period and subsequently reverse in another. The differences result from four types of transactions, as follows: (1) income included in taxable income after being included in book income (e.g., installment sale); (2) expenses deducted for taxable income subsequent to accounting income (e.g., warranty expense is deducted for book purposes in the year of sale but for tax purposes when paid); (3) income recognized for tax purposes prior to being included for accounting purposes (e.g., rental received in advance); and (4) expenses subtracted for taxable income before being deducted for accounting purposes (e.g., accelerated depreciation method for tax and straight-line depreciation for books).
timing difference between years in which a transaction affects taxable income and accounting (book) income. Temporary differences originate in one period and subsequently reverse in another.
