What does temporary difference mean on the CPA exam?
Temporary difference. A difference between the tax basis of an asset or liability and its reported amount that will produce taxable or deductible amounts in future years. Taxable differences produce deferred tax liabilities, deductible ones deferred tax assets. The Codification does not define permanent difference.
Defined against ASC 740-10-20, 25-23.
Which CPA exam sections use temporary difference?
Temporary difference appears in the FAR section of the CPA exam.
Other terms defined against ASC 740-10
- deferred tax asset: A future tax saving created when an item is deducted for accounting before it is deducted for tax, or when a loss can be carried forward.
- deferred tax liability: The deferred tax consequences of taxable temporary differences: income already in the books that the return has not taxed yet, or a deduction taken on the return ahead of the books.
- tax basis: What an asset or liability is worth for tax purposes, which is often not what it is worth for accounting.
- valuation allowance: The contra account reducing a deferred tax asset to the portion more likely than not to be realized, meaning a likelihood above 50%.
Related terms
- deferred outflow of resources: A consumption of net assets that belongs to a future period.
- net position: A government's assets plus deferred outflows, less liabilities and deferred inflows.
- full accrual: Recognizing revenue when earned and expense when incurred, and reporting every asset and liability including long-term ones.
- goodwill: An asset representing the future economic benefits of acquired assets not separately identified, measured as consideration less identifiable net assets.
- deferred inflow of resources: An acquisition of net assets that belongs to a future period, so it sits between liabilities and equity on a government's statement of net position rather than in either.
- present value: What a future amount is worth today, once a discount rate has been applied for the waiting.