Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment on the financial statements over a ten-year period using the straight-line method. However, for income tax purposes the company uses the IRS’s seven-year, accelerated depreciation method. Eventually, the total depreciation will be the same; however, each year for ten years there will be differences due to the timing of the depreciation.
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