Temporary Differences between Book and Tax Income

Accruals Revenues and Expenses are recognized on Financial Statements before all Cash Inflows or Cash Outflows are exchanged. Ex:-Installment Sales [under the accrual method] -Unrealized Gains/Losses from marking investments to Fair Value -Estimated Expenses and Losses such as Warranties, Bad Debt, Marking Inventory to LCM, etc.

Installment Sales [Assuming Installment Sales are recorded on the Financial Statements using the Full Accrual method] Ex) Assume Installment Sales of $100,000 in 2013 Cash Collections expected as follows: 2013$20, $40, $40,000

Warranties Ex) Estimated Warranty Expense taken in 2013 for products sold this period is $30,000 – 3 year warranties. Expected Payouts: 2013$0 2014$10, $20,000

Deferrals Cash Inflows and Cash Outflows are exchanged before all Revenues and Expenses are recognized on the Financial Statements. Ex:-Rent Collected in Advance -Subscriptions Collected in Advance -Other Unearned Revenue -Prepaid Expenses -Accelerated Depreciation on the Tax Return in excess of Straight-Line Depreciation on the Financial Statements.

Subscriptions Ex) In the current year, cash of $80,000 is received for customer Magazine Subscriptions. Subscription Revenue will be earned as follows: 2013$10, $35, $35,000

Depreciation Differences between Book and Tax Ex) On January 1, 2013, equipment is purchased for $11,000. [Salvage Value is $1,000, Expected Life is 5 years] Financial Statements use a Straight-Line method Tax Return uses a Double Declining Balance method PreTax Taxable Income Income Difference 20132,000 4,400(2,400) 20142,000 2,640 (640) 20152,000 1, , , , ,574 10,000 10,000 0