Question
When should an item be treated as a permanent difference on a trial balance?
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Answer
When it appears only in one system and never reverses.
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Question
Why can book income differ from taxable income even when the same transaction is involved?
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Answer
GAAP and the IRC recognize items under different rules and timing.
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Question
Why do permanent differences affect tax expense but not deferred taxes?
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Answer
They change current taxable income permanently, so no future reversal exists.
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Question
Why do bad debts and warranty accruals usually create deferred tax assets?
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Answer
Book expense is recognized before the tax deduction.
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