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Accounting
Temporary Difference
A difference between the accounting value and tax value of an asset or liability that will reverse over time.
Temporary differences are the main source of deferred tax assets and liabilities. They arise from different timing of revenue, expenses, or depreciation between accounting rules and tax law.
It's a disagreement that will eventually sort itself out — just not this year.
Real world: A company depreciates equipment faster for tax purposes than in its accounts. This year it pays less tax, but in later years it will pay more tax as the temporary difference reverses.
💡 Temporary differences create the need for deferred tax on the balance sheet.