Timing Differences

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Timing difference is the concept of the accounting that occurs due to the transition problems. The timing difference is the term that is extremely used in the financial reporting or taxation purposes. The method of calculation of the depreciation is different in both financial accounting and taxation. While the company is using the straight-line method for the depreciation, the tax authorities will use the accelerated depreciation method. This will cause the timing difference in the tax liability of the company even though the depreciation calculated by both methods is the same and the time period for the depreciation is also the same.

Timing difference is also considered while calculating the differed tax liability. Timing difference is the term that is designed to point out the difference in time in which a transaction affects the items of the financial statements for the accounting purpose and the point in which it affects the items for the taxation purpose. In this way, financial statements can be went trough the timing differences and the things can be pointed out easily which are affecting.

Since the depreciation calculation methods are different for the accounting and taxation purposes, this usually results in timing difference. Although, the total depreciation will eventually be the same, the timing difference will arise in the tax liability.

Accrual based accounting. In accrual-based accounting, revenues are recognized when they are earned or when they are realized or realizable.

Cash based accounting: In cash based accounting, cash is recognized only when it is earned properly.

Timing difference in revenue recognition

Timing difference can also arise in the revenue recognition due to the accrual basis or cash basis accounting. Following are the four sorts of timing differences in the revenue recognition process.

  • Accrued revenue: In accrued revenues, the companies recognize the revenue in accounts before the cash is received.
  • Differed revenue: In deferred revenues, the companies recognize the revenue in accounts after the cash is received.
  • Accrued expense: In accrued expenses, the companies recognize expenses in the accounts before they are paid
  • A deferred expenses: In deferred expenses, the companies recognize expenses in the accounts after they are paid 

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