Differences between financial (book) accounting and tax accounting are common. Permanent differences arise when there is a difference between book and tax that never goes away. Examples are fines or overdraft fees. Most tax codes don't allow for deduction for these items, but they can be recognized as an expense for book purposes. Temporary differences are differences between book and tax that eventually reverse or eliminate. Examples include depreciation, as most financial depreciation is straight line and tax codes allow for accelerated depreciation. This question gauges whether a candidate understands one of the fundamental concepts in tax accounting.