Answer (B) is correct. A temporary difference results when the GAAP basis and the tax basis of an asset or liability differ. The effect is that a taxable or deductible amount will occur in future years when the asset is recovered or the liability is settled. But some temporary differences are not related to an asset or liability for financial reporting. Thus, temporary differences occur when revenues or gains, or expenses or losses, are used to calculate net income under GAAP in a year before or after being used to calculate taxable income.