M351_Notes-Class_21_Taxes_day_1

M351_Notes-Class_21_Taxes_day_1 - Temporary differences...

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M351 Notes, Class 21, Taxes Day 1, pp. 963-978 A. Terminology : the following phrases all mean the same amount on the financial statement prepared for owners—pretax financial income, income before taxes , income for financial reporting, income for book purposes. A similar amount on the tax return is called taxable income Because GAAP and tax rules are often different, taxable income and income before taxes are not usually the same. There are two kinds of differences between items that appear on the financial report to shareholders and the tax return: Temporary differences —arise because some items appear sooner on the tax return than on the financial report to shareholders or appear sooner on the financial report to shareholders than on the tax return.
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Unformatted text preview: Temporary differences give rise to deferred tax assets (taxes will be lower in future years) and deferred tax liabilities (taxes will be larger in future years). Permanent differences arise because some items appear on the tax return but never on the financial report to shareholders or appear on the financial report to shareholders but never on the tax return. B. The information in Illustration 19-22 on page 974 identifies the most important sources of temporary differences producing deferred tax assets and liabilities. C. The information in Illustration 19-24 on page 975 identifies the most important sources of permanent differences 1...
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