DQW3-1 - cash basis is used An example of a temporary...

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Why are there differences between taxable and financial income?  What are some examples of  permanent and temporary differences?  Why do these differences exist?  How do they affect the  financial statements? The main difference between taxable income and financial income is that financial income is  reported as a pretax sum, specifically for users of financial statements – investors and creditors;  while taxable income is a sum used to indicate the amount used to compute income tax payable  according to IRS regulations.  In addition, when reporting income for financial purposes, the  company will use the full accrual method to report revenues; and for tax purposes a modified 
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Unformatted text preview: cash basis is used. An example of a temporary difference is future pretax financial income; this causes taxable income to be less than pretax financial income when calculating future deductable amounts. These differences exist because the tax is being deferred to future years. These differences exist to more accurately assess a company’s financial position. The affect on financial statements is that income will either be overstated or understated, hence not correctly reflecting tax liability....
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