Interperiod Tax Allocation

Introduction Income tax payable is a type of liability that is based on a company’s taxable income. It is the amount a firm is required to pay the government in order to operate. The question to ask is: If the firm’s pretax accounting income is different from its taxable income due to timing differences, what is its tax expense? That is, should it be based on the firm’s pretax accounting income or…

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Differences Between Accounting and Taxable Income

Differences exist between the generally accepted accounting principles (GAAP) and the provisions of the Internal Revenue Code (IRC). These differences arise due to the varying objectives of GAAP and the IRC. The objectives of GAAP are aimed at providing investors and other users of financial statements with reliable and relevant financial information. The objectives of the tax law contained in the…

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