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Taxable and financial income

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?

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Financial income is calculated as per the GAAP standards. According to the investopedia "GAAP are the common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. "

Thus GAAP (Generally accepted accounting principal) which help in achieving the above objectives whilst preparing financial statements, including the company's balance sheet, income statement and cash flow statement. Moreover principals are necessary to allow the economy to function efficiently, because decisions about the distribution of resources rely heavily on credible, concise, and understandable financial information. Financial information about the operations and financial position of individual companies is also used by the public in making various kinds of decisions.

GAAP is based on prevalent industry practice; Accounting Principles Board (APB) statements and opinions; Financial Accounting ...

Solution Summary

This solution explains the differences between taxable and financial income and their purposes