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Why taxable income is not the same as financial net income

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The company report shows that the taxable income is not the same as the net income on the financial statements. Does this cause a problem?

Please provide a full response for a full understanding of the topic.

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Solution Summary

The 295 word, cited solution explains the concepts of taxable income versus financial income with examples.

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Generally accepted accounting principles (GAAP) define the computation of financial statement income. It includes a complex set of rules that are designed to provide consistent treatment in accounting so that the net income derived on a financial statement will be comparable to the computational efforts for all published financial statements.

Without the consistency, an investor or a banker, for example, could not trust that the statements of one company are comparable to another. Without rules, the ...

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