Accounting Profit and Taxable Income can often differ because:

Question

BlackTom AI · Accepted Answer

The question asks why Accounting Profit and Taxable Income can often differ.
First, note that the provided data includes an answer stating that the reason is: 'general purpose financial reporting and the income tax system have differing objectives.'
This reasoning is grounded in a fundamental concept in accounting: financial reporting aims to present a fair and comprehensive view of an entity’s financial performance and position to a broad set of stakeholders (investors, creditors, regulators), following accounting standards that emphasize accrual accounting, recognition criteria, and measurement rules. Meanwhile, taxable income is shaped by tax laws designed to compute taxes payable, which often adopt different rules for recognizing revenue and expenses, timing of recognition, and permitted deductions.
Because of these divergent objectives, many items are treated differently between financial reporting and tax reporting. For example, depreciation methods, estimates, reserves, and certain expenses may be recognized in one framework but not in the other, leading to permanent or temporary differences that create taxable income different from accounting profit.
Now, regarding the missing answer options: since no alternative choices were provided, I cannot individually evaluate why each distractor would be true or false. However, the core reason stated—that the two systems pursue different objectives—captures the primary driver of the typical divergence between accounting profit and taxable income: the objectives and rules of financial reporting versus taxation are not aligned. 
If options were present, a thorough analysis would examine each statement for accuracy, refer to timing differences (temporary differences causing timing disparities), permanent differences (never reconciling through taxes), and the implications of different measurement bases, to determine which statements align with the standard explanation above.

22754 Corporate Accounting - Autumn 2025 Online Self-study Quiz (Module 1)

Accounting Profit and Taxable Income can often differ because:

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