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Generally accepted accounting principles (GAAP) are in some common instances dissimilar from accounting for income taxes....

Generally accepted accounting principles (GAAP) are in some common instances dissimilar from accounting for income taxes. These dissimilarities give rise to differences between income reported on the financial statements (book income) and the income used to compute the actual tax liability (tax income). These differences may be temporary or they may be permanent.

  • Compare and contrast temporary and permanent differences between book and tax income.
  • What is the basic cause of the differences between book and tax income?
  • Why do you think GAAP doesn’t just change accounting principles to align with tax laws?

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