Question

When accounting for income taxes, a permanent difference occurs in which of the following scenarios? Multiple...

When accounting for income taxes, a permanent difference occurs in which of the following scenarios?

Multiple Choice

The accrual method of accounting is used.

An item is included in the calculation of net income in one year and in taxable income in a different year.

An item is included in the calculation of net income, but is neither taxable nor deductible.

An item is treated identically for financial and for tax purposes.

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Homework Answers

Answer #1

correct option is C" -An item is included in the calculation of net income, but is neither taxable nor deductible is a permanent difference.

Since the item which is included in calculation of accounting income will neither will considered while calculating taxable income either in current or future year since it is neither taxable nor deductible. so that item will create a permanent differenc.

Reasons for other option:

The accrual method of accounting is used -it will create no difference as for calculating income under both ,accrual method is used.

An item is included in the calculation of net income in one year and in taxable income in a different year. -It will create temporary difference.

An item is treated identically for financial and for tax purposes. -since same treatement is made under both ,there will be no difference.

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