Question

Identify differences between pretax financial income and taxable income.

Answer 1

Pretax financial income is calculated according to GAAP while taxable income is calculated according to tax regulations hence there can be difference between both

There can be temporary difference beween both income which results in recognition of deferred tax assets/liabilities. For example when book depreciation is less than tax depreciation than Deferred tax liabilities arises as the company has to pay more tax in future.

There can also be permanent difference when any income/expenses is not considered for tax purpose but considered under book purpose and vice versa. Like tax free interest