Question

5. What is the justification for a corporation determining income for financial reporting purposes differently than the way it is determined for tax purposes?

Answer 1

Answer)

In general income for financial reporting purpose follow accrual basis where as income for tax purposes Use cahs basis.

If tax basis accounting is used for financial reporting purpose the owners or say the share holders may get misleaded when for example there are no cash collections in an year or total cash collections of previous and current year in an single year. So accrual basis of accounting is used for financial reporting purpose so that we can deliver the actual results of operations.

The tax basis of accounting is prepared because as per the guidelines of IRS or tax authority in your respective Country it must be used for filling returns.