Chapter 17, Problem 17.1Q

To determine

To explain: The difference in objectives of GAAP accounting and tax accounting methods.

Answer to Problem 17.1Q

The income tax expenditure shown on financial statements of the company does not similar to the income taxes paid in actual by the company during the year. This difference arises because of the difference in objectives of GAAP (Generally accepted accounting principles) and the tax accounting.

Explanation of Solution

GAAP Accounting

Generally accepted accounting principles includes the set of accounting standards, principles and procedures that is followed by the companies for final report of financial statements.

Tax Accounting:

Tax Accounting includes accounting methods and principles related to taxation rather than for report of financial statements of the company.

There is a difference in objectives of GAAP accounting and the Tax accounting. The main objective of GAAP accounting is to provide information related to the financial statements of the companies. In contrast to this, Tax accounting focuseson maximization of the tax revenue, achieve economic objectives and promote social objectives.

Conclusion

The income tax expense and the income tax payable are not same due to the difference in objectives of GAAP accounting and Tax accounting.