true are false?

Question

A corporation may report net income for federal income tax purposes at an amount different from the amount reported for financial accounting purposes

Answer 1

Most certainly true. There are several deductions that are deductions for financial accounting purposes that are not allowable deductions for federal income tax purposes.

Federal Income Tax
Meals & Entertainment (50% deductible for federal income taxes)
Life Insurance
Penalties

These are what are called "permanent differences" since the difference between federal income tax purposes and financial purposed will never be resolved.

Also, you can have what are called "timing differences", one of which would be differences in depreciation method. Using straight-line for financial purposes and accelarated method (such as MACRS) for federal income taxes. Eventually with timing differences they do resolve themself, as with depreciation if you have more depreciation for federal income tax at the beginning then you'll have less at the end.

Answer 2

True. Financial accounting requires companies to report income based on generally accepted accounting principals (GAAP), a set of regulations which greatly differ from the tax code. There are many calculations of expenses which differ under these two sets of rules - the largest being depreciation. There are also other calculations which will differ - bad debt expense, dues, contributions, and even revenue itself. Payroll expense will also likely differ, because GAAP requires an accrual of any payroll expense earned by employees but unpaid at the end of the fiscal year, but the IRS does not allow that accrual as a deduction. There are many other examples of items that will cause taxable income and GAAP income to differ, but hopefully this gives you enough information to answer your question. If you need deeper explanation, I highly suggest talking to a CPA who has experience in dealing with these areas.

Answer 3

Very True.

The amounts on the tax returns rarely match the financial statements due to the different rules used by the IRS (tax) and GAAP (financial statements).

Depreciation is the biggest example. The rates for tax depreciation are not allowed by GAAP.

The differences between Tax and GAAP are reconciled on Schudule M of the Form 1120.

Now....do your own homework.

Answer 4

True. For example, you might be using a different depreciation method for tax purposes than for fiancial reports - this is legal. That would affect net income.

Answer 5

False, You have to report what the balance sheet and income statements says to the Feds as well as the shareholders.

Answer 6

True. But could lead to other issues. It is not as cut and dry as it seems.