My Fle

Good morning everyone. I’d like to talk to you about how accounting profit and taxable profit differ and how each is treated when accounting for income taxes.

So, I’ll begin with how accounting profit and taxable profit differ. The differences caused by different principles and rules.

Accounting profit is determined in accordance with accounting standards and the conceptual framework that are based on accruals basis.

Taxable profit is determined in accordance with the rules established by the taxation authorities that are principally based on cash basis.

Therefore accounting profit does not equal taxable profit.

Now I want to describe about how it is treated when accounting for income taxes. The differences are classified as either permanent or temporary differences.

Permanent differences will occur when it’s recognised as part of accounting profit but it’s never recognised as part of taxable profit, or vice versa. Entertainment expense, for example, is recognised for accounting purposes that is never recognised as an expense for taxable purpose. For permanent differences, there is no requirement for accounting other than disclosure.

Temporary differences will occur when revenues and expenses are recognised for accounting purposes is different from the period in which items are recognised for tax purposes. For instance, interest revenue recognised on an accrual basis but it’s not recognised for tax purposes until it’s received as cash.

If the differences make company has to pay more tax in the future, company hast to account for deferred tax liability.

If the differences make company has to pay less tax in the future, company hast to account for deferred tax asset.

I’d like to thank you for your attention today.