[msinddy]

What is the differences between GAAP and income tax accounting?

[morgaine300]

Onlineexpert4u, what good does it do to direct someone to a place where they just have to ask the question again? There isn't any info on this there. (Given your user name, I even wonder if that was just spam.)

The over-simple answer is that GAAP (generally accepted accounting principles) was set up by various accounting boards and councils that have existed over the years, as the standards to be followed for doing the financial reporting for companies. (And keeps changing all the time.) This is what they report in their statements that go to many different users of these statements.

However, the tax rules do not always coincide with these accounting standards that companies use for their own books. The basic chunk of it is actually the same, but there are some differences. So what a company reports on a financial statement may not be exactly the same way it might be reported for tax purposes.

Just as one very common, simple difference... depreciation. The methods GAAP uses aren't the same as what the IRS wants them to use. So how this expense is recorded on an income statement isn't the same as how it's recorded for taxes. Another simple one is that only a portion of travel & entertainment is allowed to be deducted for tax purposes. But there are also differences in how certain types of revenue recognition are recorded, like long-term contracts and installment sales. There are other differences.

So basically, there are a few differences in the rules, which result in the net income on the books for the company being different than the taxable income reported to the IRS.

There's more to it, but this is already more complicated than I meant to get. I don't know what level you're at or the purpose for your asking. If you're wondering about something specific, then ask about that particular thing.