HOW COME THE TAXES A COMPANY HAS TO PAY TO THE GOVERNMENT MAYNOT BE - ProProfs Discuss
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How come the taxes a company has to pay to the government maynot be the same as they show on their financial statements?



Asked by Clara, Last updated: Oct 20, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Have you consulted other sources or tried for info on the web? that may help. thecsc text only touches on this very complex topic.companies pay tax every year. a company that use the cica gaap guidelines fortheir financial statements and the income tax act guidelines for the tax returns mayfind differences in the amount of tax payable in a given year. for example, a companymay use the accelerated depreciation method on one set of statements and thestraight-line method for the other set of statements (all perfectly legal). the differentmethods will ultimately lead to different net income figures and thus different taxamounts.so in any one year, a company may show more tax than it has to pay. maybe downthe road it will pay more tax than what it shows on its financial statements. thus atemporary difference. however, one of the problems with this is that these temporarydifferences often do not reverse themselves and continue for quite some time.permanent differences are less frequent and more obscure, as the text reports.key point - because of different accounting conventions (with depreciation oramortization methods the most common), the amount of tax a company shows on itsfinancials may not be the same as what it must pay to the government each year.
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