{"id":4239,"date":"2019-03-07T07:31:04","date_gmt":"2019-03-07T07:31:04","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=4239"},"modified":"2026-01-27T09:55:03","modified_gmt":"2026-01-27T09:55:03","slug":"differences-accounting-profit-taxable-income","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/","title":{"rendered":"Differences Between Accounting Profit and Taxable Income"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Income Taxes (2024\/2025 Level I CFA\u00ae Exam \u2013 FRA \u2013 Module 9)\",\n  \"description\": \"This CFA\u00ae Level I Financial Reporting and Analysis (FRA) lesson covers Income Taxes (Module 9). You will learn the differences between accounting profit and taxable income, and define key terms such as deferred tax assets (DTAs), deferred tax liabilities (DTLs), valuation allowance, taxes payable, and income tax expense. The video explains how DTAs and DTLs are created, how to calculate tax bases, and how to compute income tax expense, taxes payable, and deferred tax balances. It also evaluates the impact of tax rate changes on financial statements and ratios, contrasts temporary vs. permanent differences, explains valuation allowance requirements, and reviews current vs. deferred tax recognition and measurement. Finally, it analyzes disclosure items such as the effective tax rate reconciliation and highlights key differences between IFRS and US GAAP income tax accounting.\",\n  \"uploadDate\": \"2022-04-27\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/ZdGeNqOn7iA\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=ZdGeNqOn7iA\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/ZdGeNqOn7iA\",\n  \"duration\": \"PT36M15S\"\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"What accurately describes a difference between accounting profit and taxable income?\",\n    \"text\": \"Which of the following statements accurately describes an occurrence of a difference between accounting profit and taxable income?\\n\\nA. The tax base and carrying amount of assets and\/or liabilities is the same.\\nB. The tax losses of previous years cannot be used to reduce the taxable income in later years.\\nC. Revenues and expenses may be recognized in one reporting period for accounting purposes and in another period for tax purposes.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"C. Revenues and expenses may be recognized in one reporting period for accounting purposes and in another period for tax purposes. This timing difference explains why accounting profit and taxable income can differ.\"\n    }\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/ZdGeNqOn7iA\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Accounting profit also referred to as income before taxes is reported on a company\u2019s income statement following the prevailing accounting standards.<\/p>\n<p>Taxable income is the portion of a company\u2019s income that is subject to income taxes following the tax laws of the jurisdiction within which a company operates.<\/p>\n<p>Accounting profit and taxable income may differ due to different guidelines which relate to how income is reported on a company\u2019s financial statements and how it is measured for income tax purposes.<\/p>\n<h2><strong>Key Definitions<\/strong><\/h2>\n<ul>\n<li><strong>Taxable income<\/strong> is the basis for a company\u2019s income tax payable or recoverable. It is calculated based on a company\u2019s tax rate and appears on the balance sheet.<\/li>\n<li><strong>Tax expense<\/strong> (or tax benefit) is reported on the income statement and is an aggregate of a company\u2019s income tax payable (or recoverable) and any changes in deferred tax assets and liabilities.<\/li>\n<li><strong>Deferred tax assets<\/strong> arise when a company\u2019s taxable income is greater than its accounting profit resulting in an excess amount being paid for income taxes, and the company expects to recover this difference in the course of future operations. Actual income taxes payable will therefore be greater than the financial accounting income tax expense.<\/li>\n<li><strong>Deferred tax liabilities<\/strong> arise when a deficit amount is paid for income taxes and a company expects to eliminate this deficit during future operations.<\/li>\n<li><strong>The valuation allowance<\/strong> is a reserve created against deferred tax assets and is based on the likelihood of the realization of deferred tax assets in future accounting periods.<\/li>\n<li>The <strong>tax base<\/strong> of an asset or liability is the amount at which it is valued for tax purposes, whereas the <strong>carrying amount<\/strong> is the amount at which it is valued according to accounting principles. Differences between the tax base and carrying amount result in differences between the accounting profit and taxable income.<\/li>\n<\/ul>\n<h2><strong>Differences Between Accounting Profit and Taxable Income<\/strong><\/h2>\n<p>Differences between accounting profit and taxable income can occur in several ways, inclusive of the following:<\/p>\n<ul>\n<li>revenues and expenses may be recognized in one reporting period for tax purposes and in another period for accounting purposes;<\/li>\n<li>specific revenue and expense items may not be recognized for accounting purposes but recognized for tax purposes. Alternatively, they may be recognized for accounting purposes but not recognized for tax purposes;<\/li>\n<li>the tax base and carrying amount of assets and\/or liabilities may differ;<\/li>\n<li>the deductibility of gains and losses of assets and liabilities may vary for income tax and accounting purposes;<\/li>\n<li>the tax losses of previous years may be used to reduce the taxable income in later years, subject to tax rules. This will result in differences between the accounting and taxable income (tax loss carryforward); and<\/li>\n<li>the adjustments of reported financial data from previous years may not be recognized equally for accounting and tax purposes or may be recognized in different periods.<\/li>\n<\/ul>\n<blockquote>\n<h3><strong>Question<\/strong><\/h3>\n<p>Which of the following statements accurately describes an occurrence of a difference between accounting profit and taxable income?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">The tax base and carrying amount of assets and\/or liabilities is the same.<\/li>\n<li data-tadv-p=\"keep\">The tax losses of previous years cannot be used to reduce the taxable income in later years.<\/li>\n<li data-tadv-p=\"keep\">Revenues and expenses may be recognized in one reporting period for accounting purposes and in another period for tax purposes.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>The statement, \u201crevenues and expenses may be recognized in one reporting period for accounting purposes and in another period for tax purposes,\u201d provides an example of a difference between accounting profit and taxable income.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Accounting profit also referred to as income before taxes is reported on a company\u2019s income statement following the prevailing accounting standards. Taxable income is the portion of a company\u2019s income that is subject to income taxes following the tax laws&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-4239","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Accounting Profit vs. Taxable Income | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Accounting Profit vs. Taxable Income | CFA Level 1\" \/>\n<meta property=\"og:description\" content=\"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-03-07T07:31:04+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-01-27T09:55:03+00:00\" \/>\n<meta name=\"author\" content=\"Simon\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Simon\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\"},\"author\":{\"name\":\"Simon\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"headline\":\"Differences Between Accounting Profit and Taxable Income\",\"datePublished\":\"2019-03-07T07:31:04+00:00\",\"dateModified\":\"2026-01-27T09:55:03+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\"},\"wordCount\":592,\"articleSection\":[\"Financial Reporting and Analysis\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\",\"name\":\"Accounting Profit vs. Taxable Income | CFA Level 1\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-03-07T07:31:04+00:00\",\"dateModified\":\"2026-01-27T09:55:03+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\"},\"description\":\"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Differences Between Accounting Profit and Taxable Income\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687\",\"name\":\"Simon\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"contentUrl\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png\",\"caption\":\"Simon\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/ZdGeNqOn7iA\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"2176\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-03-07T07:31:04+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Accounting Profit vs. Taxable Income | CFA Level 1","description":"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/","og_locale":"en_US","og_type":"article","og_title":"Accounting Profit vs. Taxable Income | CFA Level 1","og_description":"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-03-07T07:31:04+00:00","article_modified_time":"2026-01-27T09:55:03+00:00","author":"Simon","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Simon","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/"},"author":{"name":"Simon","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"headline":"Differences Between Accounting Profit and Taxable Income","datePublished":"2019-03-07T07:31:04+00:00","dateModified":"2026-01-27T09:55:03+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/"},"wordCount":592,"articleSection":["Financial Reporting and Analysis"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/","name":"Accounting Profit vs. Taxable Income | CFA Level 1","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-03-07T07:31:04+00:00","dateModified":"2026-01-27T09:55:03+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687"},"description":"Accounting profit differs from taxable income due to variations in accounting and tax standards, impacting financial reporting and tax obligations.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/differences-accounting-profit-taxable-income\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Differences Between Accounting Profit and Taxable Income"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/8d6352b658ba58a707920fba950b3687","name":"Simon","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","contentUrl":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/analystprep-150x150.png","caption":"Simon"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/analystprep\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/ZdGeNqOn7iA","og_video_type":"text\/html","og_video_duration":"2176","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-03-07T07:31:04+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/4239","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=4239"}],"version-history":[{"count":28,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/4239\/revisions"}],"predecessor-version":[{"id":58412,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/4239\/revisions\/58412"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=4239"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=4239"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=4239"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}