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  • IA2 Income Taxes

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    Joey Mhey Benico
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    This document summarizes the key differences between accounting profit/loss and taxable profit/loss, as well as permanent and temporary differences. Accounting profit/loss is computed using accounting standards like PFRS/PAS and includes pretax income, while taxable profit/loss is computed using tax laws and regulations and equals taxable income less deductible expenses. Permanent differences are items included in one computation but not the other, and do not have future tax consequences. Temporary differences arise when income/expenses are recognized in different periods for accounting and tax purposes, and may result in deferred tax liabilities or assets depending on the timing difference.

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    IA2 income taxes

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    This document summarizes the key differences between accounting profit/loss and taxable profit/loss, as well as permanent and temporary differences. Accounting profit/loss is computed using accounting standards like PFRS/PAS and includes pretax income, while taxable profit/loss is computed using tax laws and regulations and equals taxable income less deductible expenses. Permanent differences are items included in one computation but not the other, and do not have future tax consequences. Temporary differences arise when income/expenses are recognized in different periods for accounting and tax purposes, and may result in deferred tax liabilities or assets depending on the timing difference.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    16 views1 page

    IA2 Income Taxes

    Uploaded by

    Joey Mhey Benico
    This document summarizes the key differences between accounting profit/loss and taxable profit/loss, as well as permanent and temporary differences. Accounting profit/loss is computed using accounting standards like PFRS/PAS and includes pretax income, while taxable profit/loss is computed using tax laws and regulations and equals taxable income less deductible expenses. Permanent differences are items included in one computation but not the other, and do not have future tax consequences. Temporary differences arise when income/expenses are recognized in different periods for accounting and tax purposes, and may result in deferred tax liabilities or assets depending on the timing difference.

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    © All Rights Reserved
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    Accounting Profit or loss Taxable profit (tax loss)

    - Computed using PFRS /PAS - Computed using TAX LAWS/TRAIN


    - Profit/loss before deducting income tax LAW/BIR
    expense - Taxable income less tax-deductible
    - Pretax income, accounting income expenses
    - Taxable income

    Permanent differences Temporary differences


    - Income and expenses included in the - Differences between the carrying amount
    computation of either accounting profit of an asset or liability and the tax base
    or taxable profit but not both. - Timing differences – items of income and
    - Arise from non-taxable and non- expenses which are included in both
    deductible expenses and those that have accounting income and taxable income
    already been subjected to final taxes but at different time periods
    - Items excluded from income tax return - Income and expenses are recognized for
    - DO NOT HAVE FUTURE TAX financial reporting purposes in one
    CONSEQUENCES period but are recognized for taxation
    purposes in another period (vice versa)
    ** Income and expenses na subject sa FINAL TAX, - Only the timing or period of their
    hindi subject sa REGULAR INCOME TAX. Example recognition differs between financial
    of permanent differences are PASSIVE INCOME reporting and taxation
    which is subject to FINAL TAX.
    ** income and expenses sa ACCOUNTING PROFIT **income or expenses in year 1 may be recorded
    pero hindi sa TAXATION in accounting but not in Tax, while in year 2 it will
    be recorded in tax and not in accounting anymore
    Example of permanent differences:
    1. Interest income on government bonds,  Taxable temporary differences – deferred
    treasury bills and bank deposits tax liability; future taxable amount
    2. Dividend income (lalagyan ng tax in the future)
    3. Fines, surcharges and penalties
    4. Life insurance premium on employees  Deductible temporary differences –
    deferred tax asset; future deductible
     Non-taxable revenue amount (may idededuct later on)
     Non-deductible expense
    Deferred tax liability Deferred tax asset

    a. Accounting a. Accounting
    income income is less
    greater than than taxable
    taxable income
    income
    b.

    c.

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