Taxable vs. Financial Income

Taxable income
· Calculated in accordance with prescribed tax regulations and rules.

Financial income
· Measured and reported in accordance with GAAP.

Differences between taxable income and financial income occur because tax regulations and GAAP are frequently different. This will create a temporary difference between the tax basis of an asset or liability and its reported amount in the financial statements. This difference will result in taxable amounts or deductible amounts in future years when the asset is recovered or the liability is settled. This is known as "deferred income taxes".