Answer
This is possible because the purposes of financial accounting and income tax accounting differ, which makes it often desirable to report transactions or events differently and to report the deferred tax consequences of any existing temporary differences as assets or liabilities.
Work Step by Step
Proper reporting of financial transactions and events in accordance with generally accepted accounting principles is the goal of financial accounting. Reporting of taxable transactions and events in conformity with income tax laws and regulations is the goal of Income tax accounting. On the other hand, the primary purpose of an income tax is the production of tax revenues to finance the operations of government, income tax laws and regulations are often produced by various forces.
