Using your knowledge of GAAP and financial reporting, list and explain one good reason that GAAP should not be used for tax purposes and one good reason that it should be used.
What will be an ideal response?
Possible reasons for not using GAAP include the revenue recognition and conservatism principles that lean towards reporting revenues later rather than earlier, allowing advance payments to be deferred for more than one year even though the taxpayer had the cash in hand to pay tax on the revenue, and GAAP rules are governed by FASB rather than Congress and the IRS.?Possible reasons to allow GAAP for tax purposes include book-tax conformity that will make tax reporting simpler and regarding audited financial statements, the IRS can rely on the audited results.
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