Principles of Taxation for Business and Investment Planning, 5/e

Sally M Jones, University of Virginia

The Measurement of Taxable Income

Taxable Income From Business Operations

Chapter 5 Objectives

After studying this chapter, you should be able to:

1. Describe the relationship between a firm's business operating cycle and its choice of taxable year.

2. Explain the realization and matching principles of income measurement.

3. Compare the cash method and the accrual method of accounting as they relate to the measurement of net income.

4. Contrast the principles of conservatism reflected by generally accepted accounting principles (GAAP) and by the tax law.

5. Identify the tax policy objectives that lead to differences in the computation of book income and taxable income.

6. Differentiate between a permanent and a temporary book/tax difference.

7. Define the doctrine of constructive receipt for cash basis firms.

8. Recognize the common differences between the calculation of book and taxable income for accrual basis firms.

9. Explain how the net operating loss deduction allows firms to smooth taxable income over time.

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