Chapter 19, Problem 1Q

To determine

Income: Income is an opportunity for an individual, a firm, or an entity to increase the utilizing power and the saving ability within a specific period of time. Generally, income is calculated or expressed in the form of money or its worth.

To identify: To identify the difference between pretax financial income and taxable income.

Explanation of Solution

Pretax financial income: Income that is computed based on the records and documents presented by an individual, a firm, or an entity is termed as pretax financial income. Generally, pretax financial income is eligible for computing or determining the net tax liability of an individual, a firm, or an entity.

Taxable income: Income that is computed after all allowable or permissible deductions are made from pretax financial income is called taxable income. In other words, taxable income is eligible for computing the tax liability.

Conclusion

The difference between pretax financial income and taxable income is that pretax financial income is the gross income of an individual, a firm, or an entity, while taxable income is calculated after allowable or permissible deductions are made from pretax financial income. Pretax financial income and taxable income are not the same.