Interest on municipal bonds is referred to as a permanent difference when determining the proper

Interest on municipal bonds is referred to as a permanent...

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Key Concepts

Permanent Differences

Permanent differences are differences between accounting income and taxable income that arise from items that are recognized differently under GAAP and tax laws and that will never reverse in future periods. Unlike temporary differences, which create deferred tax assets or liabilities as they reverse over time, permanent differences do not give rise to deferred tax entries because they do not affect future taxable income.

Deferred Tax Accounting

Deferred tax accounting is the method used to account for the differences between the financial reporting and tax bases of assets and liabilities. It involves recognizing deferred tax assets and liabilities for temporary differences, while excluding permanent differences since they do not reverse over time.

Examples of Permanent Differences

Examples of permanent differences include expenses or income items that are included in financial reporting but are disallowed or treated differently for tax purposes. For example, fines and penalties paid by a business are not deductible for tax purposes, and life insurance premiums on policies where the company is a beneficiary are also generally nondeductible. Both of these create permanent differences because they will not be recognized for tax purposes in current or future periods.

Transcript

00:01 Hi, so today we're going to talk about the difference between compound interest and continuous compounding.

00:07 So we have compound interest on one side.

00:14 And then we have continuous compounding on the other side.

00:25 So we're going to talk about what each of them mean and the differences between each other and what makes them special from other terms.

00:35 So we're going to start out with compound interest.

00:38 So the compound interest, you're most likely seeing this formula thrown all.

00:43 Around all the time when it comes to things about these lessons.

00:46 So, a equals p times 1 plus r over m by the power of n times t.

00:54 So that's usually the equation that you're going to use to find compound interest or anything that deals with that.

01:00 So each of the principles, a equals final amount.

01:10 P is the principal amount.

01:19 R is the rate.

01:22 T is the time.

01:24 And n is the number of times, number times you pay for the interest.

01:35 So what is compound interest? compound interest is interest that's added on top of the principal amount or the principal sum that you first deposit in.

01:50 So the interest is just accumulating on top of it and it's taking for one just to like give a percentage of interest...

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