Treating the taxes paid each year as an expense in the income statement could result in an inappropriate matching between pre-tax book income and income tax expense.

Question

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Treating taxes paid as an expense in the income statement can be misleading because it does not necessarily correspond to the income earned in that same period. This can lead to a mismatch between pre-tax book income and income tax expenses, which can result in inaccurate financial statements. It is more appropriate to recognize tax expenses based on the income earned in a given period.

Treating the Taxes Paid Each Year as an Expense in the Income