Answer:
1. The tax year is the year in which the company is liable to pay tax for the period it has operated. The operating cycle might start from any day, and end on any day, but the financial books for tax purposes are to be closed for the respective financial year, which is generally a calendar year. Therefore, the books for each calendar year are to be prepared for tax purposes, as for 2015 financial year tax year is 2016.
2. Tax purposes do not specify that accrual basis is to be followed, it states that the Cash basis and accrual basis can be followed.
3. Under cash method of accounting all the transactions are recorded only when cash is received or paid against them.
Under the accrual basis there is a periodic system under which when transaction occurs it is recorded, as for the period to which it relates.
4. Conservatism is recording all expenses and losses, when occurred and if estimated that it will occur the provision shall be created. Although under tax purposes the expenses as and when occur are to be reported but no conservatism is followed.
5. The differences are permanent and temporary in nature.
As in point 4 the expenses in books might be recorded, but not valid for tax purposes. As for tax voluntary retirement expense is amortized in some defied number of years, but for book purpose it is accounted completely in the year in which it occurs.
6. Permanent difference is recording of different income as per tax and books as for example any income which is exempt from tax will create a permanent difference, whereas the difference which is temporary will be set off in some defined number of years.
When recording prepaid income it is because it is sure that the income will arise and that the income is in books but not for tax purposes, and when it is accrued expense it is again allowed in books but it is also allowed in tax accounting.
