Book Accounting: Accounting used on a company's audited financial statements. Balance Sheets (assets, liabilities and equity) and income statements should be reported using U.S. GAAP. Tax Accounting: Income and deductions reported on tax return in accordance with the rules in the I.R.C. and attending regulations.

Key differences Under GAAP, companies report revenue, expenses, and net income. Tax-basis entities report gross income, deductions, and taxable income, and they report nontaxable items as separate line items or as footnote disclosures. Capitalization and depreciation of fixed assets is another noteworthy difference.

Generally accepted accounting principles, or GAAP, are standards that encompass the details, complexities, and legalities of business and corporate accounting.