Accounting Profit: Accounting profit is the profit a business reports in its financial statements. It is calculated using standard accounting principles (like IFRS or GAAP). This profit includes all revenues and all expenses, even non-cash expenses like depreciation. 

It's used by shareholders, management, and auditors to assess how the company is performing. 

Tax Profit (Taxable Income): Tax profit, or taxable income, is the profit calculated according to tax laws. This is the figure the tax authorities use to determine how much income tax the company owes. Some expenses that are allowed in accounting profit might not be allowed for tax purposes. Also, some income might be taxed differently or at different times. 

Main Differences: The main differences arise because tax laws and accounting rules are not the same. 

For example: 

Depreciation: In accounting, depreciation may be spread over the useful life of an asset using straight-line or other methods.

But for tax, the government use Capital allowance method. Non-deductible expenses: Some expenses (like fines, entertainment, or donations) might be recorded in accounting but are not allowed as deductions when calculating tax profit. 

Timing differences: Revenue or expenses might be recorded in different periods for accounting and tax purposes. 

Simple Example:

Let’s say a company earns $100,000 in revenue for the year.

It spends $30,000 on salaries, $10,000 on rent, $5,000 on depreciation (based on accounting rules), and $2,000 on entertainment. 

So: Accounting Profit = $100,000 (revenue) − $30,000 (salaries) − $10,000 (rent) − $5,000 (accounting depreciation) − $2,000 (entertainment expense) = $53,000 

Now, for tax purposes, let’s say: Tax rules allow depreciation of $8,000 (instead of $5,000). Entertainment expense is not allowed as a deduction. 

So: Tax Profit = $100,000 (revenue) − $30,000 (salaries) − $10,000 (rent) − $8,000 (tax depreciation) = $52,000.

Even though the company made $53,000 in accounting profit, it will pay tax only on $52,000 of profit based on tax rules.