Final answer:
A permanent difference is a non-reversing discrepancy between financial accounting income and taxable income, resulting from different treatments of certain items by accounting standards and tax laws.
Step-by-step explanation:
Differences between Financial Accounting and Taxable Income
A difference between financial accounting income (reported on financial statements) and taxable income (reported on tax returns) that never reverses over time is referred to as a permanent difference. These differences arise because the tax laws and the accounting standards (such as GAAP or IFRS) have different rules regarding the recognition of income and expenses. An example of a permanent difference would be fines and penalties, which are expenses that are deductible for accounting purposes but are not deductible for tax purposes. Since this type of discrepancy does not reverse in future periods, it permanently affects the relationship between accounting income and taxable income.