Squashing commits ruins merge diff

I have tested two scenarios:

1. When merging with the squash commits option and after that comparing the merged branches, it shows the same files that are merged, so that can be done indefinitely. Even though those files are implemented onto the target branch, it shows that they're not the same like on the source branch. This definitely sounds like a bug.

2. When merging with the squash commits option unchecked, after the merge, both source and target branch show they're the same and there are no different files.