Income Tax Tracker

In previous posts introduced you to the business world as a complex web of relationships among the company's various stakeholders, its stockholders, bondholders, creditors, employees, customers and suppliers, among others. Beyond complexity, the sheer size of many corporations makes it difficult to comprehend all their activities. The accounting system is a framework for keeping track of it all. It has evolved to serve two basic purposes, reporting the financial activities of the company to outside stakeholders and providing information to assist decision makers within the company. Income tax tracker is also create a big complex-city. 

The accounting material covered in this and coming posts are a review of material from basic accounting classes. We outline the basics of the accounting statements, without going into the details of how they are prepared. We describe important differences between accounting and economic information. Our focus in financial management is on how to use and interpret this information, rather than on operating an accounting system and creating financial reports.

Financial managers need to understand accounting statements for several very good reasons. Accounting statements are use to communicate with stakeholders outside the company, such as stockholders, bondholders and other creditors. They are used within the company to help plan and organize its activities. Accounting statements are used to monitor employees in connection with such things as performance or even theft. Furthermore, they are used by the Internal Revenue Service to determine the company's taxes.

Review the Federal Income Tax System

Finally, we review the federal income tax system. In finance, we make decisions on an after tax basis, so understanding tax  effects is very important. Because taxes affect value, they affect many of a company's financial management decisions. Even at the most basis level, taxes are a significant cost of doing business. Throughout the book we will point out situations where taxes might make a difference. We are not going to make you a tax expert. Rather, we feel it is important that you realize how tax factors can affect decisions. Thus, when you encounter them in practice, you will know when to seek expert tax advice.

Income Tax Tracker

Accounting, Taxes and the Principles of Finance

• Two sided Transactions: Recognize that the accounting system always records two sides to every transaction and there are real people or real companies on each side of the transaction.
• Incremental Benefits: Use financial statements and the accounting system to help identify and estimate the incremental expected cash flows that will be used to make a financial decision.
• Risk Return Trade Off: Keep in mind that managerial decisions are based on future risks and returns. Accounting tends to measure historical or past returns. Consequently, many decisions require information and perspectives that are unavailable from the accounting system.
• Behavioral Principle: Use the wealth of financial information available on thousands of companies to apply this principle.
• Signaling: Recognize that financial information provides many observable signals about customers, competitors and suppliers income tax tracker.