What Is Taxation?

What is Taxation?
A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions. For example, reduction in taxable personal (or household) income by the amount paid as interest on home mortgage loans results in greater construction activity, and generates more jobs. see also taxation principles.

What is Taxable year?
Twelve-month period used as the basis for computing tax on income received during that period. Also called tax year.

What is Tax Year?
Standard 12 month period (such as a calendar year or a fiscal year) used for computing a tax payer's tax liability.

What is Taxable Income?
Gross income from which standard deductions and other allowances have been subtracted.

What is Taxable Value?
Percentage of property value used to determine how much the property owner pays in taxes.

What is Taxable Estate?
An amount calculated as the adjusted gross estate minus any marital deduction property and any charitable deductions.


What is Taxable Equivalent Yield?
Restatement of total income earned from an investment portfolio (including income from tax exempt securities such as municipal bonds) in terms of taxable, for comparing its yield with those of the other investment portfolios.

What is Tax Write off?
Offsetting depreciation, expenses, and losses against tax payer's income.

What is Tax Waiver?
A state issued document that specifies the tax department will transfer stock as indicated. Tax waivers are often used to transfer ownership of property.

What is Tax Sink?
Jurisdiction in which no income tax is imposed.

What is Tax Sheltered Income?
Tax-deferred or tax-exempt earnings.

What is Tax Supplement?
Local tax imposed be a lower government unit (such as a municipality) on the same tax base over which a higher governmental unit (state or federal government) has already imposed a similar tax.

See: Taxation Explanation

Accounting Problem

The Key to learning accounting problems is practice!

• First understand the topic and try to solve with out reading the correct answer.
• Act as you are the teacher, explaining the process of solving the problems as you work. 
• Try working with other students on this task
• Be sure to always double-check the problems for accuracy and completeness.
• Time management is very important in accounting courses. Be sure to keep up wit the work, completing assignments as soon after they are assigned as possible. Set aside time each night to practice the problems.
• If certain problems require that information be entered into specific forms or ledgers. be sure to practice the problems using those forms. Learn what the columns and rows in the forms represent. Learn where specific types of information are to be entered on the form. Learn what types of information are given and what must be calculated. Becoming very familiar with forms is particularly important in income tax accounting courses.

Accounting Theory

Accounting Theory is to provide a logical framework for accounting practice. The basic assumptions, definitions, principles and concepts and how we derive them. It is concerned with improving financial accounting and reporting broad perspective, it includes a conceptual framework, accounting legislation, concepts, valuation models, and hypotheses and theories that allow researchers to analyze accounting in order to explain or predict phenomena related to accounting, such as how users employ accounting data or how preparers choose accounting methods.

The Early History of Accounting

Accounting records dating back several thousand years have been found in various parts of the world. These records indicate that all levels of development people desire information about their efforts and accomplishments.

According to Hain, "The Zenon papyri give evidence of a surprisingly elaborate accounting system which had been used in Greece since the fifth century B.C. and which, in the wake of Greek trade or conquest, gradually spread throughout the Eastern Mediterranean and Middle East." Zenon's accounting system contained provisions for responsibility accounting, a written record of all transactions, a personal account for wages paid to employees, inventory records, and all records of asset acquisitions and disposals. In addition, there is evidence that all the accounts were audited.

There were no organized professions or standards of qualifications, and accountant were trained through an apprenticeship system. Later, private commercial colleges began to emerge as the training grounds for accountants.

These institutions emphasized the quality of value, and discussions of the nature of value in accounting education. Subsequently, widespread speculation in the securities markets, watered stocks, and large monopolies that controlled segments of the U.S. economy resulted in the establishment of the progressive movement at the end on the nineteenth century.



Although most accountants did not necessarily subscribe to the desirability of the progressive reforms, the progressive movement conferred specific social obligations on accountants.

Accountants generally came to accept three general levels of progressiveness:

1. A fundamental faith in democracy, a concern for morality and justice, and a broad acceptance of the democracy, a concern for morality and justice, and a broad acceptance of the efficiency of education as a major tool in social amelioration;
2. An increased awareness of the idea of the social obligation of all segments of society and introduction of the idea of the public accountability of business and political leaders; and
3. An acceptance of pragmatism as the most relevant operative philosophy of the day.

During the period 1900-1915, the concept of income determination was not well developed. There was, however, a debate over which financial statement should be viewed as more important, the balance sheet or the income statement.

The 1904 International Congress of Accountants marked the initial development of the organized accounting profession in the United States, although there had been earlier attempts to organize and several states had state societies. At this meeting, the American Association of Public Accountants was formed as the professional organization of accountants in the United States.

Ownership

Ownership and Equity

Ownership = Is the exclusive tight to posses, use, enjoy, and dispose of property.

Equity = Is the owners' contributions to the business.

Equity represents the noncurrent obligations of the entity to the owners. Because equity equals the amount of assets remaining after subtracting liabilities, equity is sometimes called net assets. (The term "net" indicates that at least one amount has been subtracted from another to reach this final amount)

Equity comes from two primary sources: investments by owners and earnings.
An unincorporated business (sole proprietorship or partnership) will be illustrated first.

Equity is equal to the owners' investments plus net income, less any withdrawals and losses.

Capital = The owner's current investment, or equity, in the assets of a business.

Drawing Account = A temporary capital account, set up in the name of the sole proprietorship or a partner, form which he or she can withdraw money or other assets in anticipation of profit.

Liabilities

LIABILITIES

Liabilities - Debts, amounts owed to creditors
1. Current Liabilities - Liabilities that will be paid with current assets within one year or one operating cycle, whichever is longer.
Accounts Payable - Amounts owed creditors that result from the purchased of goods or services on account.
Notes Payable - Written promises in the hands of the makers, that serve as evidence of debts. If due within one year or one operating cycle, whichever is longer.
Interest Rate Payable - A percentage of the principal that is paid for the use of money borrowed.
Interest - Money paid for the use or borrowing of money.
Unearned Revenue - Advance payment for services that still must be performed. Unearned revenue represents a liability or obligation of the company receiving the payment for a service not yet rendered.
2. Non Current Liabilities - In general liabilities that have a due date more than a year beyond the balance sheet date or beyond one operating cycle, whichever is longer, are classified as non current source is considered non current, whatever the due date. There are several accounts that are classified as noncurrent liabilities, such as mortgages payable, Bonds Payable, Long-term Notes Payable.

EXPANDED ACCOUNTING EQUATION:

ASSETS = LIABILITIES + (CAPITAL - WITHDRAWAL) + REVENUE - EXPENSES)

Analyzing Business Transactions: Revenue and Expense accounts

Revenue and Expenses = directly affect owner's equity. If a business earns revenue, there is an increase in owner's equity. If a business incurs or pays expenses, there is a decrease in owner's equity.

For the present, think of it this way: if the company makes money, the owner's equity is increased. On the other hand, if the company has to pay out money for the costs of doing business, then the owner's equity is decreased.

Revenues and expenses fall under the umbrella of owner's equity: revenue increase owner's equity; expenses decrease owner's equity.

What are Revenue, Expenses, and Profit?

Every business exists primarily to earn a profit. This profit is realized through revenue earned by an organization as a result of the sale of a service or product by that business.

Revenues - Are the amounts earned by a business. Examples of revenues are fees earned for performing services, income from selling merchandise, rent income for providing the use of property, and interest income for lending money.

Revenues - May be in the form of Cash and Credit Card Receipts like those from VISA and MASTER CARD.

Revenue - May also result from credit sales to charge customers, in which case cash will be received at a later time.

Recording Revenue
If revenue of $550 is received by the business, this revenue should be recorded as an increase Cash of $550 and resulting increase in proprietor's capital of $550. Revenue may be received in forms other than cash. An organization may receive payment for services rendered in the form of other assets such as supplies, equipment, and even someone's promise to pay at a future time (accounts receivable). The effects of the accounting equation will still be an increase in the specific asset received and a corresponding increase in capital.

Expenses - Are the costs that relate to the earning of revenue (or the costs of doing business). Examples of expenses are wages expenses for labor performed, rent expense for the use of various media (for example, newspaper, radio, and direct mail).

Expenses - Maybe paid in cash when incurred (that is, immediately) or at a later time.

Expenses - To be paid at a later time involve.

Recording Expenses
Every business, regardless of its nature, must incur certain costs in order to operate. These costs are known as expenses. Expenses are generally referred to as the "costs of doing business." Examples of business expenses are rent expense, insurance expense, salary expense, and supplies expense.

Profit - An excess of revenue over expenses.