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Income tax represents one of the major sources of revenue for governments around the world. It affects every aspect of business operations, from how businesses operate, to how they report their activities. An essential part of any company's accounting system is calculating how much it owes in taxes on its earnings each year. Companies must file quarterly reports to calculate their expected annual taxes and pay them in ______ throughout the year.
installments
At the end of the fiscal year, companies perform final calculations based on updated financial information to determine whether they owe more or less than their estimated payments, resulting in either a refund or additional ______ due.
payment
Understanding ______ is important in accounting as it involves the process of recording, summarizing, analyzing, interpreting, and reporting financial transactions.
income taxes
A company's accounting system involves the preparation of various financial statements including the balance sheet, income statement, and ______.
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Specific accounting concepts like property plant and equipment, employee benefits, leases, borrowing costs, and investment properties are essential aspects of accounting that companies need to ______ in relation to their financial statements.
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Property plant and equipment are held for long-term productive purposes and are normally recorded at __________
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Employee benefits include health insurance, pensions, paid vacation, social security contributions, and profit sharing plans, among ________
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The statement of cash flows shows where cash came from and where it went during a period, reflecting the actual flow of funds into and out of a business. It consists of three parts: cash inflow from operating activities, cash inflow from investing activities, and cash inflow from ________ activities
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Lease obligations represent potential future liabilities to lessees under noncancellable lease agreements covering real estate, land, buildings, machinery, vehicles, aircraft, ships, containers, computer software, photocopiers, satellite links, telecommunication equipment, wine cellars, etc. When a company enters into a lease agreement, there are several elements that need to be considered, including identifying the start and end dates of the lease, determining the monthly rent and any escalation clauses, and calculating the total lease payments over the life of the ________
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Borrowing costs are the interest rates charged by lenders when a company ________ money
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Study Notes
Accounting: Understanding Income Taxes, Property Plant and Equipment, Employee Benefits, Statement of Cash Flows, Leases, Borrowing Costs, and Investment Properties
Accounting is the process of recording, summarizing, analyzing, interpreting, and reporting financial transactions, which involves the preparation of various financial statements including the balance sheet, income statement, and statement of cash flows. In this article, we'll discuss these financial statements in relation to specific accounting concepts such as income taxes, property plant and equipment, employee benefits, leases, borrowing costs, investment properties, and other relevant aspects of accounting.
Income Taxes
Income tax represents one of the major sources of revenue for governments around the world. It affects every aspect of business operations, from how businesses operate, to how they report their activities. An essential part of any company's accounting system is calculating how much it owes in taxes on its earnings each year. Companies must file quarterly reports to calculate their expected annual taxes and pay them in installments throughout the year. At the end of the fiscal year, companies perform final calculations based on updated financial information to determine whether they owe more or less than their estimated payments, resulting in either a refund or additional payment due.
Property Plant and Equipment Depreciation
Property plant and equipment includes all assets associated with a business, except current assets. They are held for long-term productive purposes and are normally recorded at cost, with some capitalized expenses added later. These assets can be depreciated over time, allowing a company to expense the loss in value of the asset as it ages. This expensing helps accountants understand how much the asset has lost in value over the years so they can get a fair representation of the net income earned by the business.
Employee Benefits
Employee benefits include health insurance, pensions, paid vacation and holidays, social security contributions, and profit sharing plans, among others. In many countries, employers offer their employees benefit programs to attract and retain talent. These benefits are typically reported on the employer's income statement as an operating expense under salaries and wages. However, not all benefits are treated equally; some benefits may be considered post-tax while others pre-tax, affecting the amount of taxes owed by both the employer and employee.
Statement of Cash Flows
The statement of cash flows shows where cash came from and where it went during a period, reflecting the actual flow of funds into and out of a business. It consists of three parts: cash inflow from operating activities, cash inflow from investing activities, and cash inflow from financing activities. Operating activities refer to the primary business function of earning revenue through sales and paying for expenses and investments required to generate those revenues. Investing activities involve cash exchanges between a company and external entities for fixed assets and securities. Financing activities involve cash exchanges induced by changes in debt and equity ownership.
Leasing Obligations
Lease obligations represent potential future liabilities to lessees under noncancellable lease agreements covering real estate, land, buildings, machinery, vehicles, aircraft, ships, containers, computer software, photocopiers, satellite links, telecommunication equipment, wine cellars, etc.. When a company enters into a lease agreement, there are several elements that need to be considered, including identifying the start and end dates of the lease, determining the monthly rent and any escalation clauses, and calculating the total lease payments over the life of the agreement.
Borrowing Costs
Borrowing costs are the interest rates charged by lenders when a company borrows money. These costs are used in two ways in accounting: 1) To evaluate the success of capital budgeting projects using the internal rate of return method and 2) To compute interest expense for tax purposes. In order to correctly calculate the interest expense for tax purposes, there needs to be a clear distinction between direct and indirect borrowing costs. Direct borrowing costs are easily identifiable and quantifiable, while indirect borrowing costs cannot be directly attributed to a particular project.
Investment Properties
An investment property is a type of property owned specifically to earn a rental income or for capital appreciation, rather than being occupied for personal use. Assets like timberland, stocks, bonds, mutual funds, limited partnership interests, options, futures contracts, and commodity contracts are also classified under investment properties. Investment properties are typically been identified and acquired as separate investments from operations or have already been included within the carrying value of another asset or liability.
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Description
Test your knowledge on accounting concepts such as income taxes, property plant and equipment, employee benefits, statement of cash flows, leases, borrowing costs, and investment properties. Understand the importance of these concepts in preparing financial statements and analyzing financial transactions.
