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The employer paid incomes taxes on behalf of an employee, and the Court questioned whether that payment constituted additional taxable income to the employee. The Court decided that the payment constituted income to the employee because "the discharge by a third person of an obligation to him is equivalent to receipt by the person taxed." Thus ...
Nearly all income tax systems allow a deduction for the cost of goods sold. This may be considered an expense, a reduction of gross income, [4] or merely a component utilized in computing net profits. [5] The manner in which cost of goods sold is determined has several inherent complexities, including various accounting methods. These include:
For financial reporting purposes such period costs as purchasing department, warehouse, and other operating expenses are usually not treated as part of inventory or cost of goods sold. For U.S. income tax purposes, some of these period costs must be capitalized as part of inventory. [8] Costs of selling, packing, and shipping goods to customers ...
A company's earnings before interest, taxes, depreciation, and amortization (commonly abbreviated EBITDA, [1] pronounced / ˈ iː b ɪ t d ɑː,-b ə-, ˈ ɛ-/ [2]) is a measure of a company's profitability of the operating business only, thus before any effects of indebtedness, state-mandated payments, and costs required to maintain its asset base.
Due to regulations and necessary annual audits to ensure a satisfactory work place environment, these costs often cannot be avoided. Also, since these costs do not necessarily contribute directly to sales, they are considered as indirect overheads. Although in most cases necessary, these costs can sometimes be avoided and reduced. [14]
The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve (in the example above, it is $750, i.e. $5250 - $4500). This reserve, a form of contra account , is essentially the amount by which an entity's taxable income has been deferred by using the LIFO method.
The unearned income is deferred and then recognized to income when cash is collected. [6] For example, if a company collected 45% of total product price, it can recognize 45% of total profit on that product. Cost recovery method is used when there is an extremely high probability of uncollectable payments. Under this method no profit is ...
In accounting, a basis of accounting is a method used to define, recognise, and report financial transactions. [1] The two primary bases of accounting are the cash basis of accounting, or cash accounting, method and the accrual accounting method.