Why do corporations distribute constructive dividends? What are the motives behind distributing other form of payments to shareholders other than distributing regular dividends? “Tax savings” is the answer to the above questions. Dividends are subject to “double taxation” where the distributions are taxed at both the corporate and individual taxpayer (shareholder) level. By
Income Tax Lauren McKinnon Question 1 In Katy’s situation HMRC would apply a test known as the Employment Status Indicator (ESI). The ESI indicates whether someone is employed or self-employed by asking question on the main criteria. The main criteria for this are control, financial risk, equipment, work performance and correction, holidays and sickness, and exclusivity. Control is to find out how much control the payer of the worker has over who is doing the work. For financial risk they are self-employed if they can make losses and profits.
("The Principles of Commercial Accounting and Fund Accounting", 2011). Accrual vs. Cash Basis Accounting According to the readings, accrual base accounting is defined as in which businesses record, in the periods in which the actions occur, transactions that alter a company's financial statements, even if cash was not traded. In other words, it means that recorded or un-recorded, all dealings are taken and estimated into the overall balance. Cash Basis Accounting, in which an establishment accounts revenue only when it collects cash and an expense only when it pays out cash. This method means that accountants, only takes accountability of the physical cash that is exchanged.
The two main method of recording accounting transaction are cash basis and accrual basis accounting. Cash basis and accrual basis have their advantages and disadvantages, but only one method is approved by Generally Accepted Accounting Principles (GAAP).The difference between accrual and cash basis accounting has to do with the time frame in which revenues and expenses are recorded and reported. Accrual basis accounting matches revenues to the time period in which they are earned and matches expenses to the time period in which they are incurred. The accrual basis allows the business to track receivables (amounts due from customers on credit sales) and payables (amounts due to vendors on credit purchases). Accrual basis on accounting is the method of accounting that most business and professionals are required to use by law because of its matching principles.
Lesson 2 (3.0 points) 1. What is pass-through taxation? (0.5 points) Pass-through taxation is when Taxes on the company's income are paid on the personal tax forms of the company's owners. 2. What is an advantage of a sole proprietorship?
1. Which of these is not considered an advantage of the corporate business form? a. A shareholder-employee’s salary is fully deductible from corporate income. b.
The information “Bookings” convey is that: the company record sale of virtual goods as deferred revenue and then recognize the revenue over the estimated average life the purchased virtual goods or as the virtual goods are consumed. The way that Zynaga recognized revenue is based on the estimated life of virtual goods. This is not the same information available in the GAAP-based financial statements. Under GAAP, companies use accrual basis which they recognize revenue when they perform the service. 2) Do you think this is a useful measure?
Accrual basis accounting records the transaction immediately in a type of account, such as accounts payable, money owed to other companies for services; or accounts receivable “money owed by its debtors” ("Google.com", 2012). Later when the business pays out or is paid; they perform a balance by debiting one account and balancing by credit the corresponding and opposite account. Tracking the relationship between purchase and sale easier, something cash basis accounting fails at. In general, accrual basis accounting is preferred at tax time and for medium to large business. The classic example is expense.
(Kimmel, 164). In accrual basis companies recognize revenue when earned even if they do not collect cash at that time thus using the revenue recognition principle. They also recognize expenses when they are incurred even if they did not pay cash at that time which is following the matching principle. Cash basis accounting on the other hand means that the, “companies record revenue only when cash is received. They record expense only when cash is paid”.
1. What form of partnership allows some of the investors to limit their liability? Explain by giving examples. There are many ways people start their businesses; the first one being sole proprietorship, second one partnership, and the last one corporation. Sole proprietorship refers to one owner, partnership refers to two or more owners, and corporation is a unique ownership that can be purchased through stocks.