- There are four general types,or flavors of accounting.
- There are four general types or flavors of accounting.
The first type is bookkeeping.
Bookkeeping involves theraw collection of data.
Bookkeeping involves the raw collection of data,
how many customers came in, what did they buy,
What did they buy?
what goods are still sitting on my selves?
That's bookkeeping.
The second flavor of accountingis financial accounting,
The second flavor of accounting is financial accounting
which is focused on the summary reports
that a business gives to people outside the company.
When a company goes to a bank to get a loan
or when a company approaches new partners
to invest in the business,
the bank or the potential partners ask
ask for summary financial reports.
for summary financial reports.
That's financial accounting.
The third general type,or flavor, of accounting,
The third general type or flavor of accounting
is called managerial accounting.
Managerial accounting is the detailed accounting
that is used every single day within a business
to make decisions.
Did this employee perform well or poorly?
Do we want to sell this product or that product?
Do we want to build our factory in Nevada or Wyoming?
To answer these questions, we use detailed internal data,
that's managerial accounting.
The fourth general type of accounting
is income tax accounting.
Income taxes influence almost every decision
that is made in a business,
so what is an income tax?
Well, an income tax is a required payment
An income tax is a required payment to a government based
to a government based on theamount of a person's income
on the amount of a person's income
or a company's profit.
That seems like such a simple statement
Now, that seems likesuch a simple statement,
but there is so much controversy and intrigue right there
right there in that simple statement.
in that simple statement.
For example, to what government?
The government where I live?
The government where I earn the money?
The government where I earned the money?
Or the government in which I'm a citizen?
So, the question of to what government needs
needs to be defined precisely
to be defined precisely in the income tax accounting rules
in the income tax accounting rules.
and how is the amount of the income tax computed?
Based on a simple percentage of income?
Based on a simple percentage of income,
based on an increasing percentage?
Is all of the income taxed equally?
And finally, how is that taxable income or profit defined?
Are there allowable expenses
that can be subtracted in the computation of that income?
in the computation of that income?
Now, income taxes are an important tax,
Now, income taxes are an important tax
but they're not the only tax.
For example, there are sales taxes.
When you buy anything at the retail level,
you have a little sales tax added on.
Value-added taxes are like sales taxes
but are added in each level of the value chain,
at the production level,
at the wholesale level and at the retail level.
and at the retail level.
Property taxes are taxes paid based
on the value of property that you own.
of property that you own.
Payroll taxes are based on wages and salaries
and are often designated by governments
as being for retirement or unemployment insurance purposes.
Usage taxes are things such as taxes used on roads
and taxes to buy gasoline.
Estate taxes are taxes paid when a person dies
and her or his estate is passed onto the heirs.
Now, as you can see, there are lots of different types
of different types of taxes.
of taxes, income taxes are just one
Income taxes are just one of many taxes.
of many taxes.
As an example, in it's year-end financial reports,
ExxonMobil reports all of the taxes it paid
for the year worldwide
and for the year ended December 31st, 2017,
ExxonMobil reported total worldwide taxes of $31 billion
of 31 billion dollars, of which,only seven billion dollars
of which only $7 billion was tax based on income.
was tax based on income.
So, income taxes are not the only tax
but they are relatively large and controversial tax.
but they are a relativelylarge, and controversial tax.
Income tax considerationsinfluence almost every aspect
Income tax considerations influence almost every aspect
of a company's business.