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Internal Revenue Code/Taxable Income - Essay Example

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High school
Author : roslyn71
Essay
Finance & Accounting
Pages 3 (753 words)

Summary

Professor Subject code Section 1 The concepts in the determination internal revenue Retained income Retained income is a figure used in business to calculate how much money generated or lost during the trading period of time…

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Internal Revenue Code/Taxable Income

For example a company may decide to purchase asset or reduce obligations out of its retained earnings. In most cases retained income does reflect the dividend policy of the company because the board will decide either to reinvest such profit or to pay them out to stockholders. The retained earning I taxable at corporate tax rate as well as pay as you earn (PAYE) on the shareholder share of profit if any. Recognized income This model is the basis of matching and accrual concept. These concepts both takes into account the accounting period in which expenses has been incurred or revenue has been recognized. According to the principle revenues are recognized when they are realizable that is usually by the time goods are transferred or services are rendered. Therefore it does not matter when cash is received. On the other hand expenses are matched to the period they relate to. Examples are: accrued revenue, and deferred revenue. Return of capital doctrine This doctrine protects some part of investment proceeds from taxation for instance if Mr. Y invested $20,000 there after sold the investment and realized $20,500 only $5,000 would be valid for taxation. The initial outlay is protected from tax. It can also be called capital gain; however it should not be mistaken with the return on capital which measures the rate of return. Constructive receipt Normally this concept is used to determine the gross income of cash basis tax-payer. ...
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