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Five Keys to Accounting

Five Keys to Accounting. Doug Shackelford University of North Carolina. #1 The Accountants’ Joke. Q: What is 2+2? A: What do you want it to be? The joke is right, But not for the reason you think!. #2 Accountants and Empirical Researchers. Assume Observe Measure Estimate Judge

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Five Keys to Accounting

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  1. Five Keys to Accounting Doug Shackelford University of North Carolina

  2. #1The Accountants’ Joke Q: What is 2+2? A: What do you want it to be? The joke is right, But not for the reason you think!

  3. #2Accountants and Empirical Researchers • Assume • Observe • Measure • Estimate • Judge • Record • Audit/Replicate/Challenge

  4. #3Accountants Measure Balance Sheets • Assets = Liabilities + Equity • Income is the Difference • Tax Starts with that Difference (Income) and makes adjustments • Tax Balance Sheets--the missing statements

  5. Balance Sheets vs. Tax Returns • Source of Confusion • GAAP measures A, L, and E • Tax takes (unimportant) Changes to get Taxable Income • Example: Accounting for Income Taxes • GAAP trying to measure Deferred Tax ASSETS and LIABILITIES • Key reason book tax provision isn’t taxes paid • Why M-3 requires B/S Understanding

  6. Book Expenses (Provision) Earnings Retained Earnings Book Value Goodwill LIFO Tax Deductions Income Earnings and Profits (sort of) Basis Goodwill LIFO #4Language Matters

  7. #5 Why Book-Tax Conformity Is a Misguided Idea • Demand for accounting: Reduce asymmetric information by constructing balance sheets in a reliable and relevant manner using judgment • Demand for tax: Collect revenue with as little judgment as possible • Conformity is a naïve notion based on a failure to appreciate the role of accounting

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