Knowledge that Transforms

Incan Empire, Accounting, Double entry Bookkeeping

Foreign Income, Currency Risk, Financial Statements

Opportunity Costs, Linear Programming, Cost allocation

Usually, installment reporting of deferred payment sales for tax purposes will result in deferral of income tax. This note is concerned with the effects of such tax deferral on company profitability and on the flow of funds under varying conditions of sales growth and terms. It is commonly recognized that, with other variables constant, installment sales are growing. However, when sales decline or stabilize following a period of growth, the result is, respectively, the reverse or neutral. Precisely the same pattern was noted in association with tax deferrals achieved by use of accelerated depreciation for tax reporting in company with growing, declining, or stable capital expenditures by a firm.' So far as we know, however, the impact of deferrals resulting from installment reporting upon the present value of company profit flows has never been made explicit. Moreover, profit margins and length of payment terms as well as growth of sales significantly affect the pattern of fund flows associated with deferrals originating from installment reporting. Normative prescriptions are not offered here. Rather, implications of the analysis are left to be read by the wide variety of persons directly concerned in policy contexts, including members of the accounting profession involved in the attempt to reach a consensus with respect to ac-

Financial statement consolidation, Aggregation, Informational approach, Materiality

Inflation, Valuation, Accounting standards

Book review, Accounting theory

Information Content of earnings, Earnings, Earnings Announcement, Price reaction

Melvin N. Greenball, Evaluation of the Usefulness to Investors of Different Accounting Estimators of Earnings: A Simulation Approach, Journal of Accounting Research, Vol. 6, Empirical Research in Accounting: Selected Studies 1968 (1968), pp. 27-49