Knowledge that Transforms

Determining the market values of streams of future returns is a task common to many sorts of economic analysis. The literature on this subject is extensive at all levels of abstraction. However, most work has not taken uncertainty into account in a meaningful way.

F. E. James, Jr., Monthly Moving Averages--An Effective Investment Tool?, The Journal of Financial and Quantitative Analysis, Vol. 3, No. 3, Special Issue: Random Walk Hypothesis (Sep., 1968), pp. 315-326

Allocation model, General model, Cost allocation

Budgeting, Budget pressure, Leadership

Disclosures, Voluntary Disclosure, Materiality

Lease accounting, Operating leases, Financial lease

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-