#AtoZChallenge Archives – Page 27 of 30

April 12, 2021April 13, 2021

J is for Journal

Journal entries are the backbone of accounting records. Despite the shift from quill pens to wi-fi chips, from clay tablets to vellum sheets to a blinking data entry screen, the accountants have always had to keep track.

Reducing Eggs Payable

Historians generally saw the ancient cuneiform notations as some of the earliest examples of writing–and accounting–in the world. The large-scale management of taxes, grain allotments, and army rations for the burgeoning Sumerian and Egyptian empires took a lot of tablets.

But local farmers had to keep track on their own, so researchers think that “primitive” bookkeeping, even based on barter, would have still included writing in a ledger. A neighbor might agree to take three chickens in exchange for a bag of seed when the harvest is completed. Or, suppose another neighbor made a sturdy cabinet for the kitchen in exchange for a year’s worth of eggs.

There would still need to be journal entries:

Bought one sack of seeds : Three chickens payable to Farmer Jones
Bought one kitchen cabinet: Year’s supply of eggs to Farmer Kozlowski

Then, one of the kids had to be sent over every day to Kozlowski with the day’s supply of eggs, while someone would make the daily journal entry. Because if something happened to the parties in the transaction mid-year, Mrs. Kozlowski would want to know that she was still owed 183 eggs. On your books, that would be sitting as eggs payable.

April 10, 2021April 10, 2021

I is for Ireland

“Leprechaun economics” is the term Nobel-prize winning economist Paul Krugman used. With all due respect to Ireland–that greenest land of wind, stories, and music to soothe the soul–their tax law sucks bilgewater.

Leprechaun economics, picture at ginokenny.com.

The Republic of Ireland has managed, in the last fifty years, to transform itself into the world’s largest tax haven. Meaning a place that allows multinational corporations, particularly those formed and operating in the U.S., to use creative accounting to pay very little in taxes. How little? How about 0.005%?

Apple Chooses Between Single Malt or Double Irish

Apple is a company that has always thought far in advance about packaging and design–including on their financial statements. Back in 1980, about the time when they were prototyping the Macintosh, Apple opened a small office in Cork, Ireland, lured by a deal to pay no taxes for several years. Such local tax arrangements aren’t that unusual–Twitter moved into a derelict building in downtown San Francisco for the same “no tax for years” deal, while Delaware has long been known as a favorable legal and financial place for companies to incorporate.

What Apple was also able to do, over decades, was use its growing economic power to support an Irish shift into a myriad of favorable tax strategies–favorable to corporations, that is. A so-called Base Erosion and Profit Shifting (BEPS) plan allows companies to put their huge patents as giant assets on their balance sheets, in Irish subsidiaries. These patents, the stock and trade for tech companies, are amortized (charged out over time) in a convoluted way that allows the income received to be located in Ireland–with very low tax rates–even if it was earned somewhere else.

April 9, 2021April 10, 2021

H is for Hedge

“Greed is good,” trader and arbitrageur Ivan Boesky told our MBA class of 1984. He arrived with a stretch limo and an entourage, wearing a fur coat and an expensive Italian suit. He explained that his job was to find opportunities that others missed and that the trade-off in risk and reward was real. Those willing to accept more risk–the risk of losing money because a ship sinks or a drug fails–should get the bigger payout when the exotic cargo comes into port or the cure for disease proves successful.

The risk part is the problem. How can you minimize the risk and still receive high enough payouts to cover costs? Entourages aren’t cheap. One answer is a hedge fund.