Economic income is susceptible to changes that result from several factors some of which include: the level of inflation whereby high inflation decreases economic income by increasing its volatility. The existing tax rate in an economy also has an influence on the financial income. This is because low tax increases the disposable incomes.
The primary factor leading to a change in the taxable incomes in an economy is the inflation adjustments. Notably, inflation has the propensity of increasing the costs of commodities and services. To ensure the society keeps pace with these changes, adjustments must be to particular deductions, as well as, exemptions. In addition, a disclosure of information on foreign and off-shore accounts may result in changes in the taxable income specifically when the overseas assets surpass fifty thousand dollars. (TurboTax & ndash; Taxes, 2016)
Realization principle is a concept which means that the recognition of revenues can only be done once the associated goods, as well as, services have been rendered or rather delivered. As a result, the recognition of revenue can only be done after earning it. Recognition principle, on the other hand, exists under the accrual concept of accounting. It dictates that revenue should only be recorded once an organization has fully completed its generation process. This means that revenue is recorded only after earning it. ("Revenue Recognition Principle – Accounting Tools", 2016)
The current use of the realization principle in the Internal Revenue Code is wholly acceptable. This is because before actually the delivering the goods or rendering the service, the revenue that may have been already received lies in part as a liability since the entity or delivering authority has not completed its obligation. In conclusion, therefore, the above article has presented a discussion primarily on changes in income. It has discussed the factors leading to alterations in economic and taxable income and also discussed the realization, as well as, the recognition principles.
References
Revenue Recognition Principle – Accounting Tools. (2016). Accountingtools.com. Retrieved 17 July 2016, from http://www.accountingtools.com/revenue-recognition-principle
TurboTax & ndash; Taxes, I. (2016). Tax Changes You Need to Know for 2015 - TurboTax Tax Tips & Videos. Turbotax.intuit.com. Retrieved 17 July 2016, from https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/Tax-Changes-You-Need-to-Know-for-2012/INF22308.html
