The flow-through method of accounting for taxes results in significant decreases in the debt-to-equity ratio for most firms, improving their financial position. The flow-through method represents a logical approach in accounting for taxes as long as taxation is viewed as a transaction occurring between the private and public sectors. That is, taxation is the act of transferring a portion of the periodic increase in an entity’s net worth (computed using the tax law) to a government entity for the privilege of conducting business in that government’s jurisdiction.