Accounting 340

Using (net 30) credit to make purchases for your business

Delays the cash outflow by a month

Sole Prop features

One Owner Form 1040 Schedule C/SE Subject to SE: yes Business income: Schedule C Tax rate: Personal

During the 1st month of a brand new start up, there are inventory purchases of $50,000 & Cogs of $35,000 what's the beginning inventory account balance

$0

What would be the estimated cash needed monthly to repay a $300,000, 5 year, 6% loan

$300,000/5 = $60,000/12 = $5,000 <- principle $300,000*.06 = $18,000/12 = $1,500 <- interest =$6,500

Indicate in which financial statement each item would most likely appear: income statement (I), balance sheet (B), statement of retained earnings (E), or statement of cash flows (CF).

(BS) Assets (CF) Cash from operating activities (E) Dividends (BS) Equipment (IS) Expenses (BS) Liabilities (CF) Net decrease (or increase) in cash (IS) Revenues (BS) Total liabilities and equity

Causes of reconciliations differences between company books & bank statement are caused by

- expense not entered into books -checks that have not cleared -interest revenue - data entry errors

Self Employment tax rate

15.3%

FICA Rate is

7.65%

Balance Sheet

Asster, Liabilities, Equity

What is the first step to being able to prepare a projection?

Being able to describe the business

What are early stage funding sources for business start ups?

Family and Friends, crowd-sourcing

If net income should be ($152.47) & instead it is ($827.47)

Most likely a mis classified an asset purchase as an expense.

Does the S-corp have self-employment tax?

No

If a business pay a balance due on their credit card what effects does this transaction have on the P&L

No effect on the P&L

What is a red flag for investors?

Not following up after a meeting

What is a term sheet?

The blueprint for your relationship with the investor

Is Depreciation a Fixed Asset?

Yes

Accumulated Dep. account is classified as

a fixed asset

What are the three basic legal forms of business

a. Sole Proprietorship b. Partnership c. Corporation

Does using (net 30) to pay for expenses have an effect on net income

no

S-corp has BIST of $160,000, has one owner, single, estimate self employment tax to pay

$0 - its an s-corp ( same with c-corps)

What is the difference between a budget and a forecast?

A budget balances targeted goals with realistic needs

C Corporation

Form 1120 Subject to SE: no Tax rate: Corporate

If a business offers (net 30) term to their customers, what effect does it have on cash

It delays cash-flow for a month

How do the venture capitalists make their money?

Management Fee

What are the effects on the balance sheet for each transaction

Paid for advertising with C.C: L(U) : E (D) Paid employees wage: A (D) : E (D) Received cash from owner: A (U) : E (U) Purchase of Equipment: No Chg Paid Phone Bill: A (D) : E (D) Paid Balance balance on A/P: L (D) : A (D) Take out a loan: L (U) : A (U) Received payment from client: Cash (U) : No Chg

Forecasting helps businesses to imagine the possibilities in order to realize their potential.

True

In order to prepare projections we must analyze historical data.

True

What are the three main sections of the financial statement that tells us what we own and owe?

a. Assets b. Liability c. Owners Equity

Does bad-debt have an effect on cash flows

no - b/c you never had it in the first place

What effect does dep have on cash

no effect

Write down the accounting equation.

A = L + E

Where will business income be shown for a Sole Prop

A schedule C

LLC

1+ owners Can be taxed as corporation (S or C) or taxed as proprietorship or partnership Taxes vary

What is an S-Corps taxable income?

Income-wages-payroll taxes (on employee)

If net income should be ($152.47) & instead it is (154.99)

double entered an expense transaction

When collecting cash from a customer who was perviously billed

Cash (up) , A/R (down)

If a sole prop w/ no other employees has BITS of $160,000 & the owner is single, what's the estimated payroll tax to pay

$0 - no payroll, no employees

Married Sole Prop. has BITS of $200,000 prior to determining employee wage expense, what is BITS after employee wage of $50,000

$200,000 - $50,000- ($50,000*.0765) or $3,825 = $146175

Married sole prop. has BIST of $400,000 what is the total estimated tax

$400,000*.153 = $61,200 $400,000-30600= $369400*.33= 121902 =$183102

Classify each of the following items as assets (A), liabilities (L), or equity (E).

(A) Land (E) Common stock (E) Retained earnings (L) Accounts payable (A) Accounts receivable

Match each transaction or event to one of the following activities of an organization: operating activities (O) investing activities (I) financing activities (F).

(F) An owner contributes resources to the business in exchange for its common stock. (I) An organization sells some of its land. (I) An organization purchases equipment. (O) An organization advertises a new product. (F) The organization borrows money from a bank. (O) Paid for advertising with Credit Card (O) Paid employees wages (F) Received cash from owner (I) Purchase of Equipment (O) Paid Phone Bill (O) Paid Balance balance on A/P (F) Take out a loan (O) Received payment from client

Indicate the section where each of the following would appear on the statement of cash flows. O. Cash flows from operating activity I. Cash flows from investing activity F. Cash flows from financing activity

(O) Cash paid for advertising (O) Cash paid for wages (F) Cash paid for dividends (I) Cash purchase of equipment (O) Cash paid for rent (O) Cash paid on an account payable (F) Cash received from stock issued (O) Cash received from clients

Partnership

Form 1065, Subject to SE: Yes Business Income: Schedule K-1 Tax rate: personal

S Corporation

Form 1120S Subject to SE: no Schedule K-1 Personal Tax rate

What's the estimated cash needed monthly to cover all payroll related expense for a business with one employee earning $48,000/year

Gross pay: $48,000/12 = $4,000 FICA: $48,000*.0765 = $3,672/12 = $306 =$4,306

Statement of Cash Flows

Operating Activities, Investing Activities, Financing Actvities

Indicated Each names of each account & how its effected

Paid for advertising with C.C: A/P (up) : C.C (up) Paid employees wage: wages expense (U) : cash (D) Received cash from owner: Cash(U) : Common Stock (U) Purchase of Equipment: Cash (D) : Equip (U) Paid Phone Bill: Cash (D) : Phone Exp (U) Paid Balance balance on A/P: Cash (D) : A/P (D) Take out a loan: Cash (U) : Loans Payable (U) Received payment from client: Cash (U) : A/R (D)

Income Statement

Revenue, Expenses, Net Income

C-corp BIST of $500,000 married owner

Tax bracket = 34% $500,000*.34= $170,000

LLC w/ an S-corp election has BIST of $450,000 & an owner who is single, what is the total estimated tax

Tax bracket = 39.6% $450,000*.396= $178,200

What should your executive summary be like?

Tinder

Why is it important to understand the business before preparing a projection?

To know what activity has occurred to date

What are the four financial statements of a business?

a. Income Statement b. Owners Equity (or Retained Earnings) Statement c. Balance Sheet d. Cash Flow Statement

What the three major types of activities of a business?

a. Operating b. Investing c. Financing