ACCT CH 6-10
FOB shipping point
- Buyer pays shipping charges - Buyer owns goods in transit - Legal title passes to buyer when goods are shipped
FUTA (Federal Unemployment Tax Act)
- FUTA tax returns (Form 940) are completed annually. - If FUTA exceeds $500 at quarter end, payment must be remitted. - Any amount due at year end must be paid by 1/31, with this accompanying journal entry • Form 940 - Prepared at end of calendar year - Filed by January 31 following year - Reports the amount of unemployment tax due for the year - Calculated as 0.6% of the first $7,000 earned by each employee
Employee Identification Number (EIN)
- Like a social security number for a business - Identifies the business to the government
SUTA (State Unemployment Tax Act)
- Most states require a form and payment due by the last day of the month following the end of the quarter. - A journal entry for the quarterly payment would be made with the form and payment.
Disadvantages of online banking
- Start-up may take time: In order to register, you will probably have to provide some personal identification and sign a form at a branch bank. - Learning curve: Banking sites can be difficult to navigate at first. - Bank site changes: Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. - Trust: For many people, the biggest hurdle to online banking is learning to trust it.
Petty Cash Voucher
- The voucher number (which will be in sequence) - The date - The person / organization to which the payment was made - The amount of payment - The reason for payment - The signature of the person approving - The signature of the person receiving - The account to which the item will be charged
Form W-4 (Employee's Withholding Allowance Certificate)
- Used to determine the amount of taxes to be withheld - It lists marital status and total number of allowances claimed
2/10, n/ 30
2% discount is allowed off price of bill if paid within the first 10 days or full amount is due within 30 days.
Debit Card
A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder (MASTERCARD/VISA)
endorsement
A signature or stamp on the back of a check transferring ownership
Phishing
An attack that sends an email or displays a Web announcement that falsely claims to be from a legitimate enterprise (bank) in an attempt to trick the user into surrendering private information
SS-4
Application for Employer Identification Number (EIN) - for business
FOB destination
Free on board destination - Seller pays shipping charges - Seller owns goods while in transit - Legal title passes to buyer when goods reach their destination
Signature Card
Includes the signatures of each person authorized to sign checks on the bank account.
n/10 EOM
No discount. Full amount of bill is due within 10 days after the end of the month
P2P Payment Processing
Paypal • Fees are generally lower and easy to set up and use. • Hefty fees for chargebacks. . • Some people refuse to use P2P payment processors.
Bank Reconciliation Statement
Process by which a reconciliation takes place for all differences between the balance on the bank statement and the checkbook balance - Calculate deposits in transit and outstanding checks - Recognize service charges and fees
Calculating Federal Income Tax
Step 1 - Use marital status to determine which section of the percentage method withholding table to use Step 2 - Determine which row to use in the table determined in Step 1 based on gross wages Step 3 - Subtract the amount listed in Column E Step 4 - Multiply the answer from step 3 by the percentage in column D. Step 5 - Add the amount calculated in Step 4 to the amount listed in Column C.
Sales Revenue
The amount that a merchandiser earns from selling its inventory.
merchandise (inventory)
The goods a business has on hand for sale to customers
restrictive endorsement
Type of endorsement: - check is stamped for deposit only
full endorsement
Type of endorsement: - entity signing the back of the check indicates the name of the entity to whom the check is to be paid
blank endorsement
Type of endorsement: —does not specify that a particular entity must endorse it
Employers and Employees
Who pays payroll tax?
Bank Statement
a printed record of the balance in a bank account and the amounts that have been paid into it (depsoited) and withdrawn from it (cash/checks/debit card/ACH payment), issued periodically to the holder of the account.
Electronic Funds Transfer (EFT)
a way to transfer funds electronically without the use of paper checks.
Automated Teller Machine (ATM)
allow customers to make deposits, withdraw money, and obtain account balances without having to stand in line when the bank is open.
Remote Deposit Capture (RDC)
allows customer to take a picture of checks and electronically deposit.
sales discount
is a contra-revenue account that records cash discounts granted to customers for payments made within the discount period.
credit cards
means of access to preapproved lines of credit granted by a bank or finance company - A drawback is that merchants typically must pay a service fee
State Income Tax Withholding
state taxes withheld from employees paycheck - In 2021, only Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not. - New Hampshire and Tennessee only imposed taxes on interest and dividends.
Witholding
taking tax payments out of an employee's pay before he or she receives it
credit period
the amount of time allowed before full payment is due
payroll
the financial record of employee compensation, deductions, and net pay
skimming
the theft of credit card information used in an otherwise legitimate debit card or credit card transaction.
discount period
time when a discount is granted
Cost of Goods Sold
—In a perpetual inventory system, an account that records the cost of merchandise inventory used to make the sale.
perpetual inventory system
—This is an inventory system that continually monitors its levels of inventory. Advances in technology, and the need for real-time information regarding inventory levels, and the related Cost of Goods Sold, has spurred the use of this system by businesses both large and small.
NSF (non-sufficient funds)
—a check that has been returned because the drawer did not have enough money in its account to pay the check
debit memorandum
—a deduction from the account holder's balance
credit memorandum
—an increase in the account holder's balance
Deposit Slip
—form used when making deposits - Lists each check individually - Lists total amount of currency, coins, and checks being deposited
check
—written order signed by drawer instructing a drawee to pay specific sum of money to payee
payroll regulations
• A business needs to know: - How to calculate, pay, record, and report payroll and payroll taxes • Federal, state, and maybe even local laws regulate the payroll process
debit memorandum
• A memo issued by a purchaser to a seller detailing a return or allowance
Setting up the Petty Cash Fund
• A new asset, called Petty Cash, is created by writing a check and reducing the asset Cash
Accounts Receivable subsidiary ledger
• A special ledger • Contains a single type of account • Subsidiary account for each customer • Arranged alphabetically • Can be in the form of a file, a notebook, or can be stored on computer's hard drive or on the Cloud • Posted to general ledger and recorded to the subsidiary ledger • The general ledger account is called the controlling account. • It summarizes or controls the subsidiary ledger. • The total of the individual accounts will equal the controlling account ending balance. - When the subsidiary ledger is updated, a is placed in the PR column of the general journal.
individual employee earnings report
• A summary of employee's earnings, withholding taxes, net pay, and cumulative earnings during each calendar year
petty cash fund
• Account dedicated to paying small day-to-day expenses • Recorded in an auxiliary record • Later summarized, journalized, and posted • Asset account, normal debit balance • Custodian—oversees the fund
Completing a 941
• Begin by entering Employer Identification Number and selecting the appropriate quarter • Information from the Worksheet Summary of Payroll Register is used to complete the rest of Form 941. -# of employees at the quarter, total payroll, & federal income tax - taxable social security wages, & taxable Medicare wages • Calculate the monthly tax liability for each quarter (employee FIT and employer and employee Social Security and Medicare) - Owner/Accountant signs
Cash receipt transactions
• Cash receipts for sales are journalized and posted • Cash receipts on account are - Journalized for the month - Posted to the general ledger - Posted to the accounts receivable subsidiary ledger
Change Fund
• Change Fund is made up of various denominations • Fund is placed in the cash register drawer and used to make change for customers who pay cash
Advantages of Online Banking
• Convenience: Unlike your corner site, online banks never close. • Availability: You can log on instantly to your online bank and take care of business 24/7 • Transaction speed: Online bank sites generally execute and confirm transactions as quickly or even faster than ATM processing speeds. • Efficiency: You can access and manage all of your bank accounts from one secure site. • Effectiveness: Many online banking sites now offer sophisticated tools to help you manage all of your assets more effectively.
hourly salary exempt
• Employees must be classified as: - (blank) - paid only for hours worked - (blank) - exempt from overtime per FLSA
Cash Short & Over Account
• Errors often happen in making change. • Must record both overages and shortages. • A shortage is considered as a miscellaneous expense. • An overage is considered as other income
FUTA (Federal Unemployment Tax Act)
• FUTA taxes - Pays 6.0% on each employee up to wage base limit of $7,000 - Grants tax credit for SUTA tax up to a maximum of 5.4% - Net FUTA tax rate ▪ FUTA tax rate 6.0% ▪ Less: Normal FUTA tax credit 5.4% ▪ Net FUTA tax rate 0.6%
Workers' Compensation Insurance
• Insures employees against losses - Accidental injury or death while on the job • Paid by employer in most states • Insurance based on total estimated gross payroll - To determine the amount of the premium to charge
Accounts Payable Subsidiary Ledger
• It listed vendors owed money from purchases on account • The normal balance is a credit. • Accounts Payable is the controlling account. • The sum of the individual amount owed should equal the balance in Accounts Payable.
Tips to Help You Avoid Becoming a Skimming Victim
• Keep your PIN safe. Don't give it to anyone. • Watch out for people who try to "help" you at an ATM. • Look at the ATM before using it. If it doesn't look right, don't use it. • If an ATM has any unusual signage, don't use it. • If your card is not returned after the transaction or after pressing cancel, immediately contact the institution that issued the card. • Check your account regularly to be sure that no unusual withdrawals appear there.
Cash
• Most easily stolen, lost, or mishandled • Need to protect all cash receipts and to control cash payments • Establish good internal control, a system of procedures and methods to safeguard cash and monitor operations
importance of payroll
• Must be completely accurate - Mistakes impact the employee and company • Must be on time - Employees need paychecks when expected - Government receives payroll taxes when due • Must follow the law • Must keep information confidential
Replenish the Petty Cash Fund
• No postings are done from the auxiliary record. • The compiled information is used as a basis for the formal journal entry. • A check is issued for the expense total and cashed; the cash is replaced in the petty cash box. • Debits are a summary of the totals of expenses.
credit memorandum
• Notification sent to a customer • Indicates the amount of the goods returned or amount allowed for damaged goods • The amount is subtracted (credited) from the customer's account
Operating the Petty Cash Fund
• Petty Cash account is debited or credited if size of fund is changed. • Vouchers are used when money is removed from the fund. • Filled out each time a payment is made. • Vouchers are sequentially numbered. • Voucher totals plus cash on hand should equal the original petty cash balance.
W-2
• Prepared by employer each calendar year • Provides summary of gross earnings and deductions to each employee • Copies provided to: - Employee - IRS - State and Local Governments - Social Security Administration - Company records
Schedule of Accounts Payable
• Proof that the sum of the accounts payable subsidiary ledger is equal to the controlling account. • Only creditors owed a balance appear in the schedule. • If it doesn't, the journalizing, posting, and recording must be checked.
W-3
• Reports - Total amounts of wages, tips, and compensation paid to employees - Total Social Security and Medicare taxes withheld • Sent to a Social Security Administration with copies of each employee's W-2
941 Quarterly Report
• Requires all employers to periodically report all tax liability incurred for FIT, Social Security, and Medicare. • The reporting periods are calendar quarters ending on March 31, June 30, September 30, and December 31. Due every quarter. • The filing date for any of the reports is the last day of the month following the quarter.
Internal Control Examples
• Responsibilities and duties of employees are divided. • All cash receipts are deposited into the bank on a daily basis. • All cash payments are made by check. • Employees are rotated. • All checks are authorized for payment. • Bank accounts are reconciled monthly.
SUTA (State Unemployment Tax Act)
• SUTA taxes - Each state determines wage base limit. • Amounts are based on the needs of the unemployment funds. • In 2021, the wage base limits for states ranged from $7,000 to $47,400. • Rates can vary from employer to employer.
Employee Withholding for Social Security Taxes
• Social Security tax in addition to federal and state taxes • A 1935 federal law called the Federal Insurance Contribution Act (FICA) • Incorporated into the Internal Revenue Code in 1939 • Employers are required to withhold amounts from employees' pay • Used to make the following payments - Monthly retirement benefits for persons over 62 years old - Medical benefits for persons over 65 years old - Benefits for persons who have become disabled - Benefits for families of deceased workers who were covered by this law • The tax is really two taxes - Old-age, survivor's, and disability insurance (OASDI) tax (we'll call this Social Security) - Medicare • Each tax is calculated differently - Social Security puts a limit on the amount of tax that an employee must pay - With Medicare; all wages earned are subject to the Medicare tax • Social Security & Medicare tax rates and Social Security wage base amount are set by Congress. • Social Security wage base increases annually based on cost-of-living adjustments.
employer payroll taxes
• Social Security taxes—matches employee contribution - Both employer and employee pay Social Security and Medicare • Unemployment taxes - Provide unemployed workers with benefits - Created by the same 1935 law that created Social Security - FUTA and SUTA • FUTA taxes - Federal Unemployment Tax Act - Pay administration costs, not the benefits • SUTA taxes - State Unemployment Tax Act - Pay the benefits to unemployed persons
Recording and Posting Purchases Transactions
• Step 1: Prepare a purchase requisition - Copy sent to purchasing - Copy sent to accounting - Copy kept in the department making the request Step 2: Purchasing Department Prepares a Purchase Order Step 3: Sales Invoice Prepared by seller • Step 4: Receiving the goods and completing a receiving report - Receiving report verifies the exact merchandise was received in good condition • A company does not record this purchase until the invoice is approved for recording and payment Step 5: Verifying the Numbers Before the invoice is approved for recording and payment
Sales Tax Payable
• Taxes collected on sales and forwarded to the state. • This is a liability to the retailer
Fair Labor Standards Act (FLSA)
• The federal law that governs employee payroll • Applies to employers involved in interstate commerce (doing business in more than one state) • Includes child labor laws, federal minimum wage, and overtime requirements • Pay at least one and a half times regular rate over 40 hours in one workweek • Workweek is a seven-day (or 168-hour) period that can start at any time
gross earnings
• The regular earnings for an employee for the pay period - Overtime earnings must be computed according to the law (State and Federal)
payroll register
• Two primary records to keep track of payroll information for a company - A worksheet, known as a payroll register ▪ Shows all information related to an entire pay period - The employee earnings record ▪ Used to keep track of an individual employee's payroll history Includes each employee's: • Gross earnings • Withholdings / Taxes • Net pay • Taxable earnings • Cumulative earnings • Accounts to be charged • Wage expense for that pay period