Starting Your Own Business part 2 Financial Reports Dr. John Abraham ProfessorUTPA

Important tax info from IRS /article/0,,id=97726,00.html /article/0,,id=97726,00.html /article/0,,id=97726,00.html /article/0,,id=97726,00.html /article/0,,id=176080,00.html /article/0,,id=176080,00.html

Methods of Accounting Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made. Under an accrual method, you generally report income in the tax year you earn it, regardless of when payment is received, and deduct expenses in the tax year you incur them, regardless of when payment is made.

Accounting Periods Calendar year Calendar year Fiscal year Fiscal year A fiscal year is 12 consecutive months ending on the last day of any month except December Week Tax Year You can elect to use a week tax year pdfs/p538.pdf pdfs/p538.pdf pdfs/p538.pdf pdfs/p538.pdf

Payroll Accounting pdf/p15.pdf pdf/p15.pdf Using payroll service Using payroll service Using accounting programs such as peachtree or quickbooks Using accounting programs such as peachtree or quickbooks At the minimum use spreadsheet At the minimum use spreadsheet See in class demo.See in class demo.

Payroll withholding W-4 (Employee’s withholding allowance certificate) W-4 (Employee’s withholding allowance certificate) SS -6.2% employer and employee SS -6.2% employer and employee Base limit is $102,000 (for 2008)Base limit is $102,000 (for 2008) Medicare – 1.45% for employer and employee. Medicare – 1.45% for employer and employee. File 941 File 941 FUTA FUTA

Cash Flow Statement static.howstuffworks.com/pdf/sampl e-cash-flow.xls static.howstuffworks.com/pdf/sampl e-cash-flow.xls Company’s incoming and outgoing money for one year. Company’s incoming and outgoing money for one year. Viability of company depends upon cash flow Viability of company depends upon cash flow Sample cash flow statement Sample cash flow statement Sample cash flow statement Sample cash flow statement Reconcile bank statements Reconcile bank statements

Balance Sheet List all of your assets List all of your assets All of your liabilities All of your liabilities The difference is Owner’s Equity The difference is Owner’s Equity

Income Statement Shows if your company is profitable Shows if your company is profitable