midterm - chapter 12 Flashcards
covers social security and medicare taxes
FICA
Federal Insurance Contributions Act
how often employees are paid
pay period
identifies customers that made purchases using credit and the status of each account
accounts receivable record
amounts owed by the business that will be paid within a year
ex. short term loans from a bank, accounts payable
current liabilities
detailed plans for the financial needs of individuals, families and businesses
budget
What is the purpose of payroll taxes?
to fund government projects like roads, schools, parks, etc
- shows the company’s assets, liabilities and owner’s equity as of a specific date
- a report that lists a company’s assets, liabilities and owner’s equity at a specific point in time
balance sheet
all income that a business receives over a period of time; the money the company is making
revenue
assets
anything of value that a business OWNS
the assets with a lifespan of more than a year
ex. land, buildings, equipment and expensive technology
long term assets
budget that plans income and expenses from the beginning of a new business or expansion until it becomes profitable
start up budget
liabilities
amounts that a business OWES
extra money only available to certain employees
commissions, bonuses, profit sharing
what is the accounting equation?
assets = liabilities + owner’s equity
or
assets - liabilities = owner’s equity
the result of expenses being greater than income; another term for loss
net loss
a report of revenue, expenses and net income or loss from operations for a specific period
income statement
employers transfer employees’ net pay electronically directly into their bank accounts
direct deposit
employees are either paid a salary or an hourly rate
regular earnings
How is profit calculated?
What is the basic financial equation?
Revenue - Expenses = Profit or Loss
financial documents that are used to record and analyze the financial performance of a business
financial records
ex. a/p record, a/r record, depreciation record
What are the 4 steps in budgeting process?
- prepare a list of each type of income and expense that will be part of budget
- gather accurate info from business records and other sources for each type of income and expense
- create the budget by calculating each type of income, expense and the amount of net income or loss
- explain the budget to people who need financial info to make decisions
- a financial document that identifies the companies from which credit purchases were made and the amount purchased, paid and owed
- payments to other vendors (businesses) that will be paid at a later date
accounts payable
cash and those items that can be readily converted to cash such as inventory and accounts receivable
current assets
expenses that only happen once in awhile
periodic expense
ex. car repairs, Christmas bonus, car registration
a budget that plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable
start up budget
a financial document that identifies customers that made purchases using credit and the status of each account; amounts the customers owe the company
accounts receivable
What is the purpose of a balance sheet?
- to help determine how business is performing
- shows how much the business is worth on the date its prepared
What are the 3 types of budgets?
- start up budget
- operating budget
- cash budget
a tax paid by BOTH employees and employers to the federal government, it’s used to pay for retirement benefits, widows and disability benefits
social security tax
- the financial plan for the ongoing operations of the business
- covers 3 months, 6 months or a year
operating budget
What is shown on income statement?
- revenue
- expenses
- net income or loss
example of payroll taxes
- income tax
- state tax
- social security
- medicare
- unemployment tax
a tax by the state government on an employee’s income; employers withhold this amount each pay period and pay it directly the the state government
state income tax
expenses that change every month
variable expenses
ex. electric bill, phone bill, food
What are the goals of a business budget?
- to determine the sources and amounts of income
- to identify the types of expenses and predict their costs
- to determine how income will be distributed to cover those expenses
- to reward investors if there is a profit
only available for hourly employees; 1-1/2 times regular pay rate for hours worked over 40 hours in one week
overtime earnings
the result of revenue being greater than expenses; another term for profit
net income
What is the purpose of the income statement?
to determine how business is performing
What are the main purposes of a business budget?
- anticipate sources and amounts of income for a business
- predict the types and amounts of expenses for a specific business activity or the entire business
the value of the business after liabilities are subtracted from assets; the value of the owner’s investment in the business; what the business is worth
owner’s equity
a report of revenue, expenses and net income or loss from operations for a specific period; prepared every 6 months or 1 year
income statement
the financial record of employee compensation, deductions and net pay
payroll
required federal and state payments for each employee
payroll taxes
money withheld from employee’s paycheck to cover medical insurance costs, retirement plan contributions, dental insurance, etc
payroll deductions
- printed with paychecks
- shows information for current pay period and cumulative amounts for the year
- shows number of hours worked and hourly wage rate or salary amount, vacation or sick days used, each tax withheld, all deductions withheld, etc
earnings report
aka pay stub
- budget that shows an estimate of the actual money received and paid out for a specific period
- covers each week or month
- includes sales, rent, electricity, income, etc
cash budget
business expenses are greater than income
net loss
identifies the companies from which credit purchases were made and the amounts purchased, paid and owed
accounts payable record
What information is contained in a payroll record?
employee name, address, social security number, salary or wage info, vacation and sick days, tax info, etc
a tax paid by BOTH employees and employers to the federal government and is used to pay for Medicare benefits for citizens 65+ or with certain disabilities
Medicare tax
expenses that are the same every month
fixed expenses
ex. rent, mortgage, insurance premiums
What is shown on balance sheet?
- current assets
- long term assets
- current liabilities
- long term liabilities
- owner’s equity
- things that cost a company money, such as salaries, utilities, insurance, etc
- costs of operating a business
expenses
What is the difference between gross pay and net pay?
- gross pay is the amount an employee earns BEFORE taxes and deductions are taken out
- net pay is the employee’s ‘take home pay’ and is AFTER taxes and deductions are withheld
a tax by the federal government on an employee’s income; employers withhold this amount each pay period and pay it to the government
federal income tax
business debts that will continue for longer than a year
ex. loan on land, buildings or equipment
long term liabilities
documentation used to process earnings payments and record each employee’s pay history
employee payroll records
What factors influence income?
- education - college or technical training
- number of years of experience
- where you live
- type of job (entry level or management)
- type of company working at
the final ‘take home pay’ once all employee deductions and taxes are taken out
net pay
a report that lists a company’s assets, liabilities, and owner’s equity at a specific point in time; prepared every 6 months or once a year
balance sheet
business revenue is greter than expenses
net income
a financial document used to identify the amount that assets have decreased in value due to their age and use
depreciation record
costs of operating a business
expenses
a budget that describes the financial plan for ongoing operations of the business for a specific period of time, typically 1 year
operating budget
all income that a business receives over a period of time
revenue
the total earnings for an employee during a pay period; includes regular, overtime and commission earnings
gross pay
the financial record of employee compensation, deductions and net pay
payroll
What are 3 types of expenses?
- fixed
- variable
- periodic
