Starting Your Own Business part 2 Financial Reports

1. Starting Your Own Business part 2Financial Reports Dr. John Abraham Professor UTPA

2. Important tax info from IRS • http://www.irs.gov/businesses/small/article/0,,id=97726,00.html • http://www.irs.gov/businesses/small/article/0,,id=176080,00.html

3. 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. • 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 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.

4. Accounting Periods • Calendar year • Fiscal year • A fiscal year is 12 consecutive months ending on the last day of any month except December. • 52-53-Week Tax YearYou can elect to use a 52-53-week tax year • http://www.missouribusiness.net/irs/pdfs/p538.pdf

5. Payroll Accounting • http://www.irs.gov/pub/irs-pdf/p15.pdf • Using payroll service • Using accounting programs such as peachtree or quickbooks • At the minimum use spreadsheet • See in class demo.

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

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

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

9. Income Statement • Shows if your company is profitable