Payroll Update

Card Set Information

Payroll Update
2014-04-18 12:44:25
Fundamental Payroll Updated

Fundamental Payroll class
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  1. •Federal income tax
    •Social security and Medicare taxes (FICA)
    •Federal unemployment tax (FUTA)
    Taxable Wages
  2. Back Pay awards
    Personal use of company vehicle
    Severance pay/Final pay
    Employer-paid commuter fees over $245/month (for 2013)
    Employer-paid parking over $245/month (for 2013)
    Fringe benefits & noncash fringes
    Gifts, prizes, awards
    Group legal services
    Group-term life insurance, benefits over $50,000
    Nonaccountable reimbursed business expenses
    Sick & disability pay (employer contributed)
    Nonqualified moving expenses
  3. Dependent child care assistance (up to $5,000)
    Business use of company vehicle
    De minimis fringes
    Disability benefits (employee contributions)
    Educational assistance for job-related courses
    Group-term life insurance premiums ($50,000 or less of coverage)
    Medical/dental/health plans under 125 plan (and employer contributions)
    No-additional-cost fringes
    Qualified employee discounts on employer goods/services
    Qualified moving expenses
    Qualified transportation fringes
    Reimbursed business expenses (properly accounted for/claimed)
    Working condition fringes
    Non-job-related education assistance up to $5,250
    Long-term care insurance
    Workers’ compensation benefits
    Health Savings Accounts
    Not Taxed
  4. Employee’s marital status claimed on Form W-4
    Number of withholding allowances claimed on Form W-4
    Pay frequency (biweekly, semimonthly, etc.)
    Type of wages – regular or supplemental
    Pretax deductions (from gross pay)
    Factors affecting withholding
  5. Wage-bracket method
    Percentage method
    Supplemental (flat 25%)
    Aggregate method
    Withholding methods
  6. When a supplemental payment is paid separately or is clearly indicated
    • •Flat withholding rate
    • –FIT may be withheld at 25% (unless total of supplemental wages paid to the employee is greater than $1M, then 39.6%)
    • •Aggregate method
    • –an option for employers
    • –must be used if the employee has no FIT withheld due to allowances
  7. Social Security tax rate
    6.2% for employees and 6.2% for employers
  8. Social Security tax
    OASDI – Old Age, Survivor’s, and Disability Insurance
  9. Medicare tax
    1.45% for employees and 1.45% for employers

    Additional Medicare Tax of 0.9% withheld from employee’s wages over $200,000

    HI – the Health Insurance program
  10. Federal Insurance Contributions Act (1938)

    is the law that allows for / requires social security and Medicare
  11. Social Security
    Maximum YTD Wages - 113,700
  12. Social Security Tax
    Maximum amount withheld for Social Security:  $7,049.40

    Maximum employer “match” is $7,049.40
  13. Employee
    • ØTaxes withheld
    • ØProvide W-2
    • ØUnemployment taxes paid
    • ØSubject to all federal and state laws
  14. Independent Contractor
    • ØProvide 1099-MISC to report payments over $600 for the year
    • ØNo unemployment taxes are paid
    • ØNo taxes withheld
  15. The Immigration Reform and Control Act of 1986 (IRCA)
    • employers must comply by verifying the identity and right to work of its employees.
    • Make sure both sections of Form I-9 are complete.
  16. New Hire Reporting
    • §Federal new hire reporting requirement
    • –Personal Responsibility and Work Opportunity Reconciliation Act of 1996

    §All states must have an automated State Directory of New Hires and transmit information to the National Directory of New Hires

    • §All employers must report information about newly hired employees within 20 calendar days of the hire
    • §Can be reported to just one state

    §Federal reporting does not apply to independent contractors, but some states require
  17. Fair Labor Standards Act
    Sets minimum wage and overtime rules

    • Also:
    • Establishes recordkeeping requirements
    • Places restrictions on child labor
    • Mandates equal pay for equal work
  18. Exempt
    Exempt from minimum wage and overtime premium requirements and some recordkeeping requirements
  19. Non-Exempt
    Must be paid at least minimum wage and overtime for hours over 40 in a workweek
  20. Certain employees are covered by different overtime provisions
    • –Transportation workers
    • –Agricultural workers
    • –Hospital and nursing home workers
    • –Public sector employees
  21. Minimum Wage
    • §Applies to hourly compensation – not net pay
    • •$7.25 per hour
    • •$4.25 ‘opportunity’ wage

    §State Minimum Wage
  22. Tips and the Tip Credit
    • •Wage of $2.13 per hour for “tipped employees”
    • •“Tip credit” of up to $5.12 per hour
    • –Employee receives $2.13 (wage) + $5.12 or more (tips) = $7.25 or more
    • •Employee must regularly receive more than $30 per month in tips/gratuities
    • •Service charges are not considered tips
  23. Additional Earnings
    • §Tips
    • §Shift Differentials/Premiums
    • §Paid time off
    • §Nondiscretionary/Performance Bonuses
  24. Defining Overtime
    • •One and one-half times the employee’s regular rate of pay for hours worked over 40 in a workweek.
    • •Also known as a 50% premium.
    • •“Hours worked” includes all hours the employee is on duty and is suffered or permitted to work.
    • •Workweek consists of 7 consecutive 24 hour periods.
  25. Workweek exceptions
    • §Hospitals and Nursing Homes
    • –14 consecutive 24-hour periods
    • –OT pay for more than 8 hours in a day
    • –OT pay for more than 80 hours in the 14-day period
    • §Police Officers and Firefighters
    • –Work period lasting 7 to 28 days
    • –“Regular hours” are based on a ratio
    • –OT is paid when the employee works more than the “regular hours” in the work period
  26. Regular Rate
    • §Base pay for all hours
    • §Non-discretionary bonuses
    • §Fair market value of non-cash compensation
    • §Shift premiums
    • §Production bonuses
    • §Cost-of-living adjustments
    • §Retroactive pay
  27. Not Regular Rate
    • §Reimbursed business expenses
    • §OT in excess of FLSA req.
    • §Employer benefit plan contributions
    • §Pay for hours not worked (vacation/holiday/sick)
    • §Gifts on special occasions
    • §Discretionary bonuses
    • §Stock options
  28. Defining Time Worked
    • Portal-to-Portal Act
    • Call-back and show-up pay
    • Waiting to work
    • Preparing to work
    • Travel time
    • Seminars/meetings
    • Remedial education
  29. OSHA
    IRS / SSA / FUTA
    • – 5 years 
    • – 4 years 
    • – 3 years 
    • – 3 years 
    • – 2 years
  30. Withholding Allowances (Form W-4)
    • Form W-4 Employee’s Withholding Allowance Certificate
    • Employees report their marital status and withholding allowances
    • This data, along with wages and pay period, are utilized to determine federal income tax withheld from an employee’s pay
    • Paper form or electronic (employee self-service)
    • W-4P is for Pension or Annuity Payments
  31. Form W-4 Filing requirements
    Employees should submit a W-4 when hired

    • A new W-4 should be submitted when marital status or number of allowances change
    • If an employee does not submit a Form W-4 by their first pay check, the employer must withhold as if the employee were single with zero allowances (maximum amount is withheld)
  32. W-4P
    is used for withholding FIT from distributions (payments) from pension plans, profit-sharing plans, and other deferred compensation plans or annuities

    §If the retiree does not submit a W-4P, withhold as if they are married with three allowances
  33. W-4S
    is used for withholding FIT from sick pay being paid by a third-party insurer

    §Flat dollar amount is withheld
  34. Child Labor
    • Minors under age 14
    • Minors age 14 and 15
    • Minors age 16 and 17
    • State laws
  35. Family and Medical Leave Act - FMLA
    Guarantees employees unpaid leave for:

    • §Birth or adoption of children
    • §Serious medical condition
    • §Serious medical condition of a family member
    • Employees can take 12 weeks off in a 12-month period
    • §The time can be intermittent, does not have to be consecutive days
    • Applies to employers with 50 or more employees
  36. Batch processing
    • §Work to be processed is held and grouped then processed
    • §Not necessarily interactive
    • §Typically more cost-effective
  37. Real-time processing
    • §Processes are performed as data is entered
    • –Records are updated, calculations are performed

    §Results are available immediately
  38. Interfacing
    The interface is the place where two systems meet

    • §Data needed by both systems is shared
    • §The following internal and external systems generally have a direct interface with payroll:
    • –Human Resources
    • –Benefits
    • –Data collection
    • –Check reconciliation
    • –Direct Deposits (EFT)
    • –Time and Attendance
    • –General ledger
  39. Paying by Check
    • Advantages of a special payroll checking account
    • Canceling and voiding checks
    • Keeping track of checks
    • Take extra security precautions
  40. Direct Deposit Advantages & Disadvantages
    • Advantages - eliminates:
    • §Lost or stolen checks
    • §Unclaimed or uncashed checks
    • §Employee time off to cash checks
    • §Storage of cashed checks and related documents
    • §Early preparation of vacation checks
    • §Reconciliation of bank account with outstanding checks
    • Disadvantages
    • §Does not eliminate paper
    • §Loss of “float” or interest
    • §Can not be mandatory in most states
    • §Can not dictate which RDFI is used.
  41. Setting up new direct deposit enrollees
    • To establish an electronic funds transfer (EFT) the employer needs:
    • The employee’s bank’s routing number
    • The type of account to which the funds are going
    •   (checking/share draft or savings)
    • The account number
  42. NACHA
    The Electronic Payments Association and the American Payroll Association
  43. Voluntary Deductions
    • Require authorization
    • Have the lowest priority
    • Pay stub or W-2 can substantiate charitable contributions
    • Single contributions of $250 or more
  44. Involuntary Deductions
    • Also known as wage attachments or garnishments.
    • Neither the employer nor the employee has control over the deductions.
    • The employer is required by law to deduct a certain amount of the employee’s pay.
  45. Sequence / Order to Withhold
    • 1.Child support orders
    • 2.Chapter XIII bankruptcy orders
    • 3.Other federal agency garnishments
    • 4.Federal tax levies
    • 5.State tax levies
    • 6.Local tax levies
    • 7.Creditor garnishments
    • 8.Student loan garnishments
  46. Federal Tax Levies
    IRS provides Form 668-W, Notice of Levy on Wages, Salary, and Other Income

    Continue until Form 668-D, Release of Levy/ Release of Property from Levy is received.
  47. Under the CCPA, the maximum amount that can be withheld from an employee’s wages for child support is
    50% of the employee’s “disposable earnings” if the employee is supporting another spouse and/or family.
  48. Disposable Earnings defined by CCPA
    Disposable earnings" is the amount of earnings left after legally required deductions (e.g., taxes and mandated payments for state employee retirement systems) have been made.

    60% of the employee’s “disposable earnings” if not supporting another spouse and/or family.

    Add 5% if employee is at least 12 weeks late/in arrears.

    Deductions not required by law (e.g., union dues, health and life insurance, and charitable contributions) are not subtracted from gross earnings when the amount of disposable earnings for garnishment purposes is calculated (some states do subtract health insurance premiums from gross to determine disposable earnings).
  49. CCPA limits the amount of disposable earnings that can be garnished by creditors to
    25% of disposable pay

    The amount by which disposable pay for the week exceeds 30 times the federal minimum wage
  50. Student Loans
    Maximum amount to withhold, per CCPA:

    15% of disposable earnings
  51. States without state income tax:
    • Alaska
    • Florida
    • Nevada
    • New Hampshire
    • South Dakota
    • Tennessee
    • Texas
    • Washington
    • Wyoming
  52. States with state disability taxes:
    • California
    • Hawaii
    • New Jersey
    • New York
    • Puerto Rico
    • Rhode Island
  53. States with state unemployment insurance tax withholding
    • Alaska
    • New Jersey
    • Pennsylvania
  54. Employee dies before cashing paycheck
    §Reissue the check to estate or beneficiary
  55. Wages paid after employee dies and in the same year
    • §Issued to estate or beneficiary
    • §Not subject to federal income tax withholding §Subject to social security, Medicare, and FUTA taxes
    • §Reported on W-2 and 1099-MISC
  56. Wages paid after the year of death
    • §Issued to estate or beneficiary
    • §Not subject to federal income tax withholding
    • §Not subject to social security, Medicare, and FUTA taxes
    • §Reported on 1099-MISC
  57. Imputed Income
    represents the value of the benefits employees receive from the employer

    must be included in the employees’ income

    in most cases, employees do not receive cash as the benefit

    • required for each taxable noncash benefit
    • received by the employee
    • reduces employees’ net pay by increasing taxes

    employee does not receive additional pay in the form of cash
  58. Nonreportable Fringe Benefits
    • De minimus (minimal / small) fringe benefits
    • unreasonable to account for the employee’s use
    • No-additional-cost services
    • Qualified employee discounts
    • Working condition fringe benefits
    • Use of athletic facilities (on employer’s premises)
    • Qualified transportation fringes
    • commuter vehicle (vanpool) / transit, $245/month
    • parking, $245/month
    • bicycle commuting, $20/month
    • Employer-provided retirement advice
    • Qualified moving expense reimbursements
  59. Group-Term Life Insurance
    • Exempt from federal income tax withholding
    • All GTL coverage, but must be reported on W-2

    • Social security and Medicare taxes
    • Must be withheld from “excess” coverage

    Exempt from FUTA

    Calculate the value using the IRS Uniform Premiums table
  60. 401(k) Plans
    Annual maximum pre-tax contribution in 2013:  $17,500

    • “Catch-up” contribution, pre-tax in 2013:  $5,500
    •   for employees 50 years old and older

    • Contributions:
    • §are not subject to FIT withholding
    • §are subject to social security and Medicare tax
    • §are generally not subject to state income tax

    Wide variety of investment options
  61. Other Plans
    • 403(b) plans – non-profit organizations
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §investments are limited to tax-sheltered annuities and tax-sheltered custodial accounts

    • 457 plans – public-sector (government)
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §investments are held in trust

    • Nonqualified deferred compensation plans
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §the funds are not set aside in a special account or trust
    • §there is a risk of forfeiture (the employee may not receive the funds)
  62. 403(b) plans
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §investments are limited to tax-sheltered annuities and tax-sheltered custodial accounts
  63. 457 Plans
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §investments are held in trust
  64. Nonqualified deferred compensation plans
    • §not subject to FIT withholding
    • §subject to social security and Medicare tax
    • §the funds are not set aside in a special account or trust
    • §there is a risk of forfeiture (the employee may not receive the funds)
  65. Section 125 Flexible Benefit Plans
    • Also known as cafeteria plans
    • Employees choose from a “menu” of benefits
    • Employers provide “flex dollars” or “flex credits”
    • Contributions are not subject to federal income tax, social security, or Medicare tax
    • Usually not subject to state income tax
    • Cash benefits are taxed
  66. Cafeteria plan “menu” examples
    Benefits that could be included:

    • Medical / dental / vision insurance
    • Group-term life insurance
    • Adoption assistance
    • Vacation choices
    • 401(k) plan
    • Flexible spending accounts
  67. Flexible Spending Accounts
    Medical or Dependent Care expenses

    Employee and/or employer contributions

    Not taxed

    “Use it or lose it”
  68. Employer Identification Numbers
    •The EIN identifies an employer to the IRS and SSA

    • •It must be used when an employer is
    • –depositing taxes
    • –filing a return
    • –communicating with the IRS or SSA
  69. Depositing Federal Taxes
    The employer’s federal tax liability includes:

    • §FIT, SS, and Med withheld from employees pay
    • §Employer’s match of SS and Med
  70. Depositing Withheld Income and Employment Taxes
    These taxes are deposited according to strict schedules.

    The frequency of deposits is determined by the amount of the employer’s tax liability.
  71. Tax Liability in Lookback period
    Depositor status is based on the employer’s total liability for federal income, social security, and Medicare taxes during a “lookback period”

    The calendar year 2013 status “lookback period” is 7/1/11 – 6/30/12
  72. Payroll Tax Deposit Rules
    Monthly or semiweekly depositor status.

    • •Monthly depositor:
    • §Tax liability of $50,000 or less in lookback period (as reported on Forms 941)

    • §New employers are classified as monthly depositors until they accumulate more than $50,000 in a lookback period or trigger the one-day deposit rule.
    • §Depositor status notices are sent by the IRS to employers identified as having a change in their deposit schedule for the upcoming year.

    • •Semiweekly depositor (twice per week):
    • –Tax liability of more than $50,000 in lookback period (as reported on Forms 941)
  73. Requirements for monthly depositors
    Monthly depositors must deposit the accumulated tax liability for the calendar month by the 15th day of the following month.
  74. Requirements for monthly depositors
    Monthly depositors must deposit the accumulated tax liability for the calendar month by the 15th day of the following month.
  75. Requirements for semiweekly depositors
    Semiweekly depositors must deposit employment taxes for wages paid on Wed, Thurs, and Fri on the following Wednesday and for wages paid on Sat, Sun, Mon, and Tues on the following Friday.
  76. One-Day Deposit Rule
    If the accumulated employment tax liability reaches $100,000 during any monthly or semiweekly deposit period, the taxes must be deposited by the close of the next banking day.

    §If the employer was a monthly depositor, they now become a semiweekly depositor.
  77. Other Deposit Rules
    •Saturday, Sunday, and holiday extension

    –Deposit is due on the next banking day.Semiweekly depositors are guaranteed at least three banking days after the last day of the semiweekly period to make their deposit.  If any of the three weekdays following the semiweekly period is not a banking day, the employer has an additional day to make its deposit
  78. Quarterly “De Minimis” Deposit Rule
    Employers with an accumulated tax liability of less than $2,500 for any quarter can deposit the liability according to their depositor status OR pay it with their Form 941 quarterly return.
  79. Safe-harbor rule (98% rule)
    If at least 98% (or $100, whichever is greater) of the tax liability is deposited on time the employer satisfies deposit requirements.

    No penalties will be assessed if the failure to deposit 100% is due to a reasonable cause.
  80. EFTPS
    • •The Electronic Federal Tax Payment System
    • •Two Treasury Financial Agents (TFAs) process EFTPS
    • §Bank of America
    • §JP Morgan Chase
    • •EFTPS through a financial institution (ACH credit)
    • •EFTPS Direct (ACH debit)
    • •Electronic tax application (ETA)
  81. Form 941
    Employer’s Quarterly Federal Tax Return

    • •Filed by all employers that withhold federal income tax from employee compensation and are subject to social security and/or Medicare taxes
    • •Due dates
    • –Q1: April 30, automatic extension to May 10
    • –Q2: July 31, automatic extension to August 10
    • –Q3: October 31, automatic extension to November 10
    • –Q4: January 31, automatic extension to February 10
  82. Other Tax Return Forms
    • •Form 941-X – for making adjustments and correcting returns
    • •Form 943 – agricultural employers (annual reporting)
    • •Form 944 – small employers (annual reporting)
    • •Form 945 – for nonpayroll withholding
  83. Unemployment Insurance
    • Purpose:
    • §To provide income for terminated employees while they are trying to secure another job
    • Joint federal-state system
    • Federal Unemployment Tax Act (FUTA)
    • §Requires employer contributions to unemployment insurance in the form of unemployment taxes
    • FUTA taxes cannot be withheld from employee’s wages
    • State Unemployment Insurance
    • §Each state requires employers to contribute to an unemployment insurance program
  84. FUTA Tax Rate and Wage Base
    • Through June 30, 2011, employers paid 6.2% FUTA tax on their employees’ wages
    • §permanent rate of 6.0%
    • §a surtax of 0.2%
    • The surtax expired on June 30, 2011
    • Beginning July 1, 2011, employers pay 6% FUTA tax on their employees’ wages
    • The rate is applied to the first $7,000 of an employee’s covered wages in a calendar year
  85. Credits against FUTA
    • Most employers do not pay the full 6%
    • Employers can receive a credit against their FUTA tax rate of up to 5.4%
    • §if state unemployment taxes are paid in full and on time

    • Employers receiving the full credit have an effective FUTA tax rate of:
    • §0.6% for wages paid July 1, 2011 and after

    • Note:  Employers in states with outstanding loans due to the federal fund will not receive the full credit.
    • The terms “credit reduction” or “credit reduction state” are used.
  86. Depositing and Paying Tax
    • FUTA taxes are deposited on a quarterly basis.
    • Employers can assume they will receive the full 5.4% credit.
    • Points to remember:
    • ØDue date is last day of the month after the quarter end (1st quarter taxes are due by April 30).
    • ØIf owe less than $500 in a quarter, no deposit is necessary.  Liability is added to the next quarter.
    • ØEmployers complete Form 940 for the 4th quarter and in doing so, determine how much of the credit they were actually entitled to.
    • ØFinal balance for the calendar year is due by January 31.
  87. Reporting FUTA Taxes
    Employers use Form 940 to report their FUTA tax liability yearly.

    Form 940 is due on January 31 but there is an automatic extension until February 10 if the employer has deposited their FUTA tax liability on time for all 4 quarters.
  88. Form W-2, Wage and Tax Statement
    • Form W-2, Wage and Tax Statement is used to report to employees taxable wages paid and tax amounts withheld
    • –Copies are also provided to state/local tax agencies and Social Security Administration (SSA)
    • Employers must provide W-2 forms

    Form W-2c is used to correct errors in Forms W-2 that have already been filed
  89. Deadlines for Form W-2



    Copy A

    Social Security Admin.

    Last day of Feb. (March 31 if electronic) *

    Copy 1

    State/local tax agencies

    Set by state/locality

    Copy B

    Employees (federal return)

    January 31 **

    Copy C

    Employees (personal files)

    January 31 **

    Copy 2

    Employees (state return)

    January 31 **

    Copy D

    Employer (for files)

  90. Wages to Report
    Report all taxable wages paid during the calendar year.

    Wages earned during the year, but paid in the following year are reported on the following year’s W-2 (e.g. a two-week pay period ends on December 27, 2012, the paycheck is dated January 3, 2013).
  91. Form W-2 - Boxes
    • Box 1 – FIT Taxable Gross
    • Box 2 – FIT Withheld
    • Box 3 – Social Security Wages
    • Box 4 – Social Security Tax Withheld
    • Box 5 – Medicare Wages
    • Box 6 – Medicare Tax Withheld
    • Box 12 – Codes and Amounts
  92. Transmitting Forms W-2 to SSA
    Reconcile the FIT, SS, and Med withholding.

    Submit Form W-3 if paper W-2s are being submitted.

    (Magnetic media has been phased out.)

    Electronic filing is internet-based.Employers with 250 or more forms to file must file electronically.
  93. Penalties
    • Failure to file W-2s or furnish W-2 to employees; failure to include all information; or including incorrect information:
    • §$30 per W-2 if corrected within 30 days of the due date
    • §$60 per W-2 if corrected by August 1 of the same year
    • §$100 per W-2 if corrected after August 1
    • Failure to deposit taxes by the due date (4-tier structure):
    • §2% if within 5 days late
    • §5% if 6 to 15 days late
    • §10% if more than 15 days late
    • §15% if more than 10 days after receiving a delinquency notice from IRS
    • Failure to withhold taxes; failure to pay withheld taxes:  100% of the withholding
  94. Form 940
    Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

    Due January 31 – extended to February 10 if all FUTA tax deposits were made on time
  95. Form 1099-MISC
    Form 1099-MISC, Miscellaneous Income

    • Provide/submit Form 1099-MISC for each person or non-corporate entity who has been paid miscellaneous income of at least:
    • §$10 in royalties or broker payments
    • §$600 in rent, services, prizes & awards, etc.
    • §$600 in gross proceeds to attorneys
    • §Any fishing boat proceeds
  96. Context / comparison to personal checking
    • Personal checking account
    • §we use cash accounting
    • §single entry for each transaction
    • §data is not used to create financial statements or to compare our financial situation to other peoples’ financial situation

    • Accounting for a business
    • §accrual accounting is utilized
    • §double entry accounting for each transaction
    • §used to create financial statements and compare the company’s financial situation to other companies’ financial situations
  97. Accounting Principles
    • Developed by the Financial Accounting Standards Board (FASB)
    • §Set of 8 standard concepts and principles called “Generally Accepted Accounting Principles” (GAAP)

    • 1.Business Entity Concept
    • §Every organization that operates independently is treated as a business
    • 2.Continuing Concern Concept
    • §Assumes a business entity will continue to operate indefinitely
    • 3.Time Period Concept
    • §Every organization must determine an annual accounting period
    • –Calendar year or any 12-month period
    • 4.Cost Principle
    • §All goods and services purchased are recorded at cost (cash spent or cash equivalent)

    • 5.Objectivity Principle
    • §Transactions must be objective without personal opinion or influence
    • 6.Matching Principle
    • §Expenses, revenue, & liabilities must be matched to the accounting period in which they were earned or incurred
    • 7.Realization Principle
    • §Income received, or Revenue, is recognized/reported when earned (period in which goods or services provided)
    • 8.Consistency Principle
    • §Transactions must be recorded in a consistent manner based on the accounting method, principle, or period
  98. Corporate Accounting
    Follows GAAP

    • Is used to create financial statements
    • Presents a picture of the financial health of the company
    • Investors can then compare very different companies
  99. Recording Transactions
    • Journal
    • §Contains transactions made every day – with a debit and credit (book of original entry)

    • General Ledger
    • §Record of transactions by account
    • §Used to prepare financial statements

    Accounting Flow:

    Transaction        Journal        General Ledger        Financial Statements
  100. Types of Accounts
    • Asset accounts
    • §All items of value owned by the company
    • Liability accounts
    • §The debts the company owes
    • Expense accounts
    • §The costs of doing business - expenditures
    • Revenue accounts
    • §Income received
    • Equity accounts
    • §Net worth / capital (assets minus liabilities)
  101. Balance Sheet
    • Balance Sheet is a snapshot of a company  at a specific point in time
    • •Lists assets, liabilities, and equity
    • •Structure of the balance sheet
    • •Presents assets first, then liabilities and stockholders equity
    • •Presents assets and liabilities in order of liquidity (how fast they can be converted into cash)
    • •Current Assets/Liabilities
    • •Long-Term Assets/Liabilities
  102. Income Statement
    Income Statement shows a company’s net income or loss for an accounting period

    • •Net income or net loss is the difference between revenue and expenses for the accounting period
    • •Current and prior year
    • •Required annually, most quarterly
  103. Double Entry Accounting
    For each transaction, (at least) two entries are made – a debit (to one or more accounts) and a credit (to one or more accounts)

    • “Under the double-entry bookkeeping system, the full value of each transaction is recorded on the debit side of one or more accounts and also on the credit side of one or more accounts. Therefore, the combined debit balance of all accounts always equals the combined credit balance of all accounts.”
    • From:,articleId-21010.html

    • A debit is made on the left-hand side of a “T-account”
    • A credit is made on the right-hand side of a “T-account”
  104. Account Balances
    Asset and Expense Accounts are "debit balance accounts" - a debit increases the account

    Liability, Revenue, and Capital (Owner's Equity) Accounts are "credit balance accounts" - a credit increases the account
  105. Accruals and Reversals
    Expenses should be recognized in the month they occur (not necessarily when they are paid)

    Often, expenses must be accrued ("accounted for") in one month, then reversed the following month
  106. Customer Service
    • Problem solving,
    • Soothing the irate,
    • Reassuring the timid, and
    • “Pulling a rabbit out of a hat.”
  107. Principles of Optimum Customer Service
    • Reliability
    • Responsiveness
    • Assurance
    • Empathy
    • Tangibles
  108. Professional Responsibilities
    • Compliance
    • Confidentiality
    • Problem Solving