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Tips – Withholding and Reporting
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Basis of Assets
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Accountants and auditors ensure that financial records are accurate and that taxes are paid properly and on time. Public accountants perform a broad range of accounting, auditing, tax, and consulting tasks. Budget analysts prepare budget reports and monitor institutional spending, while cost estimators collect and analyze accounting data. A certified public accountant (CPA) may utilize these reports in preparing summaries for managerial accounting purposes, as well as in tax filings and SEC reporting.
For example, some public accountants concentrate on tax matters, advising corporations about the tax advantages of certain business decisions or preparing individual income tax returns. Public accountants, many of whom are Certified Public Accountants (CPA), generally have their own businesses or work for public accounting firms. Publicly traded companies are required to have CPAs sign documents they submit to the Securities and Exchange Commission (SEC), including annual and quarterly reports.
The income statement shows revenues, expenses, gains, and losses, but it does not include cash receipts nor cash disbursements. Revenues from primary activities are often referred to as operating revenues. The primary activities of a business are purchasing merchandise or raw materials and selling products, referred to as sales revenues or simply gross sales. Non-operating revenues, on the other hand, are earnings that fall outside of purchasing and selling goods and services. For example, when a retail business earns interest on some of its idle cash, or sells an commodity investment for a capital gain, these items are reported on the income statement in a separate section.
Accounting certificate programs are educational programs that provide training in basic accounting skills. Shorter than a full degree program like an associate’s or bachelor’s degree, accounting certificate online programs can usually be completed quickly and give students real-world skills that are in high demand in the workplace. With an accounting certificate, you can seek jobs as a tax preparation assistant, an accounts receivable clerk, a bookkeeper, an accounting assistant, and many other titles.
When you are trying to figure out which online certification is best, you may wish to consult your State Board of Accountancy to see if there are any requirements in your state that you will need to meet. In most cases, you will not need a certification from the State Board of Accountancy for jobs, but you may need to become state certified to be a bookkeeper or tax preparer. The Associate in Premium Auditing (APA) program provides a sold foundation in essential auditing, accounting, and insurance principles. It will help you produce accurate premium audits that meet high professional and industry standards. After completing the APA program, you'll have in-depth knowledge of insurance operations and regulations, and business and financial analysis. You'll also have in-depth knowledge of premium auditing principles, practices, and procedures.
The accounting certification covers knowledge that govern an entity’s financial accounting system, and accounting principles required to make informed managerial decisions, such as cost behavior, budgeting, profit analysis, cost estimating, and variance analysis. Further, you will learn evaluate the financial performance of an organization, and communicate important information to employees, lenders, and shareholders. The training in a certificate program is geared towards skills that are needed every day in all kinds of offices, from small businesses all the way up to large corporations. For a good foundation in accounting, the online QuickBooks Certificate program is one route to take. At just 6-7 credits long, it prepares students for the QuickBooks Certified User exam.
Four financial statements are the basic statements normally prepared by profit-making organizations for use by investors, creditors, and other external decision makers. These are as follows:
The four basic financial statements are related to one another. In particular, net income from the income statement results in an increase in ending retained earnings on the statement of retained earnings. Ending retained earnings from the statement of retained earnings is one of the two components of stockholders' equity on the balance sheet. The change in cash on the cash flow statement added to the beginning-of-the- year balance in cash equals the end-of-year balance in cash on the balance sheet. Thus, we can think of the income statement as explaining, through the statement of retained earnings, how the operations of the company improved or harmed the financial position of the company during the year. The cash flow statement explains how the operating, investing, and financing activities of the company affected the cash balance on the balance sheet during the year.
The accounting balance sheet is one of the major financial statements used by accountants and business owners. The other major financial statements are the income statement, statement of cash flows, and statement of stockholders' equity. The balance sheet presents a company's financial position at the end of a specified date. Because the balance sheet informs the reader of a company's financial position, as well as what it owes to other parties, this is valuable information.
Assets are the resources of the company, and have future economic value that can be measured in dollars. Assets commonly cover cash on hand, accounts receivable, buildings and equipment, but also include costs paid in advance such as prepaid advertising, prepaid insurance, prepaid legal fees, and prepaid rent. Examples of asset accounts that are reported on the balance sheet may include, but are not limited to:
Accounting Liabilities are obligations of the company, amounts owed to creditors for a past transaction, or payables such as wages, rents, or taxes. Along with owner's equity, liabilities can be thought of as a source of the company's assets, as well as a claim against a company's assets. Liabilities may also include amounts received in advance for future services, reported as Unearned Revenues or Customer Deposits. Typical liabilities include the following:
A company's commitment to purchase goods may be legally binding, but is not considered a liability on the balance sheet until actual services or goods have been received. Commitments must be disclosed in the notes appending the balance sheet. Similarly, the leasing of an asset may appear to be a rental cost, but in substance it may involve an agreement to purchase the asset and finance it through monthly payments. Therefore, accountants must look past outward appearances, and focus on the substance of business transactions.
Contingent Liabilities include warranty of a company's products, the guarantee of another party's loan, and lawsuits filed against a company. If the contingent loss is highly probable, and the amount of the loss can be estimated, the company needs to record a liability on its balance sheet and a loss on its income statement. However, if the contingent loss is only a remote possibility, no liability or loss is recorded and there is no need at that time to include the matter in notes to the financial statements.
The income statement is often referred to as a profit and loss statement (P&L), statement of operations, or statement of income. The income statement is important because it shows the profitability of a company during the time interval specified in its heading. The income statement shows revenues, expenses, gains, and losses, but it does not include cash receipts nor cash disbursements. This information is collected in a Statement of Cash Flows.
Revenues from primary activities are often referred to as operating revenues. The primary activities of a business are purchasing merchandise or raw materials and selling products, referred to as sales revenues or sales. The primary activities of a company that provides services involve selling expertise to clients. For companies providing services, the revenues from their primary services are referred to as service revenues or fees. It is common in business to extend a modest amount of time to repeat customers to pay for purchases. For example, if a retailer gives customers 30 days to pay, revenues occur (and are reported) when the merchandise is sold to the buyer, not when the cash is received 30 days later.
Non-operating Revenues are amounts a business earns outside of purchasing and selling goods and services. For example, when a retail business earns interest on some of its idle cash, or sells an commodity investment for a capital gain, these revenues result from an activity outside of buying and selling merchandise. As a result the revenues are reported on the income statement separate from its primary activity of sales or service income.
Expenses involved in primary activities are expenses that are incurred in order to earn normal operating revenues. Under the accrual basis of accounting, the cost of goods sold and expenses are matched to sales and the accounting period when they are used, not the period in which they are paid. Because of the cost principle and inflation, the expenses shown on the income statement reflect costs that may have different present values. An accountant, though, is not allowed the luxury of waiting until things are known with certainty, so in order to properly account for revenues when they are earned, and expenses when they are incurred, accountants must often use cost estimates.
Secondary Expenses are referred to as non-operating expenses. For example, interest expense is a non-operating expense because it involves the finance function of the business, rather than the primary activities of buying, producing and selling merchandise. Losses such as the loss from the sale of long-term assets, or the loss on lawsuits result from a transaction that is outside of a business's primary activities. A loss is reported as the net of two amounts: the amount listed for the item on the company's books (book value) minus the proceeds received from the sale. A loss occurs when the proceeds are less than the original book value.
Net Income occurs when the net amount of revenues and gains minus expenses and losses is positive, the bottom line of the company's performance. If the net amount is negative, there is a net loss. A company's ability to operate profitably is paramount to both lenders and investors, company management, labor unions, and government regulators.
Like the income statement, the statement of retained earnings covers a specified period of time (the accounting period), which in this case is one year. The statement reports the way that net income and the distribution of dividends affected the company's financial position during the accounting period. Net income earned during the year increases the balance of retained earnings, showing the relationship of the income statement to the balance sheet. The declaration of dividends to the stockholders decreases retained earnings.
The statement begins with beginning-of-the-year retained earnings. The current year's net income reported on the income statement is added and the current year's dividends are subtracted from this amount. Thus, the retained earnings statement indicates the relationship of the income statement to the balance sheet. Investors examine retained earnings to determine whether the company is reinvesting a sufficient portion of earnings to support future growth.
The statement of cash flows (cash flow statement) divides cash inflows and outflows (receipts and payments) into the three primary categories of cash flows in a typical business: cash flows from operating, investing, and financing activities. The heading identifies the name of the entity, the title of the report, and the unit of measure used in the statement. Like the income statement, the cash flow statement covers a specified period of time (the accounting period), which in this case is one year. Reported revenues do not always equal cash collected from customers because some sales may be on credit. Also, expenses reported on the income statement may not be equal to the cash paid out during the period because expenses may be incurred in one period and paid for in another.
Because the income statement does not provide information concerning cash flows, accountants prepare the statement of cash flows to report inflows and outflows of cash. The cash flow statement equation describes the causes of the change in cash reported on the balance sheet from the end of last period to the end of the current period. Cash flows from operating activities are cash flows that are directly related to earning income. Cash flows from investing activities include cash flows related to the acquisition or sale of the company's productive assets. Cash flows from financing activities are directly related to the financing of the enterprise itself.
They involve the receipt or payment of money to investors and creditors (except for suppliers). Many analysts believe that the statement of cash flows is particularly useful in predicting future cash flows that may be available for payment of debt to creditors and dividends to investors. Bankers often consider the Operating Activities section to be most important because it indicates the company's ability to generate cash from sales to meet its current cash needs. Any amount left over can be used to pay back the bank debt or expand the company. Stockholders will invest in a company only if they believe that it will eventually generate more cash from operations than it uses so that cash will become available to pay dividends and expand.