Understanding Accounting Principles

What are the principles of accounting?

The principles of accounting have varied in the past few decades, with several organizations having the final say on proper accounting standards. Current accounting standards for state and local governments are set by the Governmental Accounting Standards Board. The GAAP accounting standards are determined by the Financial Accounting Standards Board. These standards are not law, but regulatory agencies mandate that this form be used for the sake of convenience and ease of interpretation. Although the United States currently abides by the Generally Accepted Accounting Principles (GAAP), the US has begun to change accepted accounting principles and standards to the International Accounting Standards Board, in order to standardize its accounting principles with the principles used by the rest of the world. If completed on schedule, this change will happen in 2014. Principles of accounting must be standardized to provide the best possible information for potential investors as well as allowing for the finances of two companies to be compared.

What are the principles of accounting for the federal government?

Federal Accounting Standards Advisory Board publishes handbooks to advice federal agencies and entities that receive federal money. These handbooks are lengthy with important listings such as proper terms to use when composing financial statements and listing of proper abbreviations. There are also a number of procedures based on specific functions of federal agencies and expenses common to federal entities.

What are the International Financial Reporting Standards?

The International Financial Reporting Standards are a set of accounting principles that provide guidelines for the proper reporting of financial data. The standards of the IFRS are set by the Board of International Accounting Standards Committee in London, United Kingdom. The standardization of the principles of accounting ensures the transferability of financial reporting standards between countries as the lack of such standards would mean that financial data would not be accurate and readily understood by a company or investor in a different jurisdiction or country that the reporting company is located at.

What are the general obligations of accountants under principles of accounting?

Regardless of the principles of accounting the accountant abides by, there are usually commonalities among these guidelines. Basic accounting principles generally obligate the accountant to act in good faith and engage in full disclosure of all potential issues with the entity’s finances. Accountants must offer the most realistic view of the company finances rounding figures down and anticipating potential losses. Under no circumstances should an accountant that follows conventional accounting principles overreport income or underreport expenses. Doing so will cause a financial liability for the entity that anticipated greater gains or fewer losses based on conclusions gleaned from financial statements released by the accountant.

In additions to rules on disclosure and good faith, the accountant is generally obligated under accounting principles to remain consistent on the time periods that the financial reports assess and keep the monetary amounts consistent, without accounting for inflation that would make the item or expense worth more or less at present day.

Sole Proprietor vs LLC

There are a number of reasons to choose either a sole proprietorship or LLC not the least of which is distinctions in terms of taxation. Your decision in the matter is not final as a Sole Proprietorship can eventually become an LLC.

Sole Proprietorship

A sole proprietorship is a simple arrangement where the individual and business are one. The owner is responsible for all debts and assets and there are no distinctions between the entities. The owner is taxed for the business as a part of his or her individual assets. Since the owner has full ownership of the business assets and debts, excessive debts also imperil the personal assets of the owner, as there is not distinction under the law. A sole proprietorship is a good idea for those that do not require financing of immediate capital, do not intend to have many employees, can ensure continuity if the owner is deceased. One should be careful to make distinctions between business and personal assets in this arrangement and organize the two to ensure the protection of personal assets in the event of issues with the business.

LLC

An LLC is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. This differs from a sole proprietorship in that the business assets are accounted for separately on an IRS K-1 form, yet still taxed from the owner’s personal income. An LLC benefits the owner by distinguishing business assets, which will give creditors better assurance that sufficient protection is in place to extend lines of credit to the business. A personal guarantee to repay is no longer necessary and LLCs allow for the addition of other partners that can leverage assets and split liabilities to help expand the business. Unlike a sole proprietorship, records of the business must be kept separate from personal finances, which provide better transparency for employees and potential investors.

LLCs can chose their classification for taxation, either as a partnership, corporation or separate entity, each subject to their own taxation laws. In terms of sole proprietorship vs LLC, this is a highly flexible benefit of LLCs, although sole proprietors will have a simplified tax structure as well, only requiring a self-employment tax form.

Sole Proprietorship vs LLC

The decision to choose either a sole proprietorship vs LLC depends on the needs of the owner. Those requiring complex payrolls systems and have a need to expand their business while attracting investment will want the legal legitimacy afforded by an LLC. Those that also seek to add partners and spread liability will certainly need an LLC. Tax benefits increase marginally as more individuals join an LLC and choose the appropriate method of taxation. Those that intend to remain small while avoiding payroll taxes and do not have a need for expansion or investment can remain a sole proprietorship. Those that do so accept the possibility of liabilities extending from the business and the potential for personal assets to mix with business assets.

General Partnership FAQS

General partnership

A general partnership is an unincorporated business relationship among two or more persons that share equal liability and debts accrued by the company. It is a non-taxable entity but all partners must report their share of the income to the IRS and account for said income on their personal tax forms.

What are the disadvantages of a general partnership?

Liability for all parts of the company, including debts is shared by the partners. Therefore, in the event of bankruptcy, all partners, even non founding partners are liable to have assets seized to pay debts. Liability is a factor in a general partnership as all partners share liability for both their and the actions of the other partners. Additionally, partners can also be held liable for the actions of employees. Personal liability is unlimited in a general partnership, but damages committed while doing personal actions and not business related actions places sole liability on the partner. Actions committed by the partner while performing a function for the partnership would hold all partners liable, regardless of their contribution or input on the event.

How is a general partnership taxed?

A general partnership is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. Taxing a partnership that serves as a flow through entity would constitute double taxation and therefore would be a non-taxable entity. Information about partnerships is reported but not taxed through the IRS K-1 form that accounts for each share of the partnership accrued by the partners. A general partnership does not need to be an equal partnership and profits can differ by partner. For this reason, each partner accounts for and pays taxes on their particular share of the profits, rather than having the general partnership entities taxed.

How are the rights in a general partnership determined?

The rights in a general partnership are determined by prior agreements made by the partners. There are no laws defining partnership functions such as voting and decision making rights. It is generally assumed that all have equal voting rights as partners, unless there is an agreement to the contrary that staggers voting rights on contributions to the partnership, or other related factors. Members of a partnership are expected to work in the interest of the partnership and inform other members of the partnership when pursuing an arrangement for one’s personal gain. Otherwise, members of a partnership are obligated to work for the benefit of the other partners, unless allowed otherwise by prior agreement.

Is a lawyer necessary for a general partnership?

A lawyer can serve a valuable function in a general partnership by helping to create comprehensive agreements that determine the contributions and rights of each partner and provisions for the addition of new partners. There should also be provisions in case the partnership is dissolved or a partner decides to leave the partnership. These provisions will determine the distribution of assets, shares and other property owned by the partnership.

Understanding LLC Taxes

What are LLC taxes?

Individuals may form an LLC, not just for liability purposes, but also for simplified taxation. LLC taxes offer a number of taxation benefits over standard arrangements. The IRS does not consider an LLC as a taxation classification, but LCC taxes will vary depending on how the entity decides to be taxed. This means that they can be taxed as a corporation as well as a partnership or disregarded as separate entity with only one owner. The separate entity will tax the owner rather than the LLC and the income and deductions will be filed on the individual’s tax forms. Multiple member LLCs are taxed either as a partnership or corporation. Single member LLC’s are either disregarded and individually reported, or taxed as a corporation.

How are LLC taxes determined by default?

Without an effort to change LLC taxes classification by the LLC owners, that LLC is treated as a partnership and a partnership tax return will be filled out. Each stakeholder in the LLC files a K-1 form that reflects their income and deductions from the partnership. Single owner LLCs are treated as a sole proprietorship by default and multiple owners are considered a partnership by default.

What is a K-1 Form?

A Schedule K-1 is Form 1065 that determines LLC taxes in terms of the individual owners. The form is a short two pages and the individual discloses information about the partnership, shares of profit, loss and capital and other income generated by the partnership. LLCs filing as corporations must first file the appropriate forms to be considered for corporation taxation, then file Form 1120, the US Corporation Income Tax Return. The purpose of a K-1 form is to account for each partner’s shares, which is used in conjunction with a typical 1040 form to ensure the proper taxation is assessed.

How can an LLC be taxed as a corporation?

One merely has to file IRS Form 8832, widely available online, to elect to be taxed as a corporation. The form is short, at seven pages, with only three pages that need to be filed out by the individual electing to change the designation of the LLC. These forms are processed at locations in Cincinnati, Ohio for Eastern LLCs and Ogden, Utah for Western LLCs. Foreign entities must indicate the country where the LLC was formed in. There is a list of foreign business classifications that are equivalent to an American LLC on page 7 of Form 8832.

What is a flow-through entity?

An LLC is considered a flow-through entity when the income is not taxed as the income goes directly to the partners who are in turn, taxed on their income. Taxing an LCC that serves as a flow through entity would constitute double taxation and therefore would be a non-taxable entity. LLCs that file taxes as corporations are not “flow-through” entities and will be taxed as other corporations would, upon filing their Form 1120 tax return. The only exceptions are LLCs that are classified as “S corporations” under US tax law.

Finding a Free Government Grant

Free government grants are awards given by the federal government to support the public interest. This can be as broad as student loans guaranteed by the federal government, to specific benefits to foundations and charities that work in public interest. The government expects no direct benefit from the disbursement of free government grants. Arrangements where the government would expect specific good and services would constitute a contract, but grants generally have broad range in what they may be used to fund or procure.

Does the government have the legal authority to disburse free government grants?

The provisions that allow for persons to receive a free government grant are in Title 31, Section 6304 of the US Code. It specifically states that the US Government may transfer things of value to local governments or other entities to benefit the public interest, without much involvement from the government in the use of these funds.

How does a free government grant benefit the average individual?

Receiving free government grants can be a windfall for private individuals that would otherwise have to fund their activities with private loans. Disbursed grants are not repaid to the government and there is the guarantee that offers recipients a significant degree of freedom in determining how it is spent. They should of course, spend it according to the conditions under which they applied for it. A college education, private residence or small business can be funded with free government grants, so long as sufficient need is established by the applicant.

What are types of free government grants?

Block grants – these grants are disbursed to state and local governments and not individuals. The disbursements of these grants from the government are determined by formula and these grants are spent at the discretion of the state.

Housing grants – these grants are intended to help potential homeowners buy, renovate or invest in homes. Sufficient need must be established as these grants are generally for low income families. Federal Housing Administration insurance is a type of grant that insures private lenders when lending to low income families that would ordinarily not receive credit.

Small business grants – in keeping with the belief that small businesses stimulate local economies and employ local residents, there are free government grants for small businesses to expand, make capital investments and hire more employees.

College grants – Pell grants of up to $1,500 are offered to exceptional college students to help them pay for college expenses. This free government grant is not a loan and will not have to be repaid by the student. In addition to Pell grants, several government subsidized loans exist that have fixed interest rates and favorable rates for students.

Should I trust organizations that claim to help me find free government grants?

No. Generally, these organizations research free government grants that are already public knowledge and sell this knowledge to unsuspecting consumers. You are best served researching free government grants yourself and many federal agencies will have clear guidelines on how to apply for free government grants for education, business and housing. Do not pay for information on receiving free government grants.

Everything You Should Know About a Small Business

What is a Small Business?

A Small Businessis classified as a commercial endeavor that is operated on a smaller scale than its commercial counterparts. Although there does not exist a definitive parameter with which to qualify a business as a Small Business, a

Small Business will typically retain an employee base ranging from 1 to 15 individuals; furthermore, a Small Business will typically report lower amounts of revenue in contrast with larger businesses and corporations – with regard to the classification of commercial activity as a Small Business, the following are common examples of Small Businesses:

A Home business can be classified as a small business; a home business operating as a Small business typically involves the formulation and accomplishment of a multitude of tasks taking place within the home of the founder

An Internet business can be classified as a Small Business; due to the fact that maintenance of an online-based commercial endeavor can be conducted through the Internet, offices and large employee numbers are not always required

What is an Online Small Business?

Since the development – and subsequent advancements latent within Internet-based commercial activitytaking place through the internet marketplace – of ‘E-Commerce, or electronic commerce, Small Business opportunities can includethe provision of products and services available purchase and delivery through online-based commerce; the following are some examples of the most common types of online-based Small Business activities:

Web design, domain management, online consultation, and marketing development

The production of freelance media; this can include editing, writing, proofreading and research conducted on a ‘per-project’ basis

The manufacture, production, sale , and management of products or services; in many cases, this type of vendor-based Small Business will act as a third-party between buyers and sellers

Types of Small Businesses

A Small Businesscan include the provision of products or services conducted using one’s home or residence as a base of operations or an ad-hoc office. Individuals who engage in starting a Small Business may utilize their homes in order to eliminate start-up costs with regard to commercial activity and business endeavors; the following are some common types of products and services offered by in-house Small Businesses:

Consultation services, event planning, analysis, and project management

The provision of educational workshops, classes, lessons, and instruction; these may be conducted from one’s home

Home-based product assembly, manufacturing, and management

Retail-based commercial activity; this includes, vending, resale, wholesale, and consignment

Small Business Taxation

A Small Businessis subject to any and all pertinent taxation requirements; a Small Business that maintains employees, provide benefits, and possess liabilities must satisfy applicable tax documentation:

IRS Form 8829: This form is used in order to claim any expenses that are incurred as a result of operating a self-employed, online-based Small Business conducted from one’s home or residence

IRS Form 1040: This form is a standard form used for filing taxes; line 30 on this particular form entitled ‘Schedule C’ allows the owner of an internet-based smallbusiness to substantiate profits or losses as a result of operating an online-based small business within the realm of self-employment

Schedule C – EZ: This form is designated for a Small Business operating from a home or residential base of operation(s) that reports business expenses not exceeding $50,000

Investigations Continue Into Plywood from China

On November 9, 2012, the International Trade Commission (USITC) announced that continuing investigations allege that hardwood plywood from China was subsidized and sold for less than fair value in the United States. All six Commissioners with the USITC agreed that investigations should continue.

Hardwood plywood and decorative plywood is made when two layers of wood veneer are glued to a core of medium density fiberboard, particleboard, oriented strand board, or other types of lumber. The core is usually made of oak, birch, maple, poplar, or bamboo, and the wood is used on furniture, cabinets, underlayment, wall paneling, and more.

The Coalition for Fair Trade of Hardwood Plywood petitioned for the following individual members:

•   Columbia Forest Products in Greensboro, North Carolina
•   Commonwealth Co., Ltd. in Whitehall, New York
•   Murphy Plywood in Eugene, Oregon
•   Roseburg Forest Products Co. in Roseburg, Oregon
•   States Industries LLC in Eugene, Oregon
•   Timber Products Company in Springfield, Oregon

There were a total of 20 producers affected by the possible fair trade violations, and these producers are located in the following states: Arkansas, Illinois, Mississippi, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Virginia, Washington, and West Virginia. There were a total of 1851 employees with the affected producers.

U.S. consumption of the plywood products was an estimated $2,014,000,000 in 2011, and about $707.3 million of U.S. imports involved hardwood plywood from China. China exported the most plywood to the United States, for other countries only imported $632.7 million of similar products in 2011.

It is important to note that the investigation does not involve structural plywood, plywood used for cork faces or cork backs, multilayered flooring used for CVD/AD order, or other types of plywood that are used for anything besides basic finishing.

Source: U.S. International Trade Commission

Google Launches Touchscreen Chromebook

Google on Thursday introduced a high-resolution Chrome OS portable computer equipped with a touchscreen. The new gadget, called Pixel, represents a shift that blurs the boundaries between the traditional key-board oriented laptops and the touch-oriented tablets. Moreover, the invention also distorts the company’s Web-centric operating system and its mobile Android platform.

Fulfilling statements made last years, Google Senior Vice President of apps and Chrome, Sundar Pichai, demonstrated the Chromebook Pixel, the first Chrome operating system device to power users at a media event in San Francisco on Thursday.

Mr. Pichai described the new invention as both a reference device to exhibit Google’s hardware partners as to how a Chrome touch device can work and to boast the company’s new engineered product.

The Chromebook Pixel features a 239 PPI screen and an Intel Core i5 processor. Mr. Pichai claims the screen is the highest resolution screen that’s even been featured on a laptop. For sake of comparison, Apple’s MacBook Pro possesses a retina display of 220 pi.

Mr. Pichai also highlighted the device’s blazing speed, “It’s an incredibly fast machine,” he said. “In my experience, this is the fastest laptop I’ve ever used.”
At roughly 3 and a half pounds, the Chromebook Pixel is a pound heavier than the MacBook Air, which appears to be the Pixel’s main competition, at least with regards to price. Despite its weight, the Pixel is a beautifully designed piece of equipment, one that includes a number of custom-design components. Mr. Pichai insists the Pixel compares favorably with Apple’s notebook.

Google has partnered with Verizon to provide LTE wireless service to the Pixel. This partnership offers one TB of Google Drive storage at no cost for up to three years. This much storage space would typically cost consumers $600 a year.

The Wi-FI capable version (32 GB) of the Pixel is available for $1,299. This version can be ordered through the Google Play Store, with shipping taking roughly one week. The LTE version (64 GB) of the Pixel costs $1,499 with shipping planned for April. Best Buy will begin taking orders for the Chromebook Pixel this Friday, the 22nd.

CNBC to Purchase “Nightly Business Report”

“Nightly Business Report,” the inventive public television series that has come into financial troubles in recent years, attracted a new deep-pocketed commercial owner, the 24-hour news and business cable channel CNBC, an element of Comcast’s NBC Universal.

CNBC announced the deal this afternoon, claiming it would purchase the rights to the program, which is available in over 96 percent of U.S. homes. The transaction was made through investment firm Atalaya Capital Management for an undisclosed amount.

CNBC will immediately start producing the program, which as of today, operates from Miami with offices in Washington and New York.

The show will maintain its format and be anchored by CNBC’s Susie Gharib and Tyler Mathisen; CNBC said Ms. Gharib is under contract through the remained of the year. The show’s current host, Tom Hudson will depart along with the rest of the 18 full-time employees that produce the show.

In a recent interview, Rick Schneider, president and chief executive of Miami public station WPBT, where the program is based called the new ownership a good thing for the show and for the public television system in general. Mr. Schneider proclaimed that the deal will not only ensure the program’s long-term survival, but also a likely improvement. Schneider made this proclamation because he believes that the show has never had a prominent news-gathering organization behind it.

The transaction marks the third change of hands for “Night Business Report” since the summer of 2010, when a Mykalai Kontilai, an entrepreneur purchased it from WPBT.
Atalaya Capital Management, which brokered Mr. Kontilai’s purchase, took over the program in the fall of 2011, after a few ambitious expansion plans were achieved. In recent months, Atalaya has been searching for a purchaser of the program.

During a telephone interview, Nikhil Deogun, CNBC’s editor in chief for business news called “Nightly Business Report” “a phenomenal brand with a long tradition of producing stellar business news.” Mr. Deogun claimed that the show’s audience has minimal duplication with the CNBC audience and that the program will provide further opportunities for CNBC’s stable of quality of journalists.

PBS stopped backing “Nightly Business Report” in 2011 due to drifting ratings and the exit of the show’s sole financial underwriter, Franklin Templeton Investments. In December, the program closed the doors on its Chicago bureau and laid off a number of employees, the second substantial lay-off since 2010.

Ms. Gharib, in a phone interview, called the news “bittersweet” because the majority of the team would be departing, but also said, “Finally NBR is securing the resources we needed so badly. I feel great that CNBC sees value in our show. It’s a testament to the strength of the program.”

Lawsuit Alleges Budweiser Waters-down its Beer

Beer drinkers across the United States have accused Anheuser-Busch of watering down its Michelob, Budweiser and other beer brands, in class-action suits that seek tens of millions in damages.

The suits, filed in California, Pennsylvania and other states, claim beer drinkers have been cheated out of the alcohol content stated on the can’s labels. Michelob and Budweiser each claim of being 5 percent alcohol, while the lighter versions of Anheuser-Busch beer drinks claim to be just over 4%.

These lawsuits were filed based on information from former employees at the beer giant’s 13 domestic breweries, according to head lawyer Josh Boxer.

“The information comes from former employees who have informed us that as a matter of business practice, all of the products mentioned in the lawsuit were significantly watered down,” Boxer claimed. “Beverage companies often water-down their products as a simple cost-saving mechanism.”

The excess water is added to each beverage just before bottling; watering-down the aforementioned brands of beer reduces alcohol content by 3 to 8 percent.

In response to the allegations, Anheuser-Busch calls the claims “groundless” and said it has always complied with the United States’ labeling laws.

“Our beverages are in full compliance with labeling laws; we adhere to the highest standards in brewing our beverages, which have made our beers the best-selling in the United States and around the world.” Peter Kraemer, senior vice president of supply and brewing said in a statement.

The suit involves ten Anheuser-Busch products: Bud Ice, Budweiser, Bud Light Platinum, Michelob, Hurricane High Gravity Lager, Michelob Ultra, Busch Ice, King Cobra, Bud Light Lime and Natural Ice.

Anheuser-Busch merged with InBev in 2008 to create the world’s largest alcohol producer.

According to the suit, the company utilizes sophisticated equipment that measures alcohol content throughout the brewing process; however, after the merger, the company chose to dilute its brands of beers, the lawsuit claimed.

“Following the merger, the company accelerated the deceptive practice of watering down its beverages. It sacrificed the products once produced by Anheuser-Busch to cut costs,” said the lawsuit, which was filed in federal court in San Francisco on Friday.

Adjoining suits are currently being filed in New Jersey, Pennsylvania and other states. Each suit seeks at least $5 million in damages.

Source: Associated Press