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## Austin Community College

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**Austin Community College**Accounting Department Presents Math for Accounting: Financial Concepts**Examples**• Financial accounting math concepts**Actual Accounting Examples**Some of the concepts may be new you. Don’t worry – you will cover these in detail. For now – let’s focus on the math concepts.**Tools**Use your calculator Print the narrative**Depreciation**• Applies to assets: • used in business • expected to benefit the business for more than one year • Represents the allocation of cost over the life of the asset $ $ $ $ $**Units of Output Method**Allocate cost based on output miles driven machine hours copies made**Units of Output Method**Facts: Cost of Photocopier: $60,000 Estimated total copies: 2,000,000**Computation**Cost Estimated Copies Depreciation per copy $60,000 2,000,000 3 cents or $0.03 per copy**$0.03 per copy -- Uses**• Allocate the cost of the photocopier • Based on actual copies made • Determine the cost of making one copy • External – setting the selling price • Internal – developing a budget and recording depreciation**Current Ratio**• Measure of liquidity • How quickly can a company pay its current debt • Amounts due within one year**Current**Classified Balance Sheet provides data Current Assets Cash Accounts Receivable Merchandise Inventory Current Liabilities Accounts Payable Salaries Payable Rent Payable**Current Ratio**Current Assets $500,000 Current Liabilities $250,000 = 2 Interpretation: For every $1 of current liabilities, the company has $2 of current assets.**Gross Profit**Net Sales (Cost of Goods Sold) Gross Profit • Amount of each net sales dollar • Available to cover operating costs • Provide for net income**Gross Profit Margin**Net Sales (Cost of Goods Sold) Gross Profit • The relationship of Gross Profit to Net Sales • Decimal • Percentage**Gross Profit Margin**Net Sales $200,000 100% Less: Cost of Goods Sold 125,000 Gross Profit $ 75,000 37.5% 75,000/200,000 = .375 .375 X 100 = 37.5 %**Sales Tax**• Sales Tax Rate: 8.25% • Gross Taxable Sales: $96,000 What is the total amount due from customers?**Sales Tax**8.25 % = .0825 96,000 X 8.25 % = 7,920 OR 96,000 X .0825 = 7,920 $96,000 + $7,920 = $103,920**One Step Computation**96,000 X 108.25 % = 103,920 OR 96,000 X 1.0825 = 103,920**What If**• Sales Tax Rate: 8.25% • Amount Collected: $103,920 What is the total amount of taxable sales?**What If**Taxable Sales 1 +Sales Tax Rate Amount Collected ? X 1.0825 = 103,920 ? X 1.0825 = 103,920 1.0825 1.0825 Taxable Sales = 96,000**Employer Payroll Tax**• Taxes are withheld from employees’ wages • Employers also have to pay taxes • One common employer payroll tax • FUTA – .8% of the first $7,000 • You will cover additional taxes later.**Federal Unemployment Tax (FUTA)**Jones Inc - First Quarter 2008 Total payroll: $15,400 FUTA: .8% of the first $7,000 of wages Compute the FUTA liability**Federal Unemployment Tax (FUTA)**.8% is less than 1 % To convert .8% to a decimal: Move the decimal two places to the left .8% .008**Federal Unemployment Tax (FUTA)**7,000 X .008 = 56 1% is .01 7,000 X .01 = 70 Thus we know the answer must be less than 70. 70 X 80% = 56**Purchase Price Allocation**• A corporation purchases land and building for $850,000. • Tax Appraisal – Land $ 270,000 Building $ 650,000 Determine the amounts to be allocated to the land and building**Purchase Price Allocation**$ 270,000 29.3 % 70.7 % $ 650,000 $920,000 100 % 270/920 X 100 = 29.3478260869565 650/920 X 100 = 70.6521739130435**Allocation of Purchase Price**$ 249,050 850,000 X .293 600,950 850,000 X .707 $ 850,000 249,050 + 600,950**Summary**• Proper Tools • Calculator, Excel, Pencil and Paper • Reasonable answer • Practice • Help • Instructor/Tutor • Classmates, friends, family