Ch 16 Other Financial Systems

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Other Financial Systems
Chapter 16
1

Learning Objectives
Lesson 16.1: Other Financial Systems
(Slide 1 of 3)
1. Define the key terms in this chapter.
2. Discuss the advantages of using financial
management software.
3. Explain the function of a budget.
4. Discuss the use of electronic banking and the
steps in accessing an online bank account.
5. Discuss the process of establishing a checking
account and identify various types of checks.
6. Describe how to prepare checks for deposit
with correct endorsements and how to
complete a deposit slip.
2

7. Discuss how to reconcile bank statements and
how to record business expenses.
8. Identify the purpose of payroll records and the
importance of having every employee
complete an Employee’s Withholding
Allowance Certificate (Form W-4).
9. Discuss calculating gross and net wages.
10. Explain how withheld income tax and Social
Security taxes are deposited.
3
Learning Objectives
(Slide 2 of 3)

11. Describe how federal unemployment taxes are
deposited.
12. Describe how to complete a Form W-2.
13. Discuss the importance of retaining payroll and
tax records.
14. Discuss the employer’s responsibility for tax
information.
4
Learning Objectives
(Slide 3 of 3)

Advantages of Using
Financial Software
 Organize the office finances all in one place
 Be ready at tax time with complete and
accurate reports
 Be aware of whether a profit is being made
 Easily create specific cost analysis reports
 Generate forecasts and business plans
 Track invoices and back orders
 Generate checks, track payments, and
manage expenses
 Manage payroll activity
 Access finances from anywhere, anytime
5

Determining a Budget
 Purpose: To establish the dental practice’s
financial goals
 Expenditures: Money spent
 Revenue: Income received
6

Bank Accounts
 Dental office banking responsibilities include:
 Writing checks
 Accepting checks as payment
 Endorsing and depositing checks
 Keeping bank balances
 Reconciling bank statements
7

Online Banking
 The account holder can:
 View balances
 Transfer money between accounts
 Pay bills electronically
 Access cash through an automated teller machine
(ATM)
 Direct deposit paychecks
8

Establishing a Checking Account
 Signature card
 Power of attorney
9

Checks
 A means of ordering the bank to pay cash
from bank customer’s account
 Many people use online banking and debit
cards, but checks are still used
 Includes American Bankers Association
(ABA) bank identification number
10

Types of Checks
 Certified check
 Cashier’s check
 Money order
 Traveler’s check
 Bank draft
 Voucher check
11

Preparing Checks
 Financial management software can help
administrative assistants prepare checks
 Stub or register provides record of:
 Check number
 Date
 Payee
 Amount of check
 Purpose of check
 New balance brought forward after check has
been subtracted
12

Accepting Checks
 Legibly written in ink or typewritten
 Currently dated
 Signed by the check writer
 Drawn on a U.S. bank
 Same amount shown in figures and in words
 Payable to a payee or bearer
13

Other Forms of Payment
 Credit cards
 Debit cards
14

Deposits
 Night depository
 ATM
15

Bank Statement
 The bank statement shows:
 The balance of the account at the beginning of the
month
 Deposits made during the month
 Checks drawn against the account
 Corrections or charges against the account
• For example, the service charge or stop-payment
charges
 The bank balance at the end of the month
16

Procedures for Reconciling
the Bank Statement
1. Verify the amount of the canceled checks
with the amounts on the bank statement
2. Arrange the canceled checks numerically
3. Compare the amounts on the canceled
checks and the deposits with the amounts
written in the checkbook register
4. List the outstanding checks
5. Total the outstanding checks
6. Look for charges other than checks that have
been deducted from account
17

Petty Cash
 A small amount of cash kept in the office
 A voucher is completed each time money is
taken from the petty cash fund
18

Recording Business Expenses
 As invoices are processed, expenditures
represented on them need to be analyzed
and verified for payment
 Monthly income and expense register
provides a list of all the expenditures for the
month
 QuickBooks allows users to convert entered
bills into paid bills via electronic funds transfer
19

Maintaining Payroll Records
 Various federal and state laws require that
most business keep records to provide
information about wages paid
 And to help with preparation of required tax
reports
 Administrative assistant must have a good
working knowledge of payroll and tax records
20

Initial Payroll Records
 The dentist must:
 Apply for an employer identification number (EIN)
• Using the Form SS-4 from the Internal Revenue
Service (IRS)
 Have each employee complete an Employee’s
Withholding Allowance Certificate (Form W-4)
 Maintain employee’s earnings records
21

Employee Earnings Records
 Should contain:
 Name, address, Social Security number, rate of
pay, withholding exemptions claimed, marital
status, and special deductions
 Number of pay periods in a quarter and date on
which each pay period ends
 Columns for regular earnings, overtime earnings,
and total earnings
 Column for each deduction and for total deductions
 Column for entering net amount (net pay) received
 Column for recording accumulated taxable
earnings
22

Determining Employee Wages
 After the gross wage is determined, net pay is
calculated by deducting:
 FICA (Federal Insurance Contributions Act), which
are Social Security and Medicare taxes
 Federal withholding taxes, which are determined
by the number of withholding allowances taken
 Local income taxes, which are state and city
taxes, if applicable
 Other deductions
23

Depositing Taxes
 Electronic depositing of withheld taxes
 Income tax
 Social Security taxes
 Medicare taxes
 Employment tax
 Electronic Federal Tax Payment System
(EFTPS)
24

Federal Unemployment Tax
(Slide 1 of 2)
 6% of wages paid
 Applies to the first $7,000 of wages paid
during the calendar year
25

Federal Unemployment Tax
(Slide 2 of 2)
 The first $7,000 of each employee’s annual
wages paid during the quarter is multiplied by
0.008
 If the amount subject to deposit (plus the
amount subject to deposit but not deposited
for any prior quarter) is more than $100, a
deposit should be made during the first month
after the quarter
26

Wage and Tax Statement (Form W-2)
 Yearly federal W-2 must be provided for each
employee no later than January 31 of
following year
 W-2 form is prepared in six parts and
distributed as follows:
 One copy for IRS use
 One copy to state, city, or local tax departments
 Three copies to employee
 One for employee’s files
27

Report of Withheld Income
Tax (Form W-3)
 Form W-3 is the Transmittal of Wage and Tax
Statements
 On or before February 28 of current year,
copy A of all W-2 forms issued for previous
year and Form W-3 must be sent to IRS
28

Retention of Payroll
and Tax Records
 Amounts and dates of all wages paid
 Names, addresses, occupations, and Social
Security numbers of employees
 Periods of employee’s employment
 Employee’s income tax withholding allowance
certificates
 Employer’s identification number
 Duplicate copies of returns filed
 Dates and amounts of deposits made
29

Employer’s Responsibility
for Tax Information
 Employer’s Tax Guide – Circular E
30

Questions?
31

Ch 16 Other Financial Systems

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