Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom’s Tax Services follow: Tom’s Tax Services Annual Income Statement Sales Revenue 724,000 Costs Labor 457,000 Equipment Lease 48,000 Rent 42,500 Supplies 31,300 Tom’s Salary 73,800 Other Costs 21,400 Total Costs 674,900 Operating Profit (Loss) 49,100 If Tom gets the store’s business, he will incur an additional $59,200 in labor costs. Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 5 percent, and other costs by 15 percent. Required: What are the differential costs that would be incurred as a result of adding this new client? Tom would normally charge about $73,200 in fees for the services the store would require. How much could he offer to charge and still not lose money on this client?
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom’s Tax Services follow:
Tom’s Tax Services
Annual Income Statement
Sales Revenue 724,000
Costs
Labor 457,000
Equipment Lease 48,000
Rent 42,500
Supplies 31,300
Tom’s Salary 73,800
Other Costs 21,400
Total Costs 674,900
Operating
If Tom gets the store’s business, he will incur an additional $59,200 in labor costs. Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 5 percent, and other costs by 15 percent.
Required:
- What are the differential costs that would be incurred as a result of adding this new client?
- Tom would normally charge about $73,200 in fees for the services the store would require. How much could he offer to charge and still not lose money on this client?
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