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Chapter Seven: Financing and Accounting
Lecture Links
Lecture Link 7.1: Federal Accounting Standards Board (FASB)
(LO 7-1, 7-2, 7-3)
The Federal Accounting Standards Board (FASB) is the organization that establishes
standards for financial accounting in the private sector (FASB: Financial Accounting
Standards Board)i.
One of their objectives is to simplify accounting standards. Visit their website at
http://www.fasb.org and discover how their activities and other tasks enhance the
financial objectives for your new small business. What is one of their current projects?
Lecture Link 7.2: Venture Capital for the New Entrepreneurial Business
(LO 7-2)
The authors in the text discussed that Venture Capital (VC) is a form of equity
investment that is organized to make significant equity investments in high-growth new
ventures. A new small business owner can utilize a form of equity investment to fund the
new small business. The Small Business Administration features information on venture
capital. Visit their website at www.sba.gov and note what information is available.
Review the data and discuss whether or not you would consider this as a resource for
your new entrepreneurial business?Lecture Link 7.3: Social Security and Medicare Tax
Rates
(LO 7-3)
The authors in the text reviewed some of the payroll taxes affiliated with a business.
Review the Social Security and Medicare Tax Rates (Social security and medicare tax
rates)ii at http://www.ssa.gov/OACT/ProgData/taxRates.html and discuss how this data
is useful to a new small business owner.
1. What is the current Social Security (OASDI) rate?
2. What is the current Medicare (HI) rate?
3. What other taxes must you consider when you complete your payroll?
Lecture Link 7.3: Social Security and Medicare Tax Rates
(LO 7-3) - Notes
IM 7-1
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written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
1. What is the current Social Security (OASDI) rate? As of 2018, the rate is 6.2% on
2. What is the current Medicare (HI) rate? As of 2018, the rate is 1.45% on all wages.
3. What other taxes must you consider when you complete your payroll? Other
Bonus Internet Exercises
Bonus Internet Exercise 7.1: Grant Opportunity at the New Entrepreneurial Business
(LO 7-2)
The authors in the text discussed that grants were special funds. Typically, a new small
business person who receives a grant does not have to repay those funds. The specific
grants are to assist a disadvantaged group of individuals, economic development and
enhancement, and grants associated with a particular industry or business entity.
Conduct research on the internet using your favorite search engine and discover a grant
that might be available to fund the new business that you want to establish.
1. What websites did you research?
2. What did you find out about grants in your particular business entity industry?
3. Will you consider completing the process to apply for a grant for your new small
business? Why or why not? Bonus Internet Exercise 7.2: Lending Sources for
the New Small Business
(LO 7-2)
In this chapter we discussed the basics of funding that are available for a new small
business. You learned that loans are contractual agreements whereby the firm receives
funds that must be repaid over a stated period of time at a specific rate of interest.
Conduct research on the internet using your favorite search engine to discover sources
that lend to a new small business.
IM 7-2
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
1. What did your search results reveal that assist you with the loan requirements for
the new small business?
2. Describe the sources that you discovered from your search. Did you discover
specific terms for the loans? What were the interest rates on the business loans?
What were the terms in reference to the repayment period for the loans?
3. Summarize the other data that was revealed from your search. Will you use any
of these sources to obtain a loan for the new business? Why or why not?Bonus
Internet Exercise 7.3: Accounting Software for the New Entrepreneur
(LO 7-3)
There are numerous accounting programs available to accommodate the needs of the
new small business owner. Some of the software packages provide reports that are
beneficial to multiple sources which are affiliated with your business. Some packages
include the chart of accounts, the petty cash register, a check register, expense
accounts, inventory accounts, accounts payable and payroll.
Conduct research on the internet and evaluate the sources of accounting software
options that are available for a new small business.
1. Discuss the advantages, the disadvantages, and similarities of at least three
accounting software packages.
2. Summarize the results of your research. Discuss which software package is
appropriate to use in your new small business. Explain why.
3. Discuss the accounting software package that accommodates the needs of your
new small business. Would you purchase the software package? Why or why
not?
Critical Thinking Exercises
Critical Thinking Exercise 7.1: Lending Resources for the New Small Business
(LO 7-2, 7-3)
The authors in the text discussed the various issues related to financing the new small
business. Evaluate the lending sources listed below to fund a new small business.
1. List the features, benefits, advantages, and disadvantages of each fund source.
a. Loans
b. Credit cards
c. Grants
d. Equity
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written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
e. Other businesses
f. Venture capitalists (VC)
g. Business angels
h. Asset leasing
i. Factoring
Critical Thinking Exercise 7.1
(LO 7-2, 7-3) - Notes
In this lesson, students are asked to evaluate the various types of lending sources that
are available to a new small business owner. The students are asked to list the features,
benefits, advantages, and disadvantages of each source.
NOTE: Student answers will vary based on the industry type that their new small
business operates.
Critical Thinking Exercise 7.2: Cash Accounting Versus Accrual Accounting
(LO 7-.3)
The authors in the text discussed important concepts as they relate to the selection of
the appropriate accounting functions of the new small business. The main accounting
methods consist of the cash-based accounting system and the accrual –based
accounting system.
1. Compare and contrast the cash-based accounting system and the accrual-based
accounting system.
2. Discuss the method of an accounting system that is beneficial to a specific
industry and business formation. Why?
3. Discuss how you would manage the data flow for each method in your new small
business.
4. Which would be an effective accounting method in your new small business?
In this lesson, the students compare and contrast the cash-based accounting method
and the accrual-based accounting method. Student answers may vary, however, the
important concepts are:
Cash-based Accounting is simple
Recognizes expenses as they are paid
Recognizes revenue as it is generated
IM 7-4
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Method does not report inventory
Used by a small business
Accrual-based Accounting
The typical method of accounting
Expenses are recorded when they apply (does not matter when the cash
is received)
Used to report inventory
A business that has $5 million per annum
Subchapter C
Corporation
Partnership
Trust
The data flow is managed appropriately when the small business owner has a
solid foundation of what is to be accomplished. Student answers will vary.
Critical Thinking Exercise 7.3: Chart the Accounts
(LO 7-3)
Create a chart of accounts for your new small business. Create an account number for
each category and list the type of activity that you anticipate for your new small
business. Be creative and consistent with the account numbers. Include all categories
that you could anticipate in your new small business venture.
CHART OF ACCOUNTS
Account Number Category
IM 7-5
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
Critical Thinking Exercise 7.3: Create a Chart of Accounts - Notes
In this lesson, the students create a chart of accounts for their new small business.
First, they list an account number for each category they anticipate in the new small
business.
Assets are listed first, followed by the liability and equity categories next. The income
and expenses categories are listed last. Students use two or three digit account
numbers based on personal preference.
Follow up: Explain to students that the business owner adds to the chart of accounts as
the new small business develops.
Bonus Cases
Bonus Case 7.1: Creative Taxes and the IRS
(LO 7-3)
A new small business person is concerned about the taxes associated with payroll,
employment, and other areas associated with the business. Although a small business
initiates its operations, continues its business plan, and funds the new business, taxes
are an important factor that impacts the business.
Take into consideration the tax breaks or creative tax tactics associated with a firm.
According to a recent Press Release, Bank of America initiated a “program to reimburse
$3,000 to associates purchasing a new hybrid vehicleiii.” First, this complies with energy
efficiency programs that are a popular trend in our society. Second, “The program
mirrors the Internal Revenue Service’s hybrid vehicle tax credit program.” Although the
employees are taxed on the funds, the program has positive tax implications for the
business. In addition, the program reflects a positive image for the business.
Discussion Questions:
1. Discuss the potential taxes associated with a small business. Explain why a
business owner is obligated to pay taxes associated with the business.
IM 7-6
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
2. Explain why it is important to stay current on the tax laws associated with the
business?
3. Evaluate whether or not you would consider implementing a similar program at
your new small business. Be specific.
Bonus Case 7.1: Creative Taxes and the IRS - Notes
In this lesson, students discuss the taxes associated with a business.
1. Discuss the potential taxes associated with a small business. Explain why
a business owner is obligated to pay taxes associated with the business.
2. Explain why it is important to stay current on the tax laws associated with a
business?
3. Evaluate whether or not you would consider implementing a similar
program at your new small business. Be specific.
Bonus Case 7.2: Online Networking and Accounting Considerations
(LO 7-1, 7-2)
The new small business owner has many resources to evaluate when implementing
new small business finance and accounting requirements. One common trend for
IM 7-7
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written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
businesses today is social networking. According to a recent study, “Social networking is
the top online activity in the US”. (Marketing TechBlog- 2014 Statistics and Trends for
Businesses on Social Media)
1. Do you feel comfortable using a social networking mode of communication to
advertise for investors for your new small business? For employees?
2. Evaluate your resources and explain how social networking can enhance your
new business. Be creative.
Bonus Case 7.3: Finance and Accounting Obstacles
(LO 7-1, 7-2, 7-3)
The authors in the text discussed the key issues that impact the finance and accounting
issues of a new small business. A new small business owner evaluates the available
funding sources and compares those sources to the needs of the new small business.
Consider a scenario where you are a new small business owner and your business is
expected to open in one week. You just received a call from the bank and they revealed
that the business loan that you applied for did not get approved at the bank. What
would you do? You are scheduled to open the new small business next week.
1. What are some alternative funding options that you could consider to ensure that
the new small business opens on time?
2. Summarize the actions that a new small business owner could consider if unable
to pay the workers that assisted in the start-up tasks of the new small business.
Bonus Case 7.3: Finance and Accounting Obstacles - Notes
1. The alternative funding options include, but are not limited to borrowing money
from a friend or family member, non-equity funding, credit card cash advances or
balance transfers, supplier credit, grants, equity funding, angel investors, etc. The
main objective in this lesson is to evaluate the time frame, one week to come up
with the funds to initiate the business.
2. The actions that a new small business owner could consider if they are unable to
pay the workers who assisted with the start-up tasks of the new small business is
to borrow the funds from a family member or friend, to find a partner who has
IM 7-8
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written consent of McGraw-Hill Education.
Chapter Seven: Financing and Accounting
funds to invest in the time frame required, or to tell the workers there might be a
delay getting the business funds. Endnotes
IM 7-9
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
i FASB: Financial Accounting Standards Board Homepage. (2009). http://www.fasb.org.
Retrieved on October 27, 2009.
ii Social Security and Medicare Tax Rates. Social Security Online.
http://www.ssa.gov/OACT/ProgData/taxRates.html. Retrieved on October 28, 2009.
iii
