businesses finance Assignment: Jas Carillo was discussing summer employment with Maria Perez, president of Valparaiso Construction Service: Maria: I’m glad that you’re thinking about joining us for the summer. We could certainly use the help. Jas: Sounds good. I enjoy outdoor work, and I could use the money to help with next year’s school expenses. Maria: I’ve got a plan that can help you out on that. As you know, I’ll pay you $4 per hour; but in addition, I’d like to pay you with cash. Since you’re only working for the summer, it really doesn’t make sense for me to go to the trouble of formally putting you on our payroll system. In fact, I do some jobs for my clients on a strictly cash basis, so it would be easy to just pay you that way. Jas: Well, that’s a bit unusual, but I guess money is money. Maria: Yeah, not only that, it’s tax-free! Jas: What do you mean? Maria: Didn’t you know? Any money that you receive in cash is not reported to the IRS on a W-2 form; therefore, the IRS doesn’t know about the income hence, it’s the same as tax-free earnings. a. Why does Maria Perez want to conduct business transactions using cash (not check or credit card)? b. How should Jas respond to Maria’s suggestion? 1 Describe how businesses finance their Obj l5 Describe and illustrate the accounting for cash and operations. stock dividends. Obj l2 Describe and illustrate current liabilities, notes Obj l 6 Describe the effects of stock splits on the financial payable, taxes, contingencies, and payroll. statements. Obj l 3 Describe and illustrate the financing ofoperations Obj l 7 Describe financial statement reporting of liabilities through issuance of bonds. and stockholders’equity. Obj l4 Describe and illustrate the financing ofoperations Obj l 8 Analyze the impact ofdebt or equity financing on through issuance of stock. earnings per share. B anks and other financial institutions provide loans or credit to importantly, short-term credit gives a business control over the pay- buyers for purchases of various items. Using credit to purchase mentforgoods and services. Forexample, Panera Bread, a chain of items is probably as old as commerce itself. In fact, the Babylonians bakery-cafes located throughout the United States, uses short-term were lending money to support trade as early as 1300 B.C. The trade credit, or accounts payable, to purchase ingredients for mak- use of credit provides /nd/v/dua/5 convenience and buying power. ing bread products in its bakeries. In addition to accounts payable, Credit cards provide individuals convenience over using cash and a business like Panera Bread can also have current liabilities related make purchasing over the Internet easier. Credit cards also provide to payroll, payroll taxes, short-term notes, and contingencies. Each individuals control over cash by providing documentation of their ofthese types of current liabilities is described and illustrated in this purchases through receipt of monthly credit card statements and chapter. by allowing them to avoid carrying large amounts of cash and to Panera Bread also uses long-term debt and stock to finance its purchase items before they are paid. operations and to raise funds for future expansion of its business. In Short-term credit is also used by businesses to provide con- this chapter, the use of bond and stock financing is described and venience in purchasing items for manufacture or resale. l/lore illustrated. Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
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Jermaine Byrant
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