Rachel Is an Accountant Who Practices as a Sole Proprietor

question 53

Essay

Rachel is an accountant who practices as a sole proprietor. This year, Rachel had net business income of $270,000 (net of the deduction for self-employment taxes, the self-employed health insurance deduction, and the deduction for contributions to qualified self-employment retirement plans)from her practice. Assume that Rachel pays $50,000 wages to her employees, she has $20,000 of property (unadjusted basis of equipment she purchased last year),she has no capital gains, and her taxable income before the deduction for qualified business income is $225,000, and she is unmarried. Calculate Rachel's deduction for qualified business income.

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Definitions:

Permanent Accounts

The balance sheet accounts whose balances are carried over into future accounting periods, not closed at the end of the fiscal year.

Posting

The process of recording financial transactions to the appropriate accounts in the general ledger.

Adjusting Entries

Journal entries made in accounting records at the end of an accounting period to update the accounts for any accruals and deferrals that were not recorded during the accounting period.

Accounting Cycle

A series of steps performed during an accounting period, starting with recording transactions and ending with the preparation of financial statements.