Competencies In this project, you will demonstrate your mastery of the following competencies: Record and present financial information by applying the appropriate framework and guideline
Competencies
In this project, you will demonstrate your mastery of the following competencies:
Record and present financial information by applying the appropriate framework and guidelines of accounting for business transactions
Determine asset accounts and their disclosure in the financial statements
Determine liability and equity accounts and their disclosure in the financial statements
Scenario
You were recently hired as an entry-level bookkeeper for a service business that recently opened. This is the first month in operation for the business and your first task is to record business transactions for their first month using the source documents and transaction data the owner will provide to you. Because this is a small business that does not use computerized accounting, you will apply the accounting cycle in Excel to record transactions and generate financial reporting results for the owner.
Directions
Company Accounting Workbook
Use accepted accounting principles to follow and record your business transactions for a one-month period from the first step of the accounting cycle through the reporting process. You will build on the workbook you created in Milestones One and Two, or you may start over with the blank Company Accounting Workbook Template (linked below in the What to Submit section), incorporating instructor feedback where applicable. After you complete your workbook, you will prepare a summary report of your work.
Your completed accounting workbook will consist of journal entries for each transaction and postings of transactions to account ledgers. You will develop a trial balance from the ledger balances, and use these balances to prepare the income statement, statement of owner's equity, and the balance sheet. After the preparation of the financial statements, closing entries will be entered to transfer earnings to equity and prepare temporary accounts for the new accounting period.
Use the instructions below to complete your workbook. Specifically, you must address the following rubric criteria:
Record Financial Data: Use accepted accounting principles to accurately capture business transactions for the month using the data provided in the accounting data appendix (linked in the Supporting Materials section). You will need to address the following:
Accuracy: Prepare entries that are accurate in that they fully reflect the appropriate information.
Completeness: Prepare entries that are complete for the month, including transferring posted entries to T accounts.
Unadjusted Trial Balance: Prepare the unadjusted trial balance portion of the “Trial Balance” tab of the company accounting workbook, ensuring that the total debits and credits match.
Financial Statements: Create financial statements using appropriate methods based on accepted accounting principles. Be sure to prepare these financial statements in the order listed, as there are important interdependencies among them. Finalize the process by closing temporary accounts.
Income Statement: Prepare the income statement using the adjusted trial balance.
Statement of Owner’s Equity: Prepare the statement of owner’s equity using the adjusted trial balance.
Balance Sheet Assets: Prepare the balance sheet asset entries using the adjusted trial balance.
Balance Sheet Liabilities: Prepare the balance sheet liabilities entries using the adjusted trial balance.
Closing Entries: Complete the “Closing Entries” tab of the company accounting workbook by closing all temporary income statement amounts to create closing entries.
Summary Report
After you have finished preparing all the financial statements, analyze the statements and write a short report summarizing your findings. Use the template provided in the What to Submit section to complete your report. There is also a Final Project Walkthrough video available in Supporting Materials that will provide guidance for completing your template. In addition to the financial statement results, the owners have requested that you provide them with additional information as further growth is anticipated. They would like more input from you to support the best possible decisions for the business.
In addition, the owners are requesting that you provide them with some suggestions on simple internal controls they can integrate to ensure protection of company assets, and accuracy in the company's financial data. The owners are also considering acquiring more long-term/fixed assets, such as vehicles, equipment, buildings, and so on. They would like your input on the different options available for depreciation of these costs. Adding sales of product is also a consideration for expansion. The owners want to know what accounting considerations will be involved with this change.
Summary: Write a summary of what the financial statements indicate about the company’s financial health and performance.
Purpose: Discuss the accounting process and the resulting financial statements as they relate to meeting the informational needs of the user.
Process: Explain the process used to produce accurate account balances and financial statements from the individual transaction data.
Consider what is being communicated through each of the financial statements you prepared (income statement, statement of equity and balance sheet) and how this information will be used in business decision making and planning.
Analysis: Explain the company’s cash position, its net income as a percentage of sales, and its current liabilities to current assets position.
Results: Discuss the results regarding profitability of the first month of operations.
Consider how well the company is positioned to meet current liabilities.
Be sure to include the percentage of revenues that result in profit/net income and the current ratio when discussing profitability and liquidity based on the recorded month’s results.
Consider key points in your observations of results: is the company operating profitably (what percent of revenues result in profit/net income)? How well-poised are they to meet liabilities (discuss liquidity and current ratio)?
Recommendations: Recommend a simple system of controls that can be implemented to ensure protection of company assets and the accuracy and integrity of their financial data as they anticipate further growth.
Consider additional controls that will support the potential for adding merchandise and additional assets with business growth/expansion.
Asset Valuation: Discuss the treatment of current and long-term assets on the balance sheet.
Discuss at least two different methods of depreciation. Consider how the methods of depreciation will be determined.
Discuss how LIFO, FIFO, and average methods will differ and provide examples of types of applicable merchandising.
Consider how accounting will change with the addition of merchandise inventory.
ACC 201 Accounting Data Appendix
The following events occurred in March:
· March 1: Owner borrowed $125,000 to fund/start the business. The loan term is 5 years.
· March 1: Owner paid $250 to the county for a business license.
· March 2: Owner signed lease on office space; paying first (March 20XX) and last month’s rent of $950 per month.
· March 5: Owner contributed office furniture valued at $2,750 and cash in the amount of $15,000 to the business.
· March 6: Owner performed service for client in the amount of $650. Customer paid in cash.
· March 8: Owner purchased advertising services on account in the amount of $500.
· March 10: Owner provided services to client on account, in the amount of $1,725.
· March 15: Owner paid business insurance in the amount of $750.
· March 20: The owner received first utility bill in the amount of $135, due in April.
· March 20: Office copier required maintenance; owner paid $95.00 for copier servicing.
· March 22: Owner withdrew $500 cash for personal use.
· March 25: Owner paid $215 for office supplies.
· March 25: Owner provided service to client in the amount of $350. Client paid at time of service.
· March 30: Owner paid balance due for advertising expense purchase on March 8.
· March 30: Received payment from customer for March 10 invoice in the amount of $1,725.
· March 31: Last day of pay period; owner owes part-time worker $275 for the March 16 through March 31 pay period. This will be paid on April 5.
· March 31: Provided service for client on account in the amount of $3,500.
· March 31: Record depreciation of the office furniture at $45.83.
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Summary Report: Financial Statements 2
[ Note: To complete this template, replace the bracketed text with your own content. Remove this note before you submit your report.]
Summary Report: Financial Statements
[Your Name]
Southern New Hampshire University
Summary Report: Financial Statements 1
Introduction
[In this section, include the purpose of the report. Describe the kind of information these financial statements provide to various aspects of the business.]
Process
[In this section you will discuss the process you used to generate accurate financial statement results for the business owner from the list of business transactions provided. Explain what is being communicated through each of the financial statements you prepared (income statement, statement of equity and balance sheet) and how this information will be used in business decision making and planning.]
Financial Statement Analysis
[This section should center on your analysis of the financial performance of the company based on the statements you prepared. Discuss key points on your observations of results: Is the company operating profitably (what percent of revenues result in profit/net income)? How well poised are they to meet liabilities (discuss liquidity and current ratio)?.]
Internal Controls
[Provide suggestions for a simple system of internal controls to assist the owners in protecting assets and ensuring accuracy in financial data. Consider additional controls that will support the potential for adding merchandise and additional assets with business growth/expansion.]
Looking to the Future
[In response to the owner’s request for additional information and support for future growth, discuss accounting considerations associated with the acquisition of additional long term/fixed assets, and the addition of merchandise inventory. How will the company account for the costs of long-term assets? How will the method of depreciation be determined? (Expand on 2 different methods of depreciation to demonstrate ideal application). How does accounting change with the addition of merchandise inventory? How will it be determined which inventory costing method to apply? (Discuss how the FIFO, LIFO, and Average methods differ and provide examples of the types of merchandising scenarios that would be ideally applicable in each case.)]
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Chart of Accounts
| This chart of accounts should help you identify the appropriate accounts to record to as you are analyzing and journaling transactions for this workbook. There is nothing to complete on this page; this is simply a resource for you. | |||||
| Asset Accounts | Liability Accounts | Equity Accounts | |||
| Acct # | Acct # | Acct # | |||
| Cash | 101 | Notes Payable | 201 | Owner's Capital | 301 |
| Accounts Receivable | 102 | Accounts Payable | 202 | Owner Draws | 302 |
| Prepaid Rent | 103 | Wages Payable | 203 | ||
| Office Furniture | 104 | ||||
| Office Supplies | 105 | ||||
| Accumulated Depreciation (contra asset) | 106 | ||||
| Revenue Accounts | |||||
| Acct # | |||||
| Service Revenue | 401 | ||||
| Expense Accounts | |||||
| Acct # | |||||
| Rent expense | 501 | ||||
| Business License Expense | 502 | ||||
| Insurance Expense | 503 | ||||
| Repairs and Maintenance | 504 | ||||
| Advertising Expense | 506 | ||||
| Wages Expense | 507 | ||||
| Utilities Expense | 508 | ||||
| Depreciation Expense | 509 | ||||
| Cash | |||||
| Baking Supplies | |||||
| Prepaid Rent | |||||
| Prepaid Insurance | |||||
| Baking Equipment | |||||
| Office Supplies | |||||
| Accounts Receivable | |||||
| Accumulated Depreciation | |||||
| Merchandise Inventory | |||||
| Notes Payable | |||||
| Accounts Payable | |||||
| Wages Payable | |||||
| Interest Payable | |||||
| Common Stock | |||||
| Dividends | |||||
| Bakery Sales | |||||
| Merchandise Sales | |||||
| Baking Supplies Expense | |||||
| Rent Expense | |||||
| Insurance Expense | |||||
| Misc. Expense | |||||
| Business License Expense | |||||
| Advertising Expense | |||||
| Wages Expense | |||||
| Telephone Expense | |||||
| Interest Expense | |||||
| Depreciation Expense | |||||
| Office Supplies Expense | |||||
| Cost of Goods Sold |
General Journal
| A Company | |||||
| General Journal Entries | Journal Entry Tips | ||||
| The debited account is recorded first, credited account recorded second. | |||||
| Debits and credits must always equal! | |||||
| Date | Accounts | Debit | Credit | There can be compound entries in which two accounts receive a debt to an equivalent credited amount to one account. | |
| 1-Mar | Cash | 125,000.00 | Be sure to use your chart of accounts (the first page of this workbook). | ||
| Note Payable | 125,000.00 | Each account you will record to is already listed and organized by classification of the account. | |||
| 1-Mar | Business License | 250.00 | |||
| Cash | 250.00 | ||||
| 2-Mar | Rent Expense | 950.00 | |||
| Prepaid Rent | 950.00 | ||||
| Cash | 1,900.00 | ||||
| 5-Mar | Office Furniture | 2,750.00 | |||
| Cash | 15,000.00 | ||||
| Owners Capital | 17,750.00 | ||||
| 6-Mar | Cash | 650.00 | |||
| Service Revenue | 650.00 | ||||
| 8-Mar | Advertising Expence | 500.00 | |||
| Advertising Payable | 500.00 | ||||
| 10-Mar | Accounts Receivable | 1,725.00 | |||
| Service Revenue | 1,725.00 | ||||
| 15-Mar | Insurance Expense | 750.00 | |||
| Cash | 750.00 | ||||
| 20-Mar | Ultilities Expense | 135.00 | |||
| Cash | 135.00 | ||||
| 20-Mar | Maintenance Expense | 95.00 | |||
| Cash | 95.00 | ||||
| 22-Mar | Owners Draws | 500.00 | |||
| Cash | 500.00 | ||||
| 25-Mar | Office Supplies | 215.00 | |||
| Cash | 215.00 | ||||
| 25-Mar | Cash | 350.00 | |||
| Service Revenue | 350.00 | ||||
| 30-Mar | Advertising Expense | 500.00 | |||
| Cash | 500.00 | ||||
| 30-Mar | Accounts Receivable | 1,725.00 | |||
| Service Revenue | 1,725.00 | ||||
| 31-Mar | Wages Expense | 275.00 | |||
| Wages Payable | 275.00 | ||||
| 31-Mar | Accounts Receivable | 3,500.00 | |||
| Service Revenue | 3,500.00 | ||||
| 31-Mar | Depreciation Expense | 45.83 | |||
| Accumulated Depreciation | 45.83 | ||||
| Total | 155,865.83 | 155,865.83 | If Red, this means your debits and credits do not equal. Be sure to review for errors. |
Ledger Accounts
| Assets | Liabilities | Equity | Revenue | Expenses | ||||||||||||||||||
| Cash | Notes Payable | Owner's Capital | Service Revenue | Rent Expense | ||||||||||||||||||
| 1-Mar | $ 125,000.00 | 250 | 1-Mar | $ 125,000.00 | 1-Mar | $ 17,750.00 | 5-Mar | $ 650.00 | 6-Mar | 2-Mar | $ 1,900.00 | |||||||||||
| 5-Mar | $ 15,000.00 | $ 950.00 | 2-Mar | $ 1,725.00 | 10-Mar | |||||||||||||||||
| 6-Mar | $ 650.00 | $ 750.00 | 15-Mar | $ 350.00 | 25-Mar | |||||||||||||||||
| 25-Mar | $ 350.00 | $ 95.00 | 20-Mar | $ 3,500.00 | 31-Mar | |||||||||||||||||
| 30-Mar | $ 1,725.00 | $ 500.00 | 22-Mar | |||||||||||||||||||
| $ 215.00 | 25-Mar | |||||||||||||||||||||
| $ 500.00 | 30-Mar | |||||||||||||||||||||
| $ 142,725.00 | $ 3,260.00 | $ – 0 | $ 125,000.00 | $ – 0 | $ 17,750.00 | $ – 0 | $ 6,225.00 | $ 1,900.00 | $ – 0 | |||||||||||||
| $ 139,465.00 | $ 125,000.00 | $ 17,750.00 | $ 6,225.00 | $ 1,900.00 | ||||||||||||||||||
| Accounts Rec. | Accounts Payable |
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