Basswood furniture project answers

Study Unit

Basswood Furniture Project

PART A—PUTTING YOUR ACCOUNTING KNOWLEDGE INTO PRACTICE 1

Characteristics of a Good Bookkeeper 1 Bookkeeping Manually versus Using

Computer Software 2 The Basswood Furniture Bookkeeping Assignment 3 Instructions 4 Tips 29

PART B—SPECIFIC INSTRUCTIONS 30

Steps for Completing the Project 30 Formatting Financial Statements 60

PART C—GRADING PROCEDURE 64

Submitting Your Work 65

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C o n t e n t s

C o n t e n t s

1

PART A—PUTTING YOUR ACCOUNTING KNOWLEDGE INTO PRACTICE

Congratulations! Throughout your studies you’ve learned various accounting procedures and what can occur through- out an entire accounting cycle. You’re now ready to put your newfound knowledge to practical use. Although the basic pro- cedures will always remain the same, you may be required to adapt the skills you’ve obtained to suit the specific needs of your employer’s specialized business. Keep in mind, however, that the basic procedures will always remain the same. It’s now time to put all of your knowledge and expertise into practice.

Characteristics of a Good Bookkeeper

Traits that make for a good bookkeeper are accuracy, effi- ciency, and perseverance.

• Accuracy. The more accurate a bookkeeper is the fewer mistakes he or she makes. Although no one is perfect, if Bookkeeper A is accurate only 75% of the time and Bookkeeper B is accurate 90% of the time, Bookkeeper A will spend more time and resources correcting mistakes. No one can be 100% accurate. However, the degree of accuracy with which a bookkeeper completes his or her work does reflect upon the quality of the bookkeeper.

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• Efficiency. This factor is closely related to accuracy. The more efficient a bookkeeper is, the more time he or she will save. Time is money.

• Perseverance. Anyone can be a data entry operator trained to input information into a computer system. However, what happens when that information is entered incorrectly? What separates a data entry person from a good bookkeeper is the ability to recognize incorrect information (e.g., debits don’t equal credits), find the problem, and then correct it. This process sometimes requires perseverance. That is, you may not be able to find the problem the first time you look for the mistake. The books of accounting need to be 100% accurate. A good bookkeeper will keep looking when he or she knows that something isn’t right.

Bookkeeping Manually versus Using Computer Software

This course isn’t aimed at teaching you how to use software. Instead, the emphasis is on learning bookkeeping. Why learn to keep books manually (by hand) instead of using a spreadsheet or accounting software such as Peachtree or QuickBooks? Suppose an employer must fill a bookkeeping position. Applicant A can keep books manually but doesn’t know how to use accounting software. Applicant B has taken a course on how to use accounting software but has never kept books manually. Who will the employer hire? Applicant A. Why?

First, chances are that the software the company uses is customized. Therefore, the employer will need to spend a few days teaching the use of the software to whoever is hired. Peachtree and QuickBooks make up only a small percentage of the accounting software marketplace for small businesses, let alone midsized and large businesses. Instead, the vast majority of industries use accounting software that has been created specifically for the needs of that particular industry.

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Second, if Applicant B makes a mistake when entering data, he or she won’t understand the underlying fundamentals and processes of bookkeeping to be able to correct the mistake. Therefore, the employer would need to spend months teach- ing Applicant B what Applicant A already knows.

For this project, you’re required to complete the assigned tasks manually. The advantage to the manual completion method is that it gives you insight into the accounting process— journalizing transactions, classifying data in the General Ledger (G/L), and using the ledger data to produce financial statements. It’s important that you understand this overall process. Journal forms, G/L accounts, worksheets, and financial statement forms will be provided for you, along with realistic examples of the documents that a bookkeeper in a typical business would maintain.

If you wish to learn how to use an accounting software pro- gram, there are numerous books, videos, seminars, and courses available, from the software developers as well as third parties. However, to use the software effectively you must first have bookkeeping skills. Once you’ve completed the graded project manually, you’re encouraged to pursue learning how to use accounting software.

The Basswood Furniture Bookkeeping Assignment

The Basswood Furniture Bookkeeping Project is designed to simulate the transactions that occur in an office environment. Everything you need to complete the project is included in this Basswood Furniture Project package.

In this project, you’ll be the bookkeeper for Basswood Furniture, a sole proprietorship that specializes in home furnishings and accessories. First, you’ll need to set up the initial books of accounting. Next, you’ll record all the indicated transactions into the appropriate journals and post them accordingly. Then you’ll prepare a worksheet, create the nec- essary financial statements for the company’s calendar year end, and finally close the accounting period. When you’ve completed the required financial statements, you’ll submit them to the school for grading.

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The books of accounting for Basswood Furniture must be completed manually, and the financial statements submitted in the proper format for grading. You’ll upload the following financial statements according to the instructions found in this study unit:

• Balance sheet

• Income statement

The other project materials aren’t necessary for grading the project. Don’t send them to the school.

Instructions

This project is a simulation of an actual accounting period. While no two businesses are exactly alike, this project is a representation of the types of transactions and procedures you’ll encounter in business bookkeeping. The only difference is that you’ll encounter more of them in the normal course of business. For example, in the project you may make a deposit with only two or three checks. In an actual business, your deposit can easily have 15 or 20 checks. Whether you have 2–3 or 15–20, it’s all the same. Volume doesn’t make for dif- ferent accounting procedures in most cases.

What you’ve learned throughout the program will be used in completing this project. Any concepts that haven’t been cov- ered during the program will be addressed during the course of the project. Therefore, if you’re unsure about what to do, go back through the program materials and workbooks. Review the concept and apply your understanding to the situation as presented in the instructions.

Everything you need to complete the project is contained within the project materials in an orderly fashion. The best way to understand what to do for this project is to read through the instructions at least once or twice before attempting to begin the project. This will allow you to become familiar with what needs to be done and how all the parts of the project (forms, journals, ledgers, financial statements, etc.) fit together.

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Scenario: Background

Basswood Furniture is owned and operated by Ian Smith as a sole proprietorship. Ian rents a storefront/gallery at 124 River Lane in Hemlock, PA, 18951. The store is open Monday through Friday from 8 A.M.to 7 P.M. He has been in business for almost two years now. He specializes in creating custom furniture according to client specifications. The furni- ture is delivered and installed, if necessary, in the client’s home or business.

Ian has hired you to be a full-charge bookkeeper effective December 1. The previous bookkeeper left unexpectedly in November due to medical problems. Your wage will be $15.00/hour. Since the other bookkeeper left, Ian has been trying to get by with paying bills, employees, etc. However, he isn’t a trained bookkeeper. He needs someone who can get up to speed quickly doing the books manually (Ian doesn’t have accounting software), who understands bookkeeping inti- mately and is able to correct anything he has done in error, and who can maintain his books accurately in the future.

This is why he has hired you. Although you have no experience—this is your first job—you made a strong impres- sion on Ian with your knowledge of bookkeeping. He was impressed with your graded project for Penn Foster, which you showed him during the interview process to obtain this position. Your immediate supervisor is Jeremy Gates, a CPA with the accounting firm Gates and Associates, Inc. Jeremy spends one or two days at the end of every quarter auditing the books. He is responsible for the accuracy of the books, year-end work, tax preparation, and financial advice. You’ll have access to Jeremy for any questions or problems you

Important Note

Because this project is a simulation, you won’t perform certain

actions in the instructions. For example, you won’t put checks in the

mail or go to the bank to make a deposit. However, you will perform

the bookkeeping functions of writing the checks, filling out the

deposit ticket, etc. Instructions that you obviously can’t perform due

to this being a simulation, you’ll imagine “as if” you were in an office

environment. Otherwise, keep the books for the business as you

learned throughout the bookkeeping program.

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may have. This, coupled with your bookkeeping skills, make Ian confident that you’ll be able to perform well in the posi- tion of full-charge bookkeeper. Your duties will be to maintain the accounting records and produce financial statements at the end of each accounting period.

Basswood Furniture has three employees. Ian is paid a salary. The employees are paid on an hourly basis.

1. Billie Redmond, helper

2. Betty Gable, secretary/coordinator

3. You, the bookkeeper

Ian makes all of the sales and constructs the furniture with the help of Billie Redmond. Everyone is paid on a biweekly basis. Jeremy Gates bills Basswood Furniture for his services as its accountant.

Basswood Furniture operates on a calendar year, which ends December 31. The accounting periods are monthly, and Basswood Furniture uses an accrual basis.

A business can operate on either an accrual basis or a cash basis.

When a business first begins, it must be determined which basis it

will use. The cash basis is used by a small business with few

transactions during an accounting period. The accounting period

used is usually quarterly, semiannually, or yearly. It records the

revenues and expenses when they occur and doesn’t attempt to

match the expenses with the revenues during an accounting period.

The accrual basis is what you’ve been learning throughout your

bookkeeping course. The vast majority of businesses use the

accrual basis, which uses the Generally Accepted Accounting

Principles (GAAP) matching principle by getting the expenses into

the same accounting period that the revenues occur.

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Transactions are recorded in three journals:

1. General journal

2. Cash receipts journal

3. Cash disbursements journal

Any transactions that aren’t entered in the cash receipt or cash disbursement journals are entered in the general journal.

Journal entries can be posted to the G/L anytime during the course of a week, at your convenience. However, you’ve devel- oped the good practice of making sure all entries are posted on a weekly basis. At the end of an accounting period, you must make absolutely sure that all journal entries have been posted to the G/L.

At the end of the accounting period, as part of the closing process, you’ll work with a 10-column worksheet. Use it to create a Pre-Adjusted Trial Balance, making adjusting jour- nal entries and creating an Adjusted Trial Balance, from which an Income Statement will be created in a format that follows GAAP guidelines. Finally, a Post-Closing Trial Balance will be created, from which you’ll generate the company’s Balance Sheet.

Scenario: Financial Information

As the first order of business, although he doesn’t know how accurate some of the information is, Ian has provided you with the following financial information for the period ending November 20XX:

• Chart of Accounts (Figure 1)

• Trial Balance (Figure 2)

• Customer list (Figure 3)

• Schedule of Accounts Receivable (Figure 4)

• Vendor list (Figure 5)

• Schedule of Accounts Payable (Figure 6)

• Schedules of vehicle depreciation (Figure 7)

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• Schedules of equipment depreciation (Figure 8)

• Schedules of office furniture and equipment depreciation (Figure 9)

• Payroll information (Figure 10)

• Merchandise inventory valuation (Figure 11)

• Office supplies inventory valuation (Figure 12)

This information will be used initially to set up the books of accounting for the period December 20XX. The balances in the G/L accounts reflect all transactions recorded through November 30 of the current year. These are the beginning balances for December 1, 20XX. The same details are true of the balances in the Accounts Payable (A/P) and Accounts Receivable (A/R) subsidiary ledgers. Be sure to indicate with a checkmark that you’ve done the posting in the posting ref- erence columns of the ledgers when you open the books. No supporting documentation or calculations are necessary as the figures presented are assumed to be correct.

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Basswood Furniture Chart of Accounts

Number Title

100 Cash—Business Checking

107 Petty Cash

110 Accounts Receivable

120 Merchandise Inventory

125 Office Supplies Inventory

140 Prepaid Rent

170 Vehicles

170.1 Accumulated Depreciation—Vehicles

180 Equipment

180.1 Accumulated Depreciation—Equipment

185 Office Furniture and Equipment

185.1 Accumulated Depreciation—Office Furniture and Equipment

200 Accounts Payable

210 Payroll Payable

211 Federal Income Tax Payable

212 Social Security Tax Payable

213 Medicare Tax Payable

214 State Income Tax Payable

215 City Income Tax Payable

221 FUTA Tax Payable

222 SUTA Tax Payable

230 Sales Tax Payable

300 Ian Smith, Capital

300.1 Ian Smith, Drawing

401 Sales Revenue

401.1 Sales Returns and Allowances

401.2 Sales Discounts

500 COGS—Cost of Goods Sold

505 Purchases

505.1 Purchase Returns and Allowances

505.2 Purchase Discounts

510 Payroll Expense

515 Payroll Tax Expense

520 Advertising Expense

525 Rent Expense

530 Office Supplies Expense

535 Telephone Expense

540 Utilities Expense

550 Supplies Expense

560 Miscellaneous Expense

570 Depreciation Expense

580 Cash Short and Over

590 Expense and Revenue Summary

FIGURE 1—Chart of Accounts: Basswood Furniture

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Basswood Furniture: Trial Balance as of November 30, 20XX

Acct. No. Title Debit Credit

100 Cash—Business Checking 18,513.18

107 Petty Cash 500.00

110 Accounts Receivable 17,986.00

120 Merchandise Inventory 31,500.00

125 Office Supplies Inventory 347.23

140 Prepaid Rent 2,000.00

170 Vehicles 48,000.00

170.1 Accumulated Depreciation—Vehicles 16,624.86

180 Equipment 23,500.80

180.1 Accumulated Depreciation—Equipment 14,361.60

185 Office Furniture and Equipment 6,125.04

185.1 Accumulated Depreciation—Office Furn. and Equip. 3,743.08

200 Accounts Payable 5,004.00

210 Payroll Payable 0.00

211 Federal Income Tax Payable 722.00

212 Social Security Tax Payable 627.44

213 Medicare Tax Payable 146.74

214 State Income Tax Payable 310.69

215 City Income Tax Payable 101.20

221 FUTA Tax Payable 1,050.56

222 SUTA Tax Payable 7,091.28

230 Sales Tax Payable 3,750.00

300 Ian Smith, Capital 94,938.80

300.1 Ian Smith, Drawing 0.00

401 Sales 0.00

401.1 Sales Returns and Allowances 0.00

401.2 Sales Discounts 0.00

500 COGS—Cost of Goods Sold 0.00

505 Purchases 0.00

505.1 Purchase Returns and Allowances 0.00

505.2 Purchase Discounts 0.00

510 Payroll Expense 0.00

515 Payroll Tax Expense 0.00

520 Advertising Expense 0.00

525 Rent Expense 0.00

530 Office Supplies Expense 0.00

535 Telephone Expense 0.00

540 Utilities Expense 0.00

550 Supplies Expense 0.00

560 Miscellaneous Expense 0.00

570 Depreciation Expense 0.00

580 Cash Short and Over 0.00

590 Expense and Revenue Summary 0.00

TOTALS 148,472.25 148,472.25

FIGURE 2—Trial Balance: Basswood Furniture

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Basswood Furniture: Customer List—Accounts Receivable

Account Number

Customer

AR-010 Elizabeth Dante, 264 Landon Lane, Antigua, PA 15935

AR-020 Liya Designs, 13 Spruce Street, Archwood, PA 17514

AR-030 Yu Wei Creations, 91 Nittany Drive, Lansdale, PA 13956

AR-040 Capital Hardware, 87 Ridge Road, Anton, PA 12893

AR-050 The Antique Shoppe, 659 Market St, Sommerville, PA 15302

AR-060 Michael’s Furniture, 284 Carter Lane, Hanson, PA 14761

AR-070 Kenny Refinishing, 73 Tomey Avenue, Brighton, PA 16688

AR-080 Sam Little, 7 Ebony Drive, Adams, PA 14475

AR-090 Jim and Pearl Jones, 92 Weston Ave., Carverton, PA 18346

AR-100 Andy Mellow, 467 Reinhold Lane, Mountain Bend, PA 11321

AR-110 Quality Furniture, 101 Chester Drive, Birchwood, PA 19834

AR-120 Donna Bigelow, 901 Washington Lane, Appleton, PA 16572

FIGURE 3—Customer List: Basswood Furniture

Basswood Furniture: Schedule of Accounts Receivable

November 30, 20XX

Account Number

Customer $ Amount

AR-010 Elizabeth Dante 1,234.00

AR-020 Liya Designs 7,580.00

AR-030 Yu Wei Creations 6,437.00

AR-040 Capital Hardware 0.00

AR-050 The Antique Shoppe 350.00

AR-060 Michael’s Furniture 0.00

AR-070 Kenny Refinishing 925.00

AR-080 Sam Little 425.00

AR-090 Jim and Pearl Jones 125.00

AR-100 Andy Mellow 50.00

AR-110 Quality Furniture 0.00

AR-120 Donna Bigelow 860.00

Total $ 17,986.00

FIGURE 4—Schedule of Accounts Receivable: Basswood Furniture

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Basswood Furniture: Vendor List—Accounts Payable

Account Number

Vendor