Basswood Furniture Project:

file:///C:/Users/Rach%20Petit/AppData/Local/Packages/microsoft.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 furniture 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 intimately 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 impression 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.

6 Basswood Furniture Project

may have. This, coupled with your bookkeeping skills, make

Ian confident that you’ll be able to perform well in the position 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.

Basswood Furniture Project 7

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 developed 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 journal

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)

8 Basswood Furniture Project

• 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 reference 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.

Basswood Furniture Project 9

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 

10 Basswood Furniture Project

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 

Basswood Furniture Project 11

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 

12 Basswood Furniture Project

Basswood Furniture:

Vendor List—Accounts Payable

Account

Number Vendor

AP-010 Hemlock Gas and Electric Co., Hemlock, PA 18953-6174

AP-020 The Home Improvement Center, 91 Arch St, Benton, OH 65714

AP-030 Carol’s Wood Supplies, 6 Lane Way, Canton, NJ 35741

AP-040 Atlantic Telephone Co., Hemlock, PA 18952-6143

AP-050 Woodworker Supplies, 4 Tennison Drive, Benning, NC 43852

AP-060 Everything Wood, 608 Rider Avenue, Capta, CA 93412

AP-070 Sally’s Fabrics, 593 Eleanor Road, TN 34687

AP-080 Two Guys Hardware, 29 Huntington Dr, Allenwood TN 26579

AP-090 Penn Furnishings, 84 Oakwood Avenue, Allenwood, TN 26579

AP-100 Cheryl Wood Designs, 802 Corning St, Palmerton, PA 11682

AP-110 Tom Baker, 53 Union Street, Hemlock, PA 18951

AP-120 Wood Imaginations, P.O. Box 461, Elkington, MN 43167

AP-130 Gates and Associates, Inc., 149 Elk Dr, Hemlock, PA 18953

FIGURE 5—Vendor List: Basswood Furniture

Basswood Furniture:

Schedule of Accounts Payable

November 30, 20XX

Account

Number Vendor $ Amount

AP-010 Hemlock Gas and Electric Co. $ 0.00

AP-020 The Home Improvement Center 353.00

AP-030 Carol’s Wood Supplies 631.00

AP-040 Atlantic Telephone Co. 0.00

AP-050 Woodworker Supplies 1,621.00

AP-060 Everything Wood 750.00

AP-070 Sally’s Fabrics 0.00

AP-080 Two Guys Hardware 75.00

AP-090 Penn Furnishings 0.00

AP-100 Cheryl Wood Designs 480.00

AP-110 Tom Baker 130.00

AP-120 Wood Imaginations 964.00

AP-130 Gates and Associates, Inc., 0.00

Total $ 5,004.00

FIGURE 6—Schedule of Accounts Payable: Basswood Furniture 

Basswood Furniture Project 13

Schedules of Vehicle Depreciation

Make: Ford Model: Econoline Van Year: 20XX

Purchase Date: 02/01/20XX Purchase Price: $48,000

Method of Depr.: Straight-Line # of Years: 4

Salvage Value: $10,000 Depr. Per Period: $791.66

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

48,000.00

1 2/28 791.66 791.66 47,208.34 YES

2 3/31 791.66 1583.32 46,416.68 YES

3 4/30 791.66 2374.98 45,625.02 YES

4 5/31 791.66 3166.64 44,833.36 YES

5 6/30 791.66 3958.3 44,041.70 YES

6 7/31 791.66 4749.96 43,250.04 YES

7 8/31 791.66 5541.62 42,458.38 YES

8 9/30 791.66 6333.28 41,666.72 YES

9 10/31 791.66 7124.94 40,875.06 YES

10 11/30 791.66 7916.6 40,083.40 YES

11 12/31 791.66 8708.26 39,291.74 YES

12 1/31 791.66 9499.92 38,500.08 YES

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

9499.92 38,500.08

13 2/28 791.66 10291.58 37,708.42 YES

14 3/31 791.66 11083.24 36,916.76 YES

15 4/30 791.66 11874.9 36,125.10 YES

16 5/31 791.66 12666.56 35,333.44 YES

17 6/30 791.66 13458.22 34,541.78 YES

18 7/31 791.66 14249.88 33,750.12 YES

19 8/31 791.66 15041.54 32,958.46 YES

20 9/30 791.66 15833.2 32,166.80 YES

21 10/31 791.66 16624.86 31,375.14 YES

22 11/30 791.66 17416.52 30,583.48

23 12/31 791.66 18208.18 29,791.82

24 1/31 791.66 18999.84 29,000.16

14 Basswood Furniture Project

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

18999.84 29,000.16

25 2/28 791.66 19791.5 28,208.50

26 3/31 791.66 20583.16 27,416.84

27 4/30 791.66 21374.82 26,625.18

28 5/31 791.66 22166.48 25,833.52

29 6/30 791.66 22958.14 25,041.86

30 7/31 791.66 23749.8 24,250.20

31 8/31 791.66 24541.46 23,458.54

32 9/30 791.66 25333.12 22,666.88

33 10/31 791.66 26124.78 21,875.22

34 11/30 791.66 26916.44 21,083.56

35 12/31 791.66 27708.1 20,291.90

36 1/31 791.66 28499.76 19,500.24

Period Year 4

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

28499.76 19,500.24

37 2/28 791.66 29291.42 18,708.58

38 3/31 791.66 30083.08 17,916.92

39 4/30 791.66 30874.74 17,125.26

40 5/31 791.66 31666.4 16,333.60

41 6/30 791.66 32458.06 15,541.94

42 7/31 791.66 33249.72 14,750.28

43 8/31 791.66 34041.38 13,958.62

44 9/30 791.66 34833.04 13,166.96

45 10/31 791.66 35624.7 12,375.30

46 11/30 791.66 36416.36 11,583.64

47 12/31 791.66 37208.02 10,791.98

48 1/31 791.98 38000.00 10,000.00

FIGURE 7—Schedules of Vehicle Depreciation: Basswood Furniture 

Basswood Furniture Project 15

Schedules of Equipment Depreciation

Items: (Initial Investment)

Table saw Compound miter saw

Band saw Scroll saw

Router table Drill press

Lathe Planer

Dust collection system Work benches

Invoice itemized misc equipment

Purchase Date: 01/01/20XX Purchase Price: $23,500.80

Method of Depr.: Straight-Line # of Years: 3

Salvage Value: $0.00 Depr. Per Period: $652.80

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

23,500.80

1 01/31 652.80 652.80 22,848.00 YES

2 02/28 652.80 1,305.60 22,195.20 YES

3 03/31 652.80 1,958.40 21,542.40 YES

4 04/30 652.80 2,611.20 20,889.60 YES

5 05/31 652.80 3,264.00 20,236.80 YES

6 06/30 652.80 3,916.80 19,584.00 YES

7 07/31 652.80 4,569.60 18,931.20 YES

8 08/31 652.80 5,222.40 18,278.40 YES

9 09/30 652.80 5,875.20 17,625.60 YES

10 10/31 652.80 6,528.00 16,972.80 YES

11 11/30 652.80 7,180.80 16,320.00 YES

12 12/31 652.80 7,833.60 15,667.20 YES

16 Basswood Furniture Project

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

7,833.60 15,667.20

1 01/31 652.80 8,486.40 15,014.40 YES

2 02/28 652.80 9,139.20 14,361.60 YES

3 03/31 652.80 9,792.00 13,708.80 YES

4 04/30 652.80 10,444.80 13,056.00 YES

5 05/31 652.80 11,097.60 12,403.20 YES

6 06/30 652.80 11,750.40 11,750.40 YES

7 07/31 652.80 12,403.20 11,097.60 YES

8 08/31 652.80 13,056.00 10,444.80 YES

9 09/30 652.80 13,708.80 9,792.00 YES

10 10/31 652.80 14,361.60 9,139.20 YES

11 11/30 652.80 15,014.40 8,486.40

12 12/31 652.80 15,667.20 7,833.60

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

15,667.20 7,833.60

1 01/31 652.80 16,320.00 7,180.80

2 02/28 652.80 16,972.80 6,528.00

3 03/31 652.80 17,625.60 5,875.20

4 04/30 652.80 18,278.40 5,222.40

5 05/31 652.80 18,931.20 4,569.60

6 06/30 652.80 19,584.00 3,916.80

7 07/31 652.80 20,236.80 3,264.00

8 08/31 652.80 20,889.60 2,611.20

9 09/30 652.80 21,542.40 1,958.40

10 10/31 652.80 22,195.20 1,305.60

11 11/30 652.80 22,848.00 652.80

12 12/31 652.80 23,500.80 0.00

FIGURE 8—Schedules of Equipment Depreciation: Basswood Furniture 

Basswood Furniture Project 17

Schedules of Office Furniture and Equipment Depreciation

Items: (Initial Investment)

(2) Computers Printer

Invoice itemized computer software (2) Desks

(2) Filing cabinets (2) Chairs

Telephone/answering/fax machine Copier

Invoice itemized misc items Telephone

Purchase Date: 01/01/20XX Purchase Price: $6,125.04

Method of Depr.: Straight-Line # of Years: 3

Salvage Value: $0.00 Depr. Per Period: $170.14

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

6,125.04

1 01/31 170.14 170.14 5,954.90 YES

2 02/28 170.14 340.28 5,784.76 YES

3 03/31 170.14 510.42 5,614.62 YES

4 04/30 170.14 680.56 5,444.48 YES

5 05/31 170.14 850.70 5,274.34 YES

6 06/30 170.14 1,020.84 5,104.20 YES

7 07/31 170.14 1,190.98 4,934.06 YES

8 08/31 170.14 1,361.12 4,763.92 YES

9 09/30 170.14 1,531.26 4,593.78 YES

10 10/31 170.14 1,701.40 4,423.64 YES

11 11/30 170.14 1,871.54 4,253.50 YES

12 12/31 170.14 2,041.68 4,083.36 YES

18 Basswood Furniture Project

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

2,041.68 4,083.36

1 01/31 170.14 2,211.82 3,913.22 YES

2 02/28 170.14 2,381.96 3,743.08 YES

3 03/31 170.14 2,552.10 3,572.94 YES

4 04/30 170.14 2,722.24 3,402.80 YES

5 05/31 170.14 2,892.38 3,232.66 YES

6 06/30 170.14 3,062.52 3,062.52 YES

7 07/31 170.14 3,232.66 2,892.38 YES

8 08/31 170.14 3,402.80 2,722.24 YES

9 09/30 170.14 3,572.94 2,552.10 YES

10 10/31 170.14 3,743.08 2,381.96 YES

11 11/30 170.14 3,913.22 2,211.82

12 12/31 170.14 4,083.36 2,041.68

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

4,083.36 2,041.68

1 01/31 170.14 4,253.50 1,871.54

2 02/28 170.14 4,423.64 1,701.40

3 03/31 170.14 4,593.78 1,531.26

4 04/30 170.14 4,763.92 1,361.12

5 05/31 170.14 4,934.06 1,190.98

6 06/30 170.14 5,104.20 1,020.84

7 07/31 170.14 5,274.34 850.70

8 08/31 170.14 5,444.48 680.56

9 09/30 170.14 5,614.62 510.42

10 10/31 170.14 5,784.76 340.28

11 11/30 170.14 5,954.90 170.14

12 12/31 170.14 6,125.04 0.00

FIGURE 9—Schedules of Office Furniture and Equipment Depreciation: Basswood Furniture 

Basswood Furniture Project 19

PAYROLL INFORMATION

As of November 30, 20XX

Employee:

Ian Smith

234 Pinewood Rd.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 4

Additional Amount Withheld: $ 0.00

Wage/Salary: $2,500.00 (Salary)

YTD Earnings: $60,000.00

Employee:

Betty Gable

465 Pinewood Rd.

Hemlock, PA 18951

Status: Single

Number of Allowances Claiming: 0

Additional Amount Withheld: $ 0.00

Wage/Salary: $12.50/hr

YTD Earnings: $16,500.00

Employee:

Billie Redmond

67 Oak St.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 3

Additional Amount Withheld: $ 0.00

Wage/Salary: $17.00/hr

YTD Earnings: $29,920.00

(Continued)

20 Basswood Furniture Project

Employee:

Janet Adams

83 Empire St.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 2

Additional Amount Withheld: $ 0.00

Wage/Salary: $15.00/hr

YTD Earnings: $24,900.00

Additional Payroll Information:

Hourly employees are paid time-and-one-half for overtime hours. Any hours worked over 40

hours for the week qualify for overtime pay.

Hourly employees are paid double time for any hours worked over 60 hours for the week and

for working on holidays.

Currently, employees are responsible for their own insurance.

(Continued)

Basswood Furniture Project 21

Use the following tax tables for Federal Withholding Tax from the current

year Circular E:

FWT:

22 Basswood Furniture Project

Basswood Furniture Project 23

24 Basswood Furniture Project

Basswood Furniture Project 25

SWT:

Pennsylvania Income State Tax Percentage: 3.07%

LWT:

Hemlock Local Withholding Tax Percentage: 1.00%

FICA:

Social Security Tax Percentage:

Employee: 6.02% on all earnings

Employer: 6.02% on all earnings

Medicare Tax Percentage:

Employee: 1.45% up to $106,800 in earnings

Employer: 1.45% up to $106,800 in earnings

FUTA:

The FUTA tax percentage is 0.8% of the first $7,000 of wages per year

SUTA:

The SUTA tax percentage is 5.4% of the first $7,000 of wages per year

FIGURE 10—Payroll Information: Basswood Furniture

26 Basswood Furniture Project

Merchandise Inventory Valuation

As of November 31, 20XX

Item No. Description No. of Items Amount Total Amount

DR-0003 Dining Room Set 2 $ 2,500.00 $ 5,000.00

DRS-0005 Dining Room Set 2 $ 2,125.00 $ 4,250.00

DRS-0009 Dining Room Set 2 $ 3,455.00 $ 6,910.00

TBL-0023 Table 4 $ 65.00 $ 260.00

TBL-0037 Table 3 $ 85.00 $ 255.00

CHR-0002 Chairs-4 set 3 $ 90.00 $ 270.00

CHR-0005 Chairs - 6 set 6 $ 120.00 $ 720.00

ETB-0003 End Table 3 $ 45.00 $ 135.00

ETB-0006 End Table 4 $ 55.00 $ 220.00

MGR-0004 Magazine Rack 5 $ 15.00 $ 75.00

WNR-0001 Wine Rack 2 $ 125.00 $ 250.00

LMP-0003 Lamp 5 $ 65.00 $ 325.00

CTB-0007 Coffee Table 6 $ 90.00 $ 540.00

RCH-0001 Rocking Chair 4 $ 85.00 $ 340.00

DRS-0002 Dresser - 8 Drawer 3 $ 235.00 $ 705.00

DRS-0001 Dresser - 10 Drawer 1 $ 275.00 $ 275.00

DRS-0004 Dresser - 12 Drawer 1 $ 295.00 $ 295.00

BRM-0002 Bedroom Set 2 $ 3,250.00 $ 6,500.00

BRM-0003 Bedroom Set 1 $ 3,675.00 $ 3,675.00

HTC-0004 Hutch 4 $ 125.00 $ 500.00

Total inventory value $ 31,500.00

FIGURE 11—Merchandise Inventory Valuation: Basswood Furniture 

Basswood Furniture Project 27

Additional General Information

Cash—the Business Checking account is used for all trans -

actions (including payroll). Everything is paid for by check

with the exception of petty cash. (Petty cash is an amount of

cash that has been set aside for small purchases that you

wouldn’t write a check for, i.e., the purchase of a 50 cent

newspaper.)

Petty Cash remains at an imprest amount of $500.00. (Imprest

means the balance, once set, remains the same. The amount

of the cash plus the total of the receipts should always equal

the imprest amount.)

Accounts Receivable terms are decided on an account-byaccount basis, with the default being 2/10, n30. Each week,

the Schedule of Accounts Receivable is reviewed for collection

purposes. Ian has a good rapport with his clients, having

developed a good name for himself. Credit applications are

taken, checked, and approved by Ian before setting up an

account.

Office Supplies Inventory Valuation

November 31, 20xx

Description No. of Items Amount Total Amount

Legal Pads – 12 PK 4 $ 8.95 $ 35.80

Copy Paper – Case 4 $ 35.99 $ 143.96

Roller Pens – Dz 4 $ 12.49 $ 49.96

Wood Pencils – Dz 20 $ 1.69 $ 33.80

Permanent Marker – Dz 2 $ 6.99 $ 13.98

Correction Fluid – Dz 1 $ 1.30 $ 1.30

Highlighter – DZ 2 $ 7.99 $ 15.98

Plain Envelopes – Box 2 $ 6.99 $ 13.98

Clasp Envelopes – Box 1 $ 13.99 $ 13.99

Receipt Book 2 $ 12.24 $ 24.48

Total Inventory Value $ 347.23

FIGURE 12—Office Supplies Inventory Valuation: Basswood Furniture 

28 Basswood Furniture Project

Merchandise Inventory is the cost of furniture that has been

made and not sold yet. It’s all furniture that’s not custom

ordered. All material costs are tracked for each individual

furniture item and recorded as Merchandise Inventory. Labor

and overhead costs aren’t included in the valuation. These

are taken into account when the furniture is marked up to its

sale price. The Specific ID inventory method is used to value

the inventory. At the end of each period, a physical inventory

(specific ID) is taken for control purposes. When an item from

Merchandise Inventory is sold, the sale is recognized with a

journal entry and an additional journal entry is made to

transfer the furniture item that was sold out of Merchandise

Inventory to COGS.

However, a large portion of the business is custom-made

furniture that requires a 50% down payment, with the

remaining balance payable upon delivery (unless credit has

been extended to the client). Each custom order is assigned a

job number. Sales Revenue is recognized with each payment,

and all material costs are expensed to Purchases using that

job number.

Office Supplies Inventory consists of supplies used in the

general course of business. It uses a periodic inventory

method. At the end of each period, a physical inventory is

taken and the value of the inventory is determined. The book

value of the inventory is then adjusted to that physical

amount.

Prepaid Rent is paid at the beginning of each year in the

amount of $12,000.00 for the 12-month period.

Vehicles, Equipment, and Office Furniture and Equipment

are depreciated according to a Schedule of Depreciation

approved by or provided by Jeremy Grant. Any asset purchases will be put to one of these accounts and reported to

Jeremy at the end of each quarter. Depreciation entries are

made at the end of each period according to the schedules.

A/P is paid on time within the grace period unless otherwise

specified to take advantage of discounts. Each week, the

Schedule of Accounts Payable will be reviewed by Ian for

 payment of invoices.

Basswood Furniture Project 29

Payroll is calculated on a biweekly basis. The payment is

made on the following Friday. Due to Janet Adams leaving

the company, no accrual entry was made at the end of

November 20XX.

Federal Withholding Taxes (941 Form), which includes FWT,

Social Security, and Medicare, are paid on or before the

 fifteenth of the month for the previous month.

State Withholding Taxes and City Withholding Taxes are paid

on or before the twentieth of the month for the previous

month.

FUTA and SUTA are paid on a yearly basis, and are due on

or before the end of January of the next year.

Sales Tax is due on or before the twentieth of the month for

the previous month. Currently, no clients are tax exempt.

A client will need to provide a valid Sales Tax Exemption

Certificate to be kept on file in order for Basswood Furniture

not to charge sales tax.

Ian Smith will inform you as to when and how much capital

he will withdraw from the company.

Expense and Revenue Summary is the same as Income

Summary and is used as a wash, or pass-through, account.

(A wash or pass-through account is an account whose balance

should always be zero. In the closing process, the revenues,

expenses, and withdraw account amounts are transferred

into the expense and revenue summary account and then

immediately transferred out to the capital account, keeping

the balance in the expense and revenue summary account at

zero. The balances are “passed through” the account.)

Tips

All forms and documentation for the project are provided in

the Documents and Forms booklet. Documents will be referred

to by form number, which appears in the upper left-hand

corner of the document. An ample supply of blank forms has

been provided to complete the project. If you feel you’ve made

a mess of the books and wish to start all over but don’t have

enough blank forms, then use notebook or copy paper. The

30 Basswood Furniture Project

lines on the paper don’t matter as long as the format is correct. No additional forms will be provided. There are enough

forms to complete the project as intended. (If desired, make

copies of the blank forms and documents before beginning

the project.)

When doing math for the project, try not to use a hand-held

calculator unless you absolutely have to. Instead, use a

printer calculator, or better yet, an Excel spreadsheet. Enter

the figures to be added in one column and sum them up. Do

the same thing again in a second column. Both totals should

match. If they don’t, enter the figures a third time and sum

them up. Two out of the three totals should match. Don’t just

assume that the matching totals are correct. Go back over

the columns to see why the totals were different in the first

place.

Using a hand-held calculator and just adding up the figures

in a column one time leads to very error-prone results. Book -

keeping is designed to have debits always equal credits.

Whether the entry you made is right or wrong is irrelevant

when it comes to debits equaling credits. If you make a wrong

entry, you should have a wrong debit that’s the same as the

wrong credit. A bookkeeper who is always “off” isn’t accurate

and won’t have work for long. Therefore, use a printer calculator or Excel spreadsheet so you can see what you entered,

and run the numbers more than once.

PART B—SPECIFIC

INSTRUCTIONS

Steps for Completing the Project

The following are the specific steps for completing the project.

It’s assumed that you’ve obtained the knowledge to complete

the steps from your previous coursework. For example, when

working with the payroll steps, it’s assumed that you know

how to do payroll. (Only the data will be presented.) If you’re

not sure as to what you should do with the payroll information, go back over your lessons and workbooks relating to

payroll.

Basswood Furniture Project 31

While the instructions provided lead you step-by-step through

the process of an accounting period from start to finish, if

you’re not sure what to do next or where you are in the

process, then call and speak with an instructor. Remember,

the instructors can help with the process, but not the

specifics of the project. Instructors can’t help with what

 journal entries to make, how to make calculations, etc.

At this point, you should have read through this study unit

thoroughly, and have a good understanding of what needs to

be done to complete the project. Doing this will go a long way

towards making the project easier for you. You’re now ready

to begin.

• Fill out an Employee’s Withholding Allowance Certificate

(Form 1) for yourself. Every new employee must fill out

this form and sign it when hired to determine how much

federal withholding tax will be held from the employee’s

paycheck. For purposes of this project, on Line 3 you’ll

select “Single” for your marital status. On Line 5, you’ll

use 0 (zero) allowances. No additional amount will be

withheld on line 6.

• Create the A/R accounts in the Accounts Receivable

Subsidiary Ledger. In the Documents and Forms booklet,

locate the section of blank forms for the Accounts

Receivable Subsidiary Ledger. Write in the account

name and account number on a blank form for each A/R

account. Enter in the beginning balances for each

account. Make sure the total of the beginning balances

in the subsidiary ledger matches the balance of the A/R

account on the G/L Trial Balance.

• Do the same for the Accounts Payable Subsidiary Ledger

accounts.

• Open the G/L accounts by locating the section in the

Documents and Forms booklet, entering the account

name and account number on each blank form. Enter

the beginning balances from the G/L Trial Balance in

each account. Make sure the total of the debits for the

beginning balances in the G/L accounts matches the

total of the debits on the trial balance and that the total

of the credits matches the total of the credits on the trial

balance.

32 Basswood Furniture Project

• Enter the balance in the Cash G/L account in the

Balance Brought Forward field of the check register,

toward the end of the Documents and Forms booklet

next to Check No. 2260.

• Process the transactions for the month of December laid

out in the following section, making journal entries, posting to the G/L accounts, and completing the forms or

paperwork where necessary.

December

Thursday, December 1, 20XX

• Received a bill (Form 2) from Hemlock Gas and Electric

Co. in the amount of $137.89 on account. Make the

journal entry for receipt of the bill and post to the proper

G/L and subsidiary accounts.

• Received a bill (Form 3) from the Atlantic Telephone Co.

in the amount of $232.64 on account. Make the journal

entry for receipt of the bill and post to the proper G/L

and subsidiary accounts.

• Received Check No. 268 (Form 4) in the amount of

$7,580.00 for payment in full from Liya Designs. Make

the journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

Friday, December 2, 20XX

• Received Check No. 1231 (Form 5) in the amount of

$6,437.00 for payment in full from Yu Wei Creations.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Complete a deposit ticket (found in the Documents and

Forms booklet), dating it December 2, 20XX, and include

the checks received from Liya Designs and Yu Wei

Creations. On the back of each check, to endorse the

checks for deposit, you would write “For Deposit Only,

Account # 309921” and then take the deposit to the

FCU (Federal Credit Union) where Basswood Furniture

does its banking. (Naturally, since this is a simulation,

Basswood Furniture Project 33

you won’t actually make a deposit.) Record the amount

deposited in the Check Register. Total the amount in the

check register.

• Verify the posting of all of the journal entries to the G/L

accounts and subsidiary accounts for the week. Verify the

amount on the check register is the balance in the G/L

Cash account. Any discrepancies need to be corrected.

Monday, December 5, 20XX

• Wayne Shriver and Ian met today to discuss making custom dining room, living room, and bedroom sets. The

contract amount is for $28,500.00 (including sales tax),

to be delivered by the end of the month (December 31).

Contracts are kept by Ian. Wayne gave Ian Check No.

10178 in the amount of $14,250.00 (Form 6) for the 50%

down payment, with the remainder to be paid in full upon

delivery. This will be Job #132 for reference purposes.

The down payment will be used to cover the purchase of

the materials needed. The down payment, even though

it’s not the full amount of the sale, will be recognized as

revenue with a journal entry. (If the final payment isn’t

received, the furniture won’t be delivered and the furniture will then become merchandise inventory.)

• Received Check No. 501 (Form 7) in the amount of

$200.00 for partial payment from Sam Little. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Billie Redmond sold one wine rack to Michael’s Furniture

in the total amount of $1,325.00 on account (Form 8).

Make a journal entry to record the sale and make a

 journal entry to remove the cost of the wine rack from

inventory and put it to COGS. You should also adjust

the Merchandise Inventory Valuation whenever you make

a journal entry that affects the Merchandise Inventory

account. This acts as a check. The balance on the valuation should be the balance of the G/L account. Both

should be the same balance as the inventory valuation

when a physical inventory is done at the end of the

accounting period.

34 Basswood Furniture Project

Tuesday, December 6, 20XX

• Billie Redmond went to Tom Baker to purchase the

materials needed for the Shriver furniture (Job #132).

The total invoice amount for the purchase was $5,700.00

(Form 9). The purchase was made on account. Make the

journal entry for the purchase of the materials to the

Purchase G/L account.

• Tuesday is the day Ian likes to cut checks for payment of

A/P accounts. First thing in the morning, you print out

the Schedule of Accounts Payable and put it on his desk

so he can decide which ones he would like to have paid.

You also write on the schedule the balance that’s in the

checking account based on the amount in the check register. Today, Ian would like you to pay the balances in

the following accounts:

â Hemlock Gas and Electric Co.

â The Home Improvement Center

â Atlantic Telephone Co.

â Two Guys Hardware

â Cheryl Wood Designs

• Beginning with Check No. 2260, write consecutive

checks for each A/P account in the correct amount,

adjust the check register accordingly, and place the

checks on Ian’s desk for his signature. When he returns

the checks to you, you’ll mark the invoices as paid and

mail a copy of the invoices with the checks to the vendors. (For purposes of this project, it has been assumed

that you have the invoices making up the amounts in

the accounts and that they’re correct, even though you

don’t have the details for November 20XX.) Make the correct journal entries for payment of the accounts and post

to the proper G/L and subsidiary accounts.

Wednesday, December 7, 20XX

• Ian sold one end table for cash in the total amount of

$291.50 to Jack Williams (Form 10). Make a journal

entry to record the sale and make a journal entry to

remove the cost of the end table from inventory and

move it to COGS.

Basswood Furniture Project 35

• Betty Gable went to an office supplies store on her lunch

break with Ian’s approval and purchased a printer cartridge for the office copier using her own cash. The

purchase was in the total amount of $31.79. You’ll reimburse her from petty cash using a Petty Cash Voucher

(Form 11). Complete the voucher. (You would normally

attach the receipt to the voucher and file it in the petty

cash box and have Betty sign the voucher.) Record the

voucher on the Petty Cash Payments Record found in the

Documents and Forms booklet under the correct account.

• Received Check No. 421 (Form 12) in the amount of

$860.00 for payment in full from Donna Bigelow. Make

the journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

Thursday, December 8, 20XX

• Ian met with Janet Martinez. She signed a contract for a

custom-built table and chair to be used in her hallway.

The amount was $1176.60 (including sales tax). The furniture is to be delivered in one week. Janet paid cash in

full (Form 13). This will be Job #133 for reference purposes. Make the journal entry for the sale and post to

the proper G/L accounts.

• Billie placed an order with Everything Wood for the purchase of exotic wood for Janet Martinez. Everything

Wood faxed a copy of the invoice for approval and

acceptance (Form 14) of the invoice on account. They’ll

ship the wood overnight. Make the journal entry for the

receipt of the invoice and post to the proper G/L and

subsidiary accounts.

• Ian felt the need for a better air ventilation/dust collection system. He went over to Rocker Woodcraft to

purchase a system, taking Check No. 2265 with him.

He brought back the dust collection system and the

invoice from Rocker Woodcraft (Form 15). He wrote the

check in the amount of $750.00 as partial payment, with

the remaining to be billed to Basswood Furniture on

account. The dust collection system is an asset. Its useful life will be three years, with a residual value (salvage

value) of zero. Record the journal entry for the invoice in

36 Basswood Furniture Project

the correct G/L accounts and create a new subsidiary

ledger account for Rocker Woodcraft. Create a Schedule

of Depreciation for the asset, assuming straight-line

depreciation. (The purchase of the system is being made

on the eighth of the month. According to GAAP, because

the purchase is made before the fifteenth of the month,

the depreciation of the asset can be recognized from the

beginning of the month. Therefore, for depreciation purposes, at the end of the accounting period, you’ll recognize

one month’s worth of depreciation for December as if the

asset was purchased on the first of the month.) At the

end of the accounting period, you’ll provide Jeremy Gates

with the asset information and schedule so that he can

review it and make any changes if necessary.

Friday, December 9, 20XX

• The following time cards (Figure 13) were given to you

during the week for you to calculate the payroll for the

period ending 12/02/20XX.

Time Card

Name Ian Smith

P/E 12/2/XX

Date Hours Worked

11/21

11/22

11/23

11/24

11/25

11/28

11/29

11/30

12/1

12/2

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/2/XX

Date Hours Worked

11/21 8.0

11/22 8.0

11/23 8.0

11/24 8.0 Holiday

11/25 8.0

11/28 8.0

11/29 8.0

11/30 8.0

12/1 8.0

12/2 8.0

Total Hours 80.0

Basswood Furniture Project 37

• Complete an Employee Earnings Record for each

employee and the Payroll Register for the payroll period

using the payroll information provided to you by Ian on

the first day you went to work for him. Write a check

payable to each employee for their net pay, beginning

with Check No. 2266, and complete the attached check

register. Place the checks on Ian’s desk for his signature

and distribution to the employees. Ian will also be

informing the employees that since the next pay date is

December 23 and the business will be closed for the holiday, checks will be distributed on Monday, December 26

instead of December 23. Make and post the journal entry

for the employees’ payroll. Make and post the journal

entry to record the additional payroll expense to the

employer for the employer’s portion of Social Security,

Medicare, FUTA, and SUTA using the tax expense

account.

Time Card

Name Betty Gable

P/E 12/2/XX

Date Hours Worked

11/21 8.0

11/22 8.0

11/23 8.0

11/24 8.0 Holiday

11/25 8.0

11/28 8.0

11/29 8.0

11/30 8.0

12/1 8.0

12/2 8.0

Total Hours 80.0

Time Card

Name Yourself

P/E 12/2/XX

Date Hours Worked

11/21 0.0

11/22 0.0

11/23 0.0

11/24 0.0 Holiday

11/25 0.0

11/28 0.0

11/29 0.0

11/30 0.0

12/1 8.0

12/2 8.0

Total Hours 16.0

FIGURE 13—Period Ending 12/02/XX Time Cards: Basswood Furniture

38 Basswood Furniture Project

• Make the deposit for the week. Complete a deposit ticket

for the checks received from Wayne Shriver, Sam Little,

and Donna Bigelow, plus the cash received during the

week for cash sales. Record the amount deposited in the

Check Register. Total the amount in the check register.

• Verify the posting of all of the journal entries to the

G/L accounts and subsidiary accounts for the week.

Verify the amount on the check register is the balance

in the G/L Cash account. Any discrepancies need to be

 corrected.

Monday, December 12, 20XX

• Received Check No. 511 (Form 16) in the amount of

$225.00 for payment in full from Sam Little. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Received Check No. 42 (Form 17) in the amount of

$925.00 for payment in full from Kenny Refinishing.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Billie sold two end tables and a coffee table to Quality

Furniture in the total amount of $996.40 on account

(Form 18). Make a journal entry to record the sale and

make a journal entry to remove the cost of the furniture

from inventory and move it to COGS. Post to the G/L.

• Billie drove to Carol’s Wood Supplies and purchased on

account (Form 19) materials to build the following items

for merchandise inventory: 2 each DSK-0001 Desk and

BCS-0001 Bookcase, and 1 FLK-0001 Footlocker. Record

the items in inventory, make a journal entry for the purchase on account, and post it to the G/L.

• Ian discussed advertising and marketing with John

Powell from Powell Marketing, Inc. During the meeting,

Ian wanted you to write out a check to Powell Marketing,

Inc. in the amount of $1,325.00 for billboard advertising

during the rest of the month of December. You wrote

Check No. 2270 for that amount, using it as the invoice

and receipt. After adjusting the check register, you then

made a journal entry and posted it to the G/L.

Basswood Furniture Project 39

Tuesday, December 13, 20XX

• Tuesday is the day to cut checks for payment of A/P

accounts. You print out the Schedule of Accounts Payable

and give it to Ian so he can decide which accounts to

pay. You also write on the schedule the balance that’s in

the checking account based on the check register. Today,

Ian would like you to pay the balances in the following

accounts:

â Carol’s Wood Supplies (only the amount in the

account as of the end of November)

â Woodworker Supplies

â Everything Wood (only the amount in the account as

of the end of November)

â Wood Imaginations

• Beginning with Check No. 2271, write a check for each

account in the correct amount, adjust the check register

accordingly, and place the checks on Ian’s desk for his

signature. When he returns the checks to you, you’ll mark

the invoices as paid and mail a copy of the invoices with

the checks to the vendors. (For purposes of this project,

it has been assumed that you have the invoices making

up the amounts in the accounts and that they’re correct

even though you don’t have the details for November

20XX.) Make the correct journal entries for payment of

the accounts and post to the proper G/L and subsidiary

accounts.

• Due to the excellent performance of the company this

year, Ian has decided to give each employee a bonus of

$1,500.00 (including yourself, even though you haven’t

been with the company for very long). He has instructed

you to issue a special payroll tomorrow. (A bonus amount

is treated the same a gross pay amount.)

• Pete Schwab, a friend of Ian’s, stopped in the shop to

see Ian. On his way out, Billie helped Pete load a dining

room set into Pete’s truck. Ian presented you with a

check (Form 20) in the amount of $9,155.75 from Pete as

payment in full for the purchase of DRS-0009 Dining

40 Basswood Furniture Project

Room Set. The dining room set retails for $17,275.00;

however, Ian gave Pete a 50% discount. Make a journal

entry to record the sale (don’t forget about the discount)

and make a journal entry to remove the cost of the furniture from inventory and move it to COGS. Post the

entries to the G/L.

Wednesday, December 14, 20XX

• Prepare the payroll for the holiday bonus. (Use the biweekly Federal Withholding Chart for FWT.) Write a

check payable to each employee for their net pay, beginning with Check No. 2275, and complete the attached

check register. Place the checks on Ian’s desk for his signature and distribution to the employees. Make and post

the journal entry for the employees’ payroll. Make and

post the journal entry to record the additional payroll

expense to the employer for Social Security, Medicare,

FUTA and SUTA.

• Received Check No. 149 (Form 21) in the amount of

$125.00 for payment in full from Jim and Pearl Jones.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Clean-It-Rite cleaning service performed the monthly

cleaning of the offices and shop. Ian paid the invoice

(Form 22) with Check No. 2279 in the amount of $275.00.

Make the journal entry as a miscellaneous expense and

post the entry to the G/L.

• Delivered custom furniture for Janet Martinez on Job

#133.

Thursday, December 15, 20XX

Tomorrow, Ian is treating all employees and their families to

a holiday party. Therefore, daily work that would normally be

done tomorrow will need to be completed today.

• Federal payroll withholding taxes need to be paid by the

fifteenth of the month for the previous month’s withholdings. The federal withholding tax (commonly referred to

as the 941 Tax) consists of the FWT withheld from the

employees and FICA. It’s submitted using Form 8109.

FICA is made up of the Social Security and Medicare

Basswood Furniture Project 41

withholdings from the employees and the matching

amounts from the employer. The amount to be paid is

for the previous month—November 20XX. Look at the

entries made in the G/L accounts to determine the

amounts that need to be paid. (Don’t just look at the

 balance in the accounts. If you assume the balance of

the G/L account is the amount to be paid, you’ll be

incorrect. Most likely, the balance includes a payroll

entry for the current month along with the balance from

the previous month. Once a mistake is made, it can take

up to two years of going back and forth with the government to get the error corrected.)

• Complete Form 8109 (Form 23), writing in the amount

of the deposit and the company’s EIN number, which is

40-37462. (Form 8109 acts as a deposit slip for the tax.

When you complete the form and write the check, you’ll

take it to the bank to make the deposit—“deposit” in this

case meaning a withdrawal from your checking account

and deposit into the government’s account.) Color in the

tilted oval next to “941” as the Type of Tax and the quarter that the tax period pertains to (November is in the

fourth quarter). Write Check No. 2280, payable to “U.S.

Treasury,” for the amount to be deposited. Be sure to

write the EIN, type of tax, and tax period on the check.

This deposit must be stamped by the fifteenth of the

month. This is a high priority, since today is the fifteenth.

Waiting until tomorrow will incur substantial penalties

and interest.

• Make the bank deposit, including the checks and/or

cash received during the week. Record the amount

deposited in the Check Register. Total the amount in the

check register.

• Pennsylvania Sales Tax is to be remitted to the state by

the twentieth of every month in the amount collected for

the previous month—in this case, November 20XX. Just

as you did with remitting the federal payroll taxes for the

previous month, you need to look at the entries in the

G/L account and determine the total amount that was

collected for the month of November. Complete the PA

Dept. of Revenue Sales Tax Collection Bureau form

42 Basswood Furniture Project

(Form 24). Use it to make the journal entry and post the

entry to the G/L. Payment of the sales tax will be done

electronically through the government’s Web site. In the

checkbook, void Check No. 2281 and complete the

check register showing the payment to the “PA Dept. of

Revenue—ETF” for the amount of the remittance. (ETF

stand for “Electronic Transfer Funds.”)

• Verify the posting of all of the journal entries to the G/L

accounts and subsidiary accounts for the week. Verify

that the amount on the check register is the balance in

the G/L Cash account. Any discrepancies need to be

 corrected.

Friday, December 16, 20XX

The holiday party was wonderful. The only work required for

the day is to reimburse Ian $187.50 for the receipts he provided you for having the party catered, out of petty cash.

• Create a petty cash voucher (Form 25) and make the

entry to the Petty Cash Payments Record.

December 19–23, 20XX

The business is closed for the week before Christmas.

Monday, December 26, 20XX

• The following time cards (Figure 14) were given to you

during the week for you to calculate the payroll for the

period ending 12/16/20XX.

• Complete an Employee Earnings Record and the Payroll

Register for the payroll period ending 12/16/XX. Write a

check payable to each employee for their net pay, beginning with Check No. 2282, and complete the attached

check register. Place the checks on Ian’s desk for his signature and distribution to the employees. Make and post

the journal and the additional payroll tax expense to the

employer.

Basswood Furniture Project 43

Time Card

Name Ian Smith

P/E 12/16/XX

Date Hours Worked

12/5

12/6

12/7

12/8

12/9

12/12

12/13

12/14

12/15

12/16

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 8.0

12/13 8.0

12/14 8.0

12/15 8.0

12/16 8.0

Total Hours 80.0

Time Card

Name Betty Gable

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 4.0

12/13 4.0

12/14 4.0

12/15 4.0

12/16 8.0

Total Hours 64.0

Time Card

Name Yourself

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 8.0

12/13 8.0

12/14 8.0

12/15 8.0

12/16 8.0

Total Hours 80.0

FIGURE 14—Period Ending 12/16/XX Time Cards: Basswood Furniture

44 Basswood Furniture Project

• Ian met with Fran Ogilvy from The Capitol Media Group,

Inc. about television advertising for the next quarter,

January 1 through March 31, 20XX. Ian wrote Check

No. 2286 in the amount of $8,725.00 to The Capitol

Media Group, Inc. in payment of the invoice (Form 26)

for the prepaid advertising. You’ll need to create a new

G/L account #145 for Prepaid Advertising. Journalize

and post the entry, completing the check register.

• Reimburse the petty cash by writing Check No. 2287

for the total amount of the receipts in the Petty Cash

Payments Record, making the check payable to “Cash.”

Journalize the entry from the Petty Cash Payments Record

and post it to the G/L accounts. Cash the check at the

FCU and replenish the cash in the petty cash box. The

amount of cash in the box should be the imprest amount.

Tuesday, December 27, 20XX

• Print out the Schedule of Accounts Payable and give it to

Ian so he can decide which accounts to pay. You also

write on the schedule the balance that’s in the checking

account based on the check register. Ian has decided not

to pay any of the A/P this week.

• Received Check No. 631 (Form 27) in the amount of

$1,234.00 for payment in full from Elizabeth Dante.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Received Check No. 11304 (Form 28) in the amount of

$350.00 for payment in full from The Antique Shoppe.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

Wednesday, December 28, 20XX

• Received Check No. 172 (Form 29) in the amount of

$50.00 for payment in full from Andy Mellow. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Delivered the custom furniture to Wayne Shriver for

Job #132 (Form 30). Received payment for the invoice

(Form 31) with Check No. 10769 in the amount of

Basswood Furniture Project 45

$14,250.00. Since the down payment was already

received and a journal entry already made to recognize

that portion of the sale, make the journal entry for receipt

of the check and post to the proper G/L accounts.

• Ian wishes to make a withdrawal from his capital account.

He presents you with a memo (Form 32) for the withdrawal. You make Check No. 2288 payable to Ian Smith

in the amount of $5,000.00 and use the memo to create

and post the journal entry to the G/L.

Thursday, December 29, 20XX

• Liya Adams from Liya Designs stopped by the store to

return an end table. The cost to make the custom-built

end table was $150.00. This end table will be added to

Merchandise Inventory as Item No. ETB-0012. Ian agreed

to issue her a credit memorandum (Form 33) and she

agreed that the credit could be put on her account. Make

the journal entry for the credit memorandum and post to

the proper G/L and subsidiary accounts.

Note: This can be a difficult entry to make. You need to

think through the transactions and the journal entries

made to be able to come up with the correct journal

entry. This is where using T-accounts as a tool helps.

First, a sale was made that was on account. The cost of

the materials for the custom-built furniture was paid for

with a check and put against purchases to have the

expenses match the revenues. These transactions

occurred in November. The accounting period was closed

and the profit transferred to the capital account. Then in

December, the receivable was paid for with a check. Now

the item is being returned and being entered into inventory. Instead of a check or cash, a credit to her account

is being given.

Friday, December 30, 20XX

Today is the last working day in the accounting period.

Therefore, there are a few things that need to be done to be

able to close out the accounting period. 

46 Basswood Furniture Project

Note: For most businesses, the tasks will be similar. For

example, physical inventories need to taken. However, each

business will have its own set of tasks that will need to be

done. Also, just because it’s the last day of the month doesn’t

mean that the financial statements for the period end will be

completed on that day. They’ll usually be completed sometime into the next period, depending upon the size of the

business and the amount of work involved.

• You inform Betty that she needs to take a physical

inventory of all the merchandise that’s on hand, including the item number, a description of the item, and how

many of the item are physically present. When she

returns the form with the inventory, you’ll extend the

costs of the merchandise and use it as your merchandise

inventory valuation. This amount should be the same

amount as the balance in the Merchandise Inventory

account in the G/L. If it’s not the same, the discrepancy

must be looked into and a correction made.

Note: The reason Betty, the secretary, is taking the

inventory is for control purposes. If Billie takes the

inventory, it’s too easy for her to put down the quantity

of an item as, say, six, when only five are physically

there because she stole one. This is only one small part

of the control systems that accountants learn when getting their education.

• You inform Billie that she needs to take a physical inventory of all of the office supplies that are on hand. When

she returns the form with the inventory, you’ll extend the

costs of the office supplies and use it as your office supplies valuation.

• The following time cards (Figure 15) were given to you

during the week for you to calculate the payroll for the

period ending 12/30/20XX. Since the employees won’t

be paid for the pay period ending 12/30/20XX until

January 6, 20XX, this information will be needed to make

a payroll accrual adjusting entry when creating the

financial statements and closing out the accounting

period.

Basswood Furniture Project 47

Time Card

Name Ian Smith

P/E 12/30/XX

Date Hours Worked

12/19

12/20

12/21

12/22

12/23

12/26

12/27

12/28

12/29

12/30

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

Time Card

Name Betty Gable

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

Time Card

Name Yourself

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

FIGURE 15—Period Ending 12/30/XX Time Cards: Basswood Furniture

48 Basswood Furniture Project

• Make the bank deposit. Record the amount deposited

in the Check Register. Total the amount in the check

register.

• Verify the posting of all of the journal entries to the

G/L accounts and subsidiary accounts for the week.

Verify the amount on the check register is the balance

in the G/L Cash account. Any discrepancies need to be

 corrected.

January

Monday, January 2, 20XX

You’ll begin to close out the end of the accounting period for

December. To do this you’ll be using the blank forms in the

Documents and Forms booklet. You’ll use the Worksheet

and then use the forms provided for creating the financial

statements.

• On Friday, December 30, you should have made sure

that you posted all the entries in your journal to the G/L

accounts. If this hasn’t been done, then you must do it

now. Once done, total the balances in the G/L accounts.

• Create a 10-column Worksheet. (Review the study guide

Financial Reports along with the associated accounting

practices in the workbook for completing the Worksheet

if you’re unsure as to what you need to do.) The first two

columns should be labeled Trial Balance. The next two

should be labeled Adjustments. The next are Adjusted

Trial Balance, Income Statement, and Balance Sheet.

Each set of columns will have a debit and a credit column. Down the left side of the worksheet list all the G/L

accounts and put their balances in the appropriate debit

or credit column under Trial Balance. These are your

Pre-Adjusted Trial Balance figures. Foot (total) the debit

column and credit column. Your debits must equal your

credits.

Basswood Furniture Project 49

If your debits don’t equal your credits, then you’ve made a

technical error somewhere. This error must be corrected

before you can go any further. Often this is just a math error.

(This is why it was suggested you use a printer calculator or

Excel spreadsheet, to help you find math errors.) Subtract

the two totals and come up with a figure. Then scan your

work, looking through the journals and the general ledger

accounts to see where the mistake may be.

Note: You should not start the project over. This is a waste of

time, and can lead to further errors. If the error can’t be

found by carefully looking over your work, then follow the

procedure laid out below.

50 Basswood Furniture Project

Debits Equaling Credits Error Detection Procedure

It’s important to realize that debits not equaling credits has nothing to do with whether the

journal entries made are right or wrong. As an example, let’s say you pay rent in the amount

of $1,100.00. The entry for this should be a debit to Rent Expense for $1,100.00 and a credit

to Cash for $1,100.00. However, for whatever reason, the journal entry made is a debit to Rent

Expense for $1,010.00 and the credit to Cash for $1,010.00. While this entry is wrong because

it should be for $1,100.00, that’s irrelevant. The debit of $1,010.00 is equal to the credit of

$1,010.00. Debits equaling credits is purely a mechanical/technical issue unrelated to the

 correctness of the journal entry made. Therefore, focus on the numbers while following these

steps:

 1. Get several different-colored highlighters and make a copy of the journals.

 2. Set the original journals aside. You’ll use them only to make the correction when you’ve

found a mistake.

 3. Look at each journal entry. Look to see that the first entry has a debit equal to the

amount of the credit. If they’re the same or equal for a multiple-line entry, take a yellow

highlighter and highlight those numbers. Continue doing this for each and every journal

entry. When you come across a journal entry that has multiple line items, such as the

payroll entry, do the math several times when adding up the debit or credit. Do each and

every journal entry this way. Don’t just add up the debits on the page and the credits on

the page to see that they equal. You need to look at each journal entry.

 4. If you find an error, correct the original copy of the journal and the associated G/L

account. If the error is in the amount that makes your debits equal your credits, then

you’re finished. If not, then you must continue on. Remember, just like a bank reconciliation, if you’re off by some amount there may be multiple errors that net out to that

amount. Therefore, if you’re still off, keep looking.

 5. If you’ve gone through all of the journals and have highlighted all the journal entries but

haven’t found the error, then you’ll need to make a copy of the General Ledger. Put the

original aside.

 6. Using the copy of the highlighted journals and the copy of the G/L, take a different colored highlighter and begin checking the posting of the journal entries to the G/L accounts.

 7. This time, you’re not looking at each entry. Instead, you’re looking at each line item of

each entry. Look at your first journal entry and the first line item, which should be a debit

(it should be a debit because when making correct journal entries, the debits are listed

first before the credits) and look at the G/L account to which it was posted. Is it on the

debit side of the account? Is it the same exact number? If the answer to these two questions is yes, then highlight the number in the journal and the number in the ledger

signifying that it’s correct. Go through each and every line item in each and every journal

entry, highlighting when the posting is correct.

(Continued)

Basswood Furniture Project 51

Debits Equaling Credits Error Detection Procedure—Continued

 8. If an error is found, correct it on the original. Again, if the correction brings the total

debits back in line to equal your credits, you should be finished. If not, you must keep

looking.

 9. If you highlight all of the journal entries and their associated postings to the G/L accounts

and haven’t found the error, it’s time to do the math to get the balances in the G/L

accounts. In a G/L account, add up the debits several times. Add up the credits several

times. Subtract one from the other, giving you a balance. Whichever total figure was

greater, the debit or the credit, the balance goes on the greater side. If the balance is

correct, then place a checkmark next to the figure. If an error was made, correct it on the

original copy of the G/L.

10. If no error to the balances of the G/L accounts has been found, make a copy of the

Worksheet and set the original aside. Get out another colored highlighter and begin with

the first G/L account. Verify that the balance of the debit or the credit has been transferred to the Worksheet correctly—that is, it’s on the correct debit or credit side and in

the correct amount. If so, then highlight the G/L account balance and the figure on the

Worksheet. If not, make the correction on the original. If the correction brings the total

debits back in line to equal your credits, you’re finished. If not, you must continue.

11. If you’ve highlighted all of the figures on the Worksheet, the last thing to do is to foot the

debits and credits on the Worksheet several times for accuracy. The total amounts should

be equal.

12. If you focus and follow this procedure, you should be able to find the error or errors and

correct them.

Sometimes, you can get to the end of this procedure and still have your debits not equal the

credits. If this happens, then you not only made an error when you were originally doing the

books, but you also then made an error somewhere in doing the procedure and you should go

back through it again, making fresh copies of the original books.

There’s no excuse for the debits not equaling the credits. This is the fundamental, underpinning

rule of bookkeeping. Debits equaling credits goes a long way toward preventing “cooking the

books.” It’s the foundation of financial statements and the basis of the accounting equation.

The accounting equation is found on the Balance Sheet, and if it doesn’t balance, something is

wrong and the statement has no credibility. If the financial statements are fudged to bring

them into balance, this opens up the company to legal liabilities. 

52 Basswood Furniture Project

• Assuming that the debits equal the credits in the Trial

Balance columns of the Worksheet, making adjusting/

correcting entries is the next step in the process of

 closing out the period. In the workplace it’s usually the

controller/accountant who handles the worksheet, making the adjusting journal entries, creating the financial

statements, and making the entries to close out the

accounting period. You’re doing these procedures to

become familiar with the process. It’s also possible that

the company will need financial statements for its own

internal use. Instead of paying a CPA to create financial

statements that will never be seen outside the company,

they’ll look to you (especially if you’re a full-charge bookkeeper), to create those financial statements.

• To make adjustments, look at each G/L account to make

sure it’s correct. You start at the top of the Trial Balance

and work your way down, account by account. If an

adjusting entry does need to be made, it should be dated

on the last day of the period (12/31/XX for the project)

to have it go into the correct accounting period.

â Is the G/L Cash—Business Checking account balance the same as the Check Register? If not, an

adjusting entry might need to be made to correct

the discrepancy.

The reason for the word “might” is because the

Check Register must be reconciled to the Bank

Statement for the period. In the workplace, you

would do a bank reconciliation and make adjusting

entries for things like service charges, NSF charges,

errors in amounts, etc. However, for this project,

we’re assuming that the balance in the Check

Register is the same balance on the Bank Statement

and no adjusting entry is needed if your G/L Cash

account has the same balance as the Check Register.

If not, then an entry would need to be made to

 correct the error. What you don’t do is go back and

change the incorrect entry. Instead, you should

make the adjusting entry with an explanation of the

error and what this adjusting journal entry is doing

Basswood Furniture Project 53

to correct it. This is what you do whenever you’re

correcting an error. You never just go back and

change the original entry. Doing this violates GAAP.

â Is the Petty Cash imprest amount $500.00? If yes,

then no adjusting entry needs to be made.

â Create an Accounts Receivable Subsidiary Ledger

Trial Balance. This is nothing more than a listing of

the A/R accounts and the balances in those accounts

with a total amount, similar to a G/L Trial Balance

(T/B). (The same will be done for the Accounts

Payable Subsidiary Ledger and G/L A/P account.) Are

the balances in the Accounts Receivable Subsidiary

Ledger Accounts correct? If not, then the error needs

to be found and an adjustment made. If yes, is the

total balance of the Subsidiary Ledger the same as

the balance in the G/L A/R account? If so, then no

adjusting entry needs to be made. If not, then the

error needs to be found and an adjustment made.

â Extend the value (calculate the total amount) of

the Merchandise Inventory from the physical inventory Betty gave you as the Merchandise Inventory

Valuation. This amount should be the same as the

amount in the G/L Merchandise Inventory account.

If not, an adjustment should be made. Note: Before

making that adjusting entry, go back over the transactions for the month and look at those that affected

Merchandise Inventory. At the beginning of the

period, the amount in the G/L account was the

same as the physical inventory at the end of the

accounting period in November. Therefore, whenever

an item was taken out of or put into the physical

inventory, a journal entry should have been made to

Merchandise Inventory. The balance in the account

should have always matched the physical inventory

because Basswood Furniture uses the specific ID

method of inventory. (Specific ID is used when you

can specifically account for each item. For example,

in a car lot that has 10 cars in inventory, you know

each specific car’s VIN. When the 2011 Cadillac gets

sold, you know exactly which one should be removed

54 Basswood Furniture Project

from inventory and its cost. It’s not useful for something like keeping an inventory of M&Ms. How do

you know which bag is sold or stolen?)

â Extend the value of the Office Supplies Inventory

from the physical inventory Billie gave you. The

Office Supplies Inventory Valuation comes to

$178.46. (You’re not being given the specific breakdown of the physical inventory. You’ll just use the

figure of $178.46 as the value of the physical inventory. You don’t need to create the Office Supplies

Inventory Valuation for the project.) Adjust the

Office Supplies Inventory to the correct amount.

â Rent was prepaid at the beginning of the year.

Using the information provided to you when you first

started working, make an adjustment to the Prepaid

Rent.

â Does an adjusting entry need to be made for Prepaid

Advertising, and if so how much?

â The Vehicles account should be the same because

there were no new purchases. However, an adjusting

entry for depreciation needs to be made in the Accum.

Depr.—Vehicles account. Take the figure from the

Schedule of Depreciation.

â The air ventilation/dust collection system was purchased. Make sure the balance in the Equipment

account is correct and make the adjusting entry for

depreciation in the Accum. Depr.—Equipment

account. Take the figures from the Schedule of

Depreciation.

â The Office Furniture and Equipment account should

be the same because there were no new purchases.

However, the adjusting entry for depreciation needs

to be made in the Accum. Depr.—Office Furniture

and Equipment account. Take the figures from the

Schedule of Depreciation.

â Verify the balance in the Accounts Payable

Subsidiary Ledger with the balance in the G/L A/P

account the same way that you did with the G/L A/R.

Basswood Furniture Project 55

â On Friday, you received the time cards for the P/E

12/30/XX. Since the next pay date isn’t until

01/06/XX an adjusting journal entry needs to be

made in the Payroll account to get the payroll into

the correct accounting period. Calculate and make

the adjusting accrued payroll entry. (Note: Once this

accounting period is closed, additional journal entries

would need to be made reversing the accrual entries

for payroll. If the reversing entries aren’t made, then

when you calculate and pay the payroll on 01/06/XX,

you’ll be making entries to the G/L accounts twice.)

â Go through the rest of the G/L Accounts looking at

the detail in each account to see if anything unusual

strikes you from what you know about each account.

If any errors are found, an adjusting entry should be

made.

Note: When you’re making an adjusting entry, you’re

making a journal entry in a journal. The amount

(debit or credit) for those accounts are also entered

in the adjustment columns of the Worksheet. When

all of the adjustments have been journalized and the

amounts are on the Worksheet, foot the debit column

and the credit column. On the Worksheet at this

point, the debits should equal the credits in the Trial

Balance columns and the Adjustment columns.

• Once all the adjusting entries have been journalized,

post the entries to the G/L accounts on the books.

Create a new Trial Balance. This is called the Adjusted

Trial Balance.

• On the Worksheet, do the math for the Adjusted Trial

Balance column. For example, in the Cash—Business

Checking account, total the debits and total the credits

from the Trial Balance and Adjustment columns. Subtract

one from the other and enter the amount in the Adjusted

Trial Balance column. Do this for each G/L account and

then foot the debit and credit columns. The debits must

equal the credits.

56 Basswood Furniture Project

• Compare the Adjusted Trial Balance with the Adjusted

Trial Balance columns on the Worksheet. They should be

the same. If not, find the error and correct it.

Note: You’re doing this because the accountant works on

the Worksheet. He or she writes down the adjustments

that need to be made as journal entries and hands them

to you to enter and post to the books. You’re taking care

of the books; the accountant is taking care of the Work -

sheet. If you make an error in entering and posting the

journal entries, then the books aren’t correct based on

what the accountant has on the Worksheet. Conversely,

you, the bookkeeper, may make and post the journal

entries correctly. However, the accountant can make a

math error on the Worksheet. Doing it this way provides

a check so the information is accurate.

• If the Adjusted Trial Balance and the Worksheet are in

agreement, then extend the account balance to the proper

Balance Sheet or Income Statement columns on the

Worksheet. Foot the debit and credit columns for each.

When doing this, the debits and credits won’t be equal in

the Income Statement or Balance Sheet columns. The

Balance Sheet will be “off” by the profit or loss from the

Income Statement. (The accounting equation is found on

the Balance Sheet. When you make journal entries, as

long as they only affect the accounting equation accounts,

the Balance Sheet would be in balance. As soon as a

journal entry is made to a revenue or expense account,

the accounting equation is out of balance. If the accounting equation is out of balance, the Balance Sheet is out

of balance. This is why the debits don’t equal the credits

when you transfer the figures over to their respective

columns. This is also why we must make closing journal

entries at the end of the accounting period—to bring the

Balance Sheet back into balance.)

• At the bottom of the Income Statement columns, subtract

the debit from the credit. This amount is the profit/loss.

Obviously, if the credit is larger than the debit, then

there’s a profit. If the debit is larger than the credit,

Basswood Furniture Project 57

there’s a loss. To have the debits equal the credits, you’ll

need to place the amount of the difference under the column with the smaller figure. (What you’re doing here is

representing your closing journal entries, when you’ll

move the profit/loss to the capital accounts.) Whichever

column you entered that amount to (debit or credit)

you’ll make the opposite entry under the Balance Sheet

columns. For example, if your credit is greater than your

debits by $500, then you have a profit of $500. To represent the closing entries, which bring the accounting

equation back into balance, and to bring the Income

Statement and Balance Sheet debits and credits back

into balance, you’ll need to enter the $500 on the Income

Statement debit side and the Balance Sheet credit side.

Foot the columns. The debits should equal the credits for

both the Income Statement and Balance Sheet columns.

(Note: If necessary, review the Financial Reports study

guide and workbook accounting practices covering the

Worksheet.)

• The Worksheet is complete. All that remains to do is to

create the Income Statement, make and post closing

journal entries, and create the Balance Sheet.

• Ian has copies of the Balance Sheet and Income

Statements (Figures 16 and 17) in a Microsoft Word file

from the quarter ending September 20XX.

Create an Income Statement for the period ending

December 31, 20XX using MS Word. (You should use the

financial statements shown in Figures 16 and 17 as a template to create the new financial statements. However, that

doesn’t mean you should copy them. There might have been

changes over the course of the accounting period that would

need to be taken into consideration when creating the new

financial statements.)

• Make closing journal entries (dating them the last day

of the accounting period) and post them to the G/L

accounts. (Look back in your program materials if you’re

unsure how to make closing entries.)

58 Basswood Furniture Project

BASSWOOD FURNITURE

BALANCE SHEET

As of September 30, 20XX

ASSETS

Cash – Business Checking $ 14,111.96

Petty Cash 500.00

Accounts Receivable 2,350.00

Merchandise Inventory 19,425.00

Office Supplies Inventory 168.36

Prepaid Rent 3,000.00

Vehicles $ 48,000.00

Less: Accum. Depr. – Vehicles 6,333.28 41,666.72

Equipment 23,500.80

Less: Accum. Depr. – Equipment 5,875.20 17,625.60

Office Furniture & Equipment 6,125.04

Less Accum. Depr. – Office Furniture & Equipment 1,531.26 4,593.78

TOTAL ASSETS $ 103,441.42

LIABILITIES

Accounts Payable $ 2,396.33

Payroll Payable —

Federal Income Tax Payable 584.82

Social Security Tax Payable 508.23

Medicare Tax Payable 118.86

State Income Tax Payable 251.66

City Income Tax Payable 81.97

FUTA Tax Payable 850.95

SUTA Tax Payable 5,743.94

Sales Tax Payable 3,247.50

TOTAL LIABILITIES 13,784.26

OWNER’S EQUITY

Ian Smith, Capital 89,657.16

TOTAL OWNER’S EQUITY 89,657.16

TOTAL LAIBITLITIES AND OWNER’S EQUITY $ 103,441.42

FIGURE 16—Balance Sheet for the Third Quarter: Basswood Furniture 

Basswood Furniture Project 59

BASSWOOD FURNITURE

INCOME STATEMENT

For the Period Ending September 30, 20XX

REVENUES

Sales Revenue $ 54,125.00

Less: Sales Returns and Allowances —

Less: Sales Discounts 1,250.00

Net Sales $ 52,875.00

COGS - Cost of Goods Sold 3,275.00

Purchases 7,550.00

Less: Purchase Returns and Allowances 325.00

Less: Purchase Discounts —

Net Purchases 7,225.00

GROSS PROFIT 42,375.00

SELLING AND ADMINISTRATIVE EXPENSES

Payroll Expense $ 5,860.00

Payroll Tax Expense 436.57

Advertising Expense 16,450.00

Rent Expense 1,000.00

Office Supplies Expense 68.95

Telephone Expense 154.00

Utilities Expense 317.64

Supplies Expense 75.14

Miscellaneous Expense 68.23

Depreciation Expense 1,614.60

Cash Short and Over 20.00

TOTAL SELLING & ADMIN EXPENSES 26,065.13

NET PROFIT/LOSS $ 16,309.87

FIGURE 17—Income Statement for the Third Quarter: Basswood Furniture 

60 Basswood Furniture Project

• Create a Post-Closing Trial Balance. (This is a G/L Trial

Balance after you make and post the closing entries.)

Compare the balances on the Trial Balance with the

 figures in the Balance Sheet column of the Worksheet.

Remember, the closing entries change the balances of

the equity accounts. You had previously simulated the

closing entries on the Worksheet to account for this.

• Create the Balance Sheet as of December 31, 20XX from

the Post-Closing Trial Balance

Note: At this point, you’re finished closing the accounting

period and would set up the books for the next accounting period. You don’t need to do that for this project.

You’ve now finished all the steps of the project. All that’s

left is to double-check your work and submit the project.

Formatting Financial Statements

The formatting of financial statements is very important.

These are professional documents. They reflect the image,

mindset, and character of the business. Poorly formatted

statements make the reader wonder: If the business can’t pay

attention to something as simple as typing and formatting,

then how is it going to perform in business relationships?

Will it care enough to correct mistakes? Will it even pay

attention when creating the product or performing the service

in the first place? Capital investors won’t invest in a business

if the financials are poorly formatted. Unless the annual

reports and other financials look sharp, they won’t even look

at the information. If the annual report of a big business like

Apple, Microsoft, Caterpillar, or Deere contains even one

small typographical error, they’ll scrap the whole printing job,

costing thousands of dollars, and reprint the documents so

they’re top quality and accurate.

GAAP sets the standard for the creation and presentation of

financial information to which all businesses must conform.

Otherwise, two automobile dealerships on opposite sides of

the street would have two completely different-looking sets of

financial statements. Anyone looking at them wouldn’t be

Basswood Furniture Project 61

able to understand or analyze the information presented, let

alone use them for comparison purposes. This could potentially create legal liabilities.

Financial statements are created for either internal or external use. When the financial statements are intended to be

used outside the business, they’re referred to as Classified—a

very important designation. These must follow GAAP strictly.

When the financial statements are created only for use within

the company, they’re created following GAAP, but liberties

can be taken to make the analysis of the statements easier

for the company’s needs, since no one outside the business

will see them. Because the statements stay within the company, their appearance isn’t as important as clarity.

An important part of GAAP is the presentation of the financial information. The following elements are important for

creating the proper format:

 1. Headings and subheadings

 2. Account names and descriptions

 3. Spacing

 4. Number of columns

 5. Indentations

 6. Underlining and double underlining

 7. Dollar signs

Headings

Every page of every financial statement should have the

proper heading, which consists of the business name, the

type of financial statement, and the date. The Balance Sheet

is dated “As of” a specific date because it reflects the financial

position of the company from its inception up to that specific

date. The Income Statement is dated “For the Period Ending”

a date because it reflects the balances in the accounts for an

accounting period.

62 Basswood Furniture Project

Account Names and Descriptions

Financial statements contain various sections and sub sections

that should be labeled with the appropriate subheadings.

Account names and descriptions should closely mimic the

General Ledger account names. However, descriptions such

as “Net” and “Total” should be used where appropriate.

Spacing

The statements should continue on down to the bottom of

the page before being continued onto the next page. There

should not be a break toward the end of a page just because

the sectioning of the statement would seem to fit better on

the next page. For example, leaving the bottom of the Assets

page blank because the Liabilities and Owner’s Equity sections seem to fit better on a separate page is incorrect. The

blank lines at the bottom of the page indicate that there’s

information missing. Continue to the bottom of the page and

then start a new page, or else resize the information to

include it all on the same page. If the financial statement has

only one page, no number is needed. If there’s more than one

page, the pages should be designated as “Page X of Y” on the

top or bottom of the page.

Columns

Financial statements can be created in two different formats:

 1. Single-step format

 2. Multi-step format

This project requires that you create the Balance Sheet and

Income Statement in the multi-step format, which is the most

commonly used. The multi-step format is created when the

mathematical calculations use multiple columns.

Indentation

Indentation is an important part of formatting. Whenever

there’s a new calculation or a new section on a financial

statement, indentation of the account names and

Basswood Furniture Project 63

 descriptions can occur. This format allows for a better visual

understanding of the calculations and sections of the financial statements.

Underlining and Double Underlining

Underlining is used whenever a mathematical calculation is

performed. Double underlining is used whenever a final calculation has been performed; it indicates that there’s no

further operation to occur using that number.

The Balance Sheet represents the accounting equation.

When working with the Assets section of the statement, Total

Assets is the last calculation to be performed and, therefore,

should have a double underline underneath it. The absence

of a double underline would indicate that the Total Assets

should be added to the Total Liabilities and Total Owner’s

Equity, which is incorrect. Conversely, Total Liabilities is not

a final calculation, because it’s going to be added to the Total

Owner’s Equity. Therefore there should not be a single or

double underline under Total Liabilities. A single underline

should be used under the Total Owner’s Equity because a

mathematical calculation is going to be performed with it

using the Total Liability figure. A double underline will be used

under the Total Liabilities plus Total Owner’s Equity calculation because this signifies the final result of a calculation.

Dollar Signs

Dollar signs should be included at the beginning and end of

every calculation.

Pitfalls of Poor Formatting

When formatting elements such as underlines and double

underlines aren’t used properly, someone who knows how to

read financial statements using GAAP could misinterpret the

financial statements and make incorrect business decisions

based upon the information and formatting that was provided. When incorrect assumptions are made from classified

statements, it’s possible for the person using the statements

to have legal recourse against the business for financial data

64 Basswood Furniture Project

misrepresentation. This is why all businesses should have

either a trained accountant or CPA create classified financial

statements.

PART C—GRADING PROCEDURE

The following guidelines will be used for grading the project.

There are two components for grading the financial statements submitted:

• Format—the way the statements look

• Content—the actual numbers on the financial statements. These numbers can be the balances that are in

the G/L accounts or they can be figures derived from

mathematical calculations.

When the project is submitted for grading, the financial

 statements will be inspected for proper formatting. If the

statements aren’t in the proper format (i.e., they don’t meet

the basic standards as discussed previously and don’t conform to the presentation of financial statements for Basswood

Furniture), the project will be returned as not graded to allow

you to correct the formatting. If there are only a few minor

formatting infractions (a minor infraction is something like

missing an underline or double underline), the project will

be graded and small point deductions will be taken. It’s

understood that you’re a student, and you’re still in a learning process. However, you’re learning what’s expected in the

business world and must therefore comply with those

 standards.

If the financial statements are found to have too many minor

formatting infractions, or a major infraction such as using

single-step instead of multi-step formatting, the project will

be returned ungraded. Returning the project as not graded

indicates that it most likely would have received a failing

Basswood Furniture Project 65

grade, and provides an opportunity to correct gross errors.

Only one resubmission due to improper formatting will be

allowed. The resubmission will be graded as is.

The project will be graded primarily on content, with additional points deducted for formatting infractions. The project

is worth 100 points. Grading will be done as follows:

• Balance Sheet (Subtotal = 56 points)

â Content (46 points)

â Format (10 points)

• Income Statement (Subtotal = 44 points)

â Content (36 points)

â Format (8 points)

If the project is graded and a failing grade of less than 70 is

given, the project will be returned. It will need to be reworked

and resubmitted to complete the project and bookkeeping

program.

Note: Don’t wait until the last minute to complete and submit

the project. You may wind up rushing through it to get it

submitted before your program’s expiration date. By planning

ahead and taking the time necessary to focus on what you’re

doing, you decrease stress and give yourself the best chance

of success.

Submitting Your Work

The preferred and fastest way for the project to be graded is

by submitting your work online. Create your Balance Sheet

and Income Statement in a Word document and save it to

your computer. Submit your graded project online by uploading the finished copy of the Word file to the school. The name

of the file should be your student number followed by an

underscore and then the number for this exam. For example,

the file name could be 65394112_390907.doc (or .docx).

Grading can take up to one week depending upon instructor

workload.

66 Basswood Furniture Project

Follow these steps to submit your project file:

 1. Go to http:www.pennfoster.edu and log in.

 2. Go to Student Portal.

 3. Click on the Take Exam button next to this lesson.

 4. Enter your e-mail address in the box provided. (Note:

This information is required for online submissions.)

 5. Upload a copy of the completed file as follows:

 a. Click on the Browse box.

 b.Locate your finished copy of the MS Word file.

 c. Double-click on the file.

 d.Click on Upload File.

 e. If you ever have more than one file to attach in a

project submission, repeat steps a-d.

 6. Click on Submit Files.

While submitting the graded project online is the preferred

method, you can also submit your project by mail using the

Answer Sheet on the next page. Cut out the Answer Sheet,

filling it in with your name and student ID number. Mail it

with your Balance Sheet and Income Statement to the

address at the bottom of the Answer Sheet. It’s suggested

that you send the project “signature requested” to ensure

that it’s signed for by someone at Penn Foster. This way you

know when it’s received, and that it hasn’t been lost in the

mail. Grading a project submitted by mail will take at least

two weeks from the time it’s received at Penn Foster, depending upon instructor workload.

Whichever way you submit your project, be sure to keep a

backup copy for yourself.

NAME ________________________________________________________________

ADDRESS ________________________________________________________________

CITY ________________________________________________________________

p Check if this is a new address

PHONE

PLEASE PRINT

—

FOR YOUR INSTRUCTOR’S USE

GRADE GRADED BY

ANSWER SHEET

STUDENT NUMBER:

STATE/PROVINCE ZIP/POSTAL CODE

EXAMINATION NUMBER 39090700

Basswood Furniture Project

Bookkeeping

CUT ALONG THIS LINE

Only the Answer Sheet, Balance Sheet, and Income Statement are to be submitted for grading.

Write your name and student number on each page of your examination, and fill out the top half of

this answer sheet. Then, submit your financial statements with this answer sheet to the school for

grading.

Points will be given as follows for properly formatted statements:

Balance Sheet (Subtotal = 56 points)

 Content (46 points) ____________

 Format (10 points) ____________

Income Statement (Subtotal = 44 points)

 Content (36 points) ____________

 Format (8 points) ____________

TOTAL POINTS ____________

Mail to

Penn Foster

Student Service Center

925 Oak Street

Scranton, PA 18515 /LocalState/Files/S0/1873/Attachments/390907[7030].pdf

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 furniture 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 intimately 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 impression 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.

6 Basswood Furniture Project

may have. This, coupled with your bookkeeping skills, make

Ian confident that you’ll be able to perform well in the position 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.

Basswood Furniture Project 7

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 developed 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 journal

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)

8 Basswood Furniture Project

• 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 reference 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.

Basswood Furniture Project 9

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

10 Basswood Furniture Project

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

Basswood Furniture Project 11

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

12 Basswood Furniture Project

Basswood Furniture:

Vendor List—Accounts Payable

Account

Number Vendor

AP-010 Hemlock Gas and Electric Co., Hemlock, PA 18953-6174

AP-020 The Home Improvement Center, 91 Arch St, Benton, OH 65714

AP-030 Carol’s Wood Supplies, 6 Lane Way, Canton, NJ 35741

AP-040 Atlantic Telephone Co., Hemlock, PA 18952-6143

AP-050 Woodworker Supplies, 4 Tennison Drive, Benning, NC 43852

AP-060 Everything Wood, 608 Rider Avenue, Capta, CA 93412

AP-070 Sally’s Fabrics, 593 Eleanor Road, TN 34687

AP-080 Two Guys Hardware, 29 Huntington Dr, Allenwood TN 26579

AP-090 Penn Furnishings, 84 Oakwood Avenue, Allenwood, TN 26579

AP-100 Cheryl Wood Designs, 802 Corning St, Palmerton, PA 11682

AP-110 Tom Baker, 53 Union Street, Hemlock, PA 18951

AP-120 Wood Imaginations, P.O. Box 461, Elkington, MN 43167

AP-130 Gates and Associates, Inc., 149 Elk Dr, Hemlock, PA 18953

FIGURE 5—Vendor List: Basswood Furniture

Basswood Furniture:

Schedule of Accounts Payable

November 30, 20XX

Account

Number Vendor $ Amount

AP-010 Hemlock Gas and Electric Co. $ 0.00

AP-020 The Home Improvement Center 353.00

AP-030 Carol’s Wood Supplies 631.00

AP-040 Atlantic Telephone Co. 0.00

AP-050 Woodworker Supplies 1,621.00

AP-060 Everything Wood 750.00

AP-070 Sally’s Fabrics 0.00

AP-080 Two Guys Hardware 75.00

AP-090 Penn Furnishings 0.00

AP-100 Cheryl Wood Designs 480.00

AP-110 Tom Baker 130.00

AP-120 Wood Imaginations 964.00

AP-130 Gates and Associates, Inc., 0.00

Total $ 5,004.00

FIGURE 6—Schedule of Accounts Payable: Basswood Furniture

Basswood Furniture Project 13

Schedules of Vehicle Depreciation

Make: Ford Model: Econoline Van Year: 20XX

Purchase Date: 02/01/20XX Purchase Price: $48,000

Method of Depr.: Straight-Line # of Years: 4

Salvage Value: $10,000 Depr. Per Period: $791.66

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

48,000.00

1 2/28 791.66 791.66 47,208.34 YES

2 3/31 791.66 1583.32 46,416.68 YES

3 4/30 791.66 2374.98 45,625.02 YES

4 5/31 791.66 3166.64 44,833.36 YES

5 6/30 791.66 3958.3 44,041.70 YES

6 7/31 791.66 4749.96 43,250.04 YES

7 8/31 791.66 5541.62 42,458.38 YES

8 9/30 791.66 6333.28 41,666.72 YES

9 10/31 791.66 7124.94 40,875.06 YES

10 11/30 791.66 7916.6 40,083.40 YES

11 12/31 791.66 8708.26 39,291.74 YES

12 1/31 791.66 9499.92 38,500.08 YES

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

9499.92 38,500.08

13 2/28 791.66 10291.58 37,708.42 YES

14 3/31 791.66 11083.24 36,916.76 YES

15 4/30 791.66 11874.9 36,125.10 YES

16 5/31 791.66 12666.56 35,333.44 YES

17 6/30 791.66 13458.22 34,541.78 YES

18 7/31 791.66 14249.88 33,750.12 YES

19 8/31 791.66 15041.54 32,958.46 YES

20 9/30 791.66 15833.2 32,166.80 YES

21 10/31 791.66 16624.86 31,375.14 YES

22 11/30 791.66 17416.52 30,583.48

23 12/31 791.66 18208.18 29,791.82

24 1/31 791.66 18999.84 29,000.16

14 Basswood Furniture Project

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

18999.84 29,000.16

25 2/28 791.66 19791.5 28,208.50

26 3/31 791.66 20583.16 27,416.84

27 4/30 791.66 21374.82 26,625.18

28 5/31 791.66 22166.48 25,833.52

29 6/30 791.66 22958.14 25,041.86

30 7/31 791.66 23749.8 24,250.20

31 8/31 791.66 24541.46 23,458.54

32 9/30 791.66 25333.12 22,666.88

33 10/31 791.66 26124.78 21,875.22

34 11/30 791.66 26916.44 21,083.56

35 12/31 791.66 27708.1 20,291.90

36 1/31 791.66 28499.76 19,500.24

Period Year 4

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

28499.76 19,500.24

37 2/28 791.66 29291.42 18,708.58

38 3/31 791.66 30083.08 17,916.92

39 4/30 791.66 30874.74 17,125.26

40 5/31 791.66 31666.4 16,333.60

41 6/30 791.66 32458.06 15,541.94

42 7/31 791.66 33249.72 14,750.28

43 8/31 791.66 34041.38 13,958.62

44 9/30 791.66 34833.04 13,166.96

45 10/31 791.66 35624.7 12,375.30

46 11/30 791.66 36416.36 11,583.64

47 12/31 791.66 37208.02 10,791.98

48 1/31 791.98 38000.00 10,000.00

FIGURE 7—Schedules of Vehicle Depreciation: Basswood Furniture

Basswood Furniture Project 15

Schedules of Equipment Depreciation

Items: (Initial Investment)

Table saw Compound miter saw

Band saw Scroll saw

Router table Drill press

Lathe Planer

Dust collection system Work benches

Invoice itemized misc equipment

Purchase Date: 01/01/20XX Purchase Price: $23,500.80

Method of Depr.: Straight-Line # of Years: 3

Salvage Value: $0.00 Depr. Per Period: $652.80

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

23,500.80

1 01/31 652.80 652.80 22,848.00 YES

2 02/28 652.80 1,305.60 22,195.20 YES

3 03/31 652.80 1,958.40 21,542.40 YES

4 04/30 652.80 2,611.20 20,889.60 YES

5 05/31 652.80 3,264.00 20,236.80 YES

6 06/30 652.80 3,916.80 19,584.00 YES

7 07/31 652.80 4,569.60 18,931.20 YES

8 08/31 652.80 5,222.40 18,278.40 YES

9 09/30 652.80 5,875.20 17,625.60 YES

10 10/31 652.80 6,528.00 16,972.80 YES

11 11/30 652.80 7,180.80 16,320.00 YES

12 12/31 652.80 7,833.60 15,667.20 YES

16 Basswood Furniture Project

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

7,833.60 15,667.20

1 01/31 652.80 8,486.40 15,014.40 YES

2 02/28 652.80 9,139.20 14,361.60 YES

3 03/31 652.80 9,792.00 13,708.80 YES

4 04/30 652.80 10,444.80 13,056.00 YES

5 05/31 652.80 11,097.60 12,403.20 YES

6 06/30 652.80 11,750.40 11,750.40 YES

7 07/31 652.80 12,403.20 11,097.60 YES

8 08/31 652.80 13,056.00 10,444.80 YES

9 09/30 652.80 13,708.80 9,792.00 YES

10 10/31 652.80 14,361.60 9,139.20 YES

11 11/30 652.80 15,014.40 8,486.40

12 12/31 652.80 15,667.20 7,833.60

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

15,667.20 7,833.60

1 01/31 652.80 16,320.00 7,180.80

2 02/28 652.80 16,972.80 6,528.00

3 03/31 652.80 17,625.60 5,875.20

4 04/30 652.80 18,278.40 5,222.40

5 05/31 652.80 18,931.20 4,569.60

6 06/30 652.80 19,584.00 3,916.80

7 07/31 652.80 20,236.80 3,264.00

8 08/31 652.80 20,889.60 2,611.20

9 09/30 652.80 21,542.40 1,958.40

10 10/31 652.80 22,195.20 1,305.60

11 11/30 652.80 22,848.00 652.80

12 12/31 652.80 23,500.80 0.00

FIGURE 8—Schedules of Equipment Depreciation: Basswood Furniture

Basswood Furniture Project 17

Schedules of Office Furniture and Equipment Depreciation

Items: (Initial Investment)

(2) Computers Printer

Invoice itemized computer software (2) Desks

(2) Filing cabinets (2) Chairs

Telephone/answering/fax machine Copier

Invoice itemized misc items Telephone

Purchase Date: 01/01/20XX Purchase Price: $6,125.04

Method of Depr.: Straight-Line # of Years: 3

Salvage Value: $0.00 Depr. Per Period: $170.14

Period Year 1

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

6,125.04

1 01/31 170.14 170.14 5,954.90 YES

2 02/28 170.14 340.28 5,784.76 YES

3 03/31 170.14 510.42 5,614.62 YES

4 04/30 170.14 680.56 5,444.48 YES

5 05/31 170.14 850.70 5,274.34 YES

6 06/30 170.14 1,020.84 5,104.20 YES

7 07/31 170.14 1,190.98 4,934.06 YES

8 08/31 170.14 1,361.12 4,763.92 YES

9 09/30 170.14 1,531.26 4,593.78 YES

10 10/31 170.14 1,701.40 4,423.64 YES

11 11/30 170.14 1,871.54 4,253.50 YES

12 12/31 170.14 2,041.68 4,083.36 YES

18 Basswood Furniture Project

Period Year 2

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

2,041.68 4,083.36

1 01/31 170.14 2,211.82 3,913.22 YES

2 02/28 170.14 2,381.96 3,743.08 YES

3 03/31 170.14 2,552.10 3,572.94 YES

4 04/30 170.14 2,722.24 3,402.80 YES

5 05/31 170.14 2,892.38 3,232.66 YES

6 06/30 170.14 3,062.52 3,062.52 YES

7 07/31 170.14 3,232.66 2,892.38 YES

8 08/31 170.14 3,402.80 2,722.24 YES

9 09/30 170.14 3,572.94 2,552.10 YES

10 10/31 170.14 3,743.08 2,381.96 YES

11 11/30 170.14 3,913.22 2,211.82

12 12/31 170.14 4,083.36 2,041.68

Period Year 3

P/E Date

Depreciation

Amount

Accumulated

Depreciation Book Value Posted

4,083.36 2,041.68

1 01/31 170.14 4,253.50 1,871.54

2 02/28 170.14 4,423.64 1,701.40

3 03/31 170.14 4,593.78 1,531.26

4 04/30 170.14 4,763.92 1,361.12

5 05/31 170.14 4,934.06 1,190.98

6 06/30 170.14 5,104.20 1,020.84

7 07/31 170.14 5,274.34 850.70

8 08/31 170.14 5,444.48 680.56

9 09/30 170.14 5,614.62 510.42

10 10/31 170.14 5,784.76 340.28

11 11/30 170.14 5,954.90 170.14

12 12/31 170.14 6,125.04 0.00

FIGURE 9—Schedules of Office Furniture and Equipment Depreciation: Basswood Furniture

Basswood Furniture Project 19

PAYROLL INFORMATION

As of November 30, 20XX

Employee:

Ian Smith

234 Pinewood Rd.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 4

Additional Amount Withheld: $ 0.00

Wage/Salary: $2,500.00 (Salary)

YTD Earnings: $60,000.00

Employee:

Betty Gable

465 Pinewood Rd.

Hemlock, PA 18951

Status: Single

Number of Allowances Claiming: 0

Additional Amount Withheld: $ 0.00

Wage/Salary: $12.50/hr

YTD Earnings: $16,500.00

Employee:

Billie Redmond

67 Oak St.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 3

Additional Amount Withheld: $ 0.00

Wage/Salary: $17.00/hr

YTD Earnings: $29,920.00

(Continued)

20 Basswood Furniture Project

Employee:

Janet Adams

83 Empire St.

Hemlock, PA 18951

Status: Married

Number of Allowances Claiming: 2

Additional Amount Withheld: $ 0.00

Wage/Salary: $15.00/hr

YTD Earnings: $24,900.00

Additional Payroll Information:

Hourly employees are paid time-and-one-half for overtime hours. Any hours worked over 40

hours for the week qualify for overtime pay.

Hourly employees are paid double time for any hours worked over 60 hours for the week and

for working on holidays.

Currently, employees are responsible for their own insurance.

(Continued)

Basswood Furniture Project 21

Use the following tax tables for Federal Withholding Tax from the current

year Circular E:

FWT:

22 Basswood Furniture Project

Basswood Furniture Project 23

24 Basswood Furniture Project

Basswood Furniture Project 25

SWT:

Pennsylvania Income State Tax Percentage: 3.07%

LWT:

Hemlock Local Withholding Tax Percentage: 1.00%

FICA:

Social Security Tax Percentage:

Employee: 6.02% on all earnings

Employer: 6.02% on all earnings

Medicare Tax Percentage:

Employee: 1.45% up to $106,800 in earnings

Employer: 1.45% up to $106,800 in earnings

FUTA:

The FUTA tax percentage is 0.8% of the first $7,000 of wages per year

SUTA:

The SUTA tax percentage is 5.4% of the first $7,000 of wages per year

FIGURE 10—Payroll Information: Basswood Furniture

26 Basswood Furniture Project

Merchandise Inventory Valuation

As of November 31, 20XX

Item No. Description No. of Items Amount Total Amount

DR-0003 Dining Room Set 2 $ 2,500.00 $ 5,000.00

DRS-0005 Dining Room Set 2 $ 2,125.00 $ 4,250.00

DRS-0009 Dining Room Set 2 $ 3,455.00 $ 6,910.00

TBL-0023 Table 4 $ 65.00 $ 260.00

TBL-0037 Table 3 $ 85.00 $ 255.00

CHR-0002 Chairs-4 set 3 $ 90.00 $ 270.00

CHR-0005 Chairs - 6 set 6 $ 120.00 $ 720.00

ETB-0003 End Table 3 $ 45.00 $ 135.00

ETB-0006 End Table 4 $ 55.00 $ 220.00

MGR-0004 Magazine Rack 5 $ 15.00 $ 75.00

WNR-0001 Wine Rack 2 $ 125.00 $ 250.00

LMP-0003 Lamp 5 $ 65.00 $ 325.00

CTB-0007 Coffee Table 6 $ 90.00 $ 540.00

RCH-0001 Rocking Chair 4 $ 85.00 $ 340.00

DRS-0002 Dresser - 8 Drawer 3 $ 235.00 $ 705.00

DRS-0001 Dresser - 10 Drawer 1 $ 275.00 $ 275.00

DRS-0004 Dresser - 12 Drawer 1 $ 295.00 $ 295.00

BRM-0002 Bedroom Set 2 $ 3,250.00 $ 6,500.00

BRM-0003 Bedroom Set 1 $ 3,675.00 $ 3,675.00

HTC-0004 Hutch 4 $ 125.00 $ 500.00

Total inventory value $ 31,500.00

FIGURE 11—Merchandise Inventory Valuation: Basswood Furniture

Basswood Furniture Project 27

Additional General Information

Cash—the Business Checking account is used for all trans -

actions (including payroll). Everything is paid for by check

with the exception of petty cash. (Petty cash is an amount of

cash that has been set aside for small purchases that you

wouldn’t write a check for, i.e., the purchase of a 50 cent

newspaper.)

Petty Cash remains at an imprest amount of $500.00. (Imprest

means the balance, once set, remains the same. The amount

of the cash plus the total of the receipts should always equal

the imprest amount.)

Accounts Receivable terms are decided on an account-byaccount basis, with the default being 2/10, n30. Each week,

the Schedule of Accounts Receivable is reviewed for collection

purposes. Ian has a good rapport with his clients, having

developed a good name for himself. Credit applications are

taken, checked, and approved by Ian before setting up an

account.

Office Supplies Inventory Valuation

November 31, 20xx

Description No. of Items Amount Total Amount

Legal Pads – 12 PK 4 $ 8.95 $ 35.80

Copy Paper – Case 4 $ 35.99 $ 143.96

Roller Pens – Dz 4 $ 12.49 $ 49.96

Wood Pencils – Dz 20 $ 1.69 $ 33.80

Permanent Marker – Dz 2 $ 6.99 $ 13.98

Correction Fluid – Dz 1 $ 1.30 $ 1.30

Highlighter – DZ 2 $ 7.99 $ 15.98

Plain Envelopes – Box 2 $ 6.99 $ 13.98

Clasp Envelopes – Box 1 $ 13.99 $ 13.99

Receipt Book 2 $ 12.24 $ 24.48

Total Inventory Value $ 347.23

FIGURE 12—Office Supplies Inventory Valuation: Basswood Furniture

28 Basswood Furniture Project

Merchandise Inventory is the cost of furniture that has been

made and not sold yet. It’s all furniture that’s not custom

ordered. All material costs are tracked for each individual

furniture item and recorded as Merchandise Inventory. Labor

and overhead costs aren’t included in the valuation. These

are taken into account when the furniture is marked up to its

sale price. The Specific ID inventory method is used to value

the inventory. At the end of each period, a physical inventory

(specific ID) is taken for control purposes. When an item from

Merchandise Inventory is sold, the sale is recognized with a

journal entry and an additional journal entry is made to

transfer the furniture item that was sold out of Merchandise

Inventory to COGS.

However, a large portion of the business is custom-made

furniture that requires a 50% down payment, with the

remaining balance payable upon delivery (unless credit has

been extended to the client). Each custom order is assigned a

job number. Sales Revenue is recognized with each payment,

and all material costs are expensed to Purchases using that

job number.

Office Supplies Inventory consists of supplies used in the

general course of business. It uses a periodic inventory

method. At the end of each period, a physical inventory is

taken and the value of the inventory is determined. The book

value of the inventory is then adjusted to that physical

amount.

Prepaid Rent is paid at the beginning of each year in the

amount of $12,000.00 for the 12-month period.

Vehicles, Equipment, and Office Furniture and Equipment

are depreciated according to a Schedule of Depreciation

approved by or provided by Jeremy Grant. Any asset purchases will be put to one of these accounts and reported to

Jeremy at the end of each quarter. Depreciation entries are

made at the end of each period according to the schedules.

A/P is paid on time within the grace period unless otherwise

specified to take advantage of discounts. Each week, the

Schedule of Accounts Payable will be reviewed by Ian for

 payment of invoices.

Basswood Furniture Project 29

Payroll is calculated on a biweekly basis. The payment is

made on the following Friday. Due to Janet Adams leaving

the company, no accrual entry was made at the end of

November 20XX.

Federal Withholding Taxes (941 Form), which includes FWT,

Social Security, and Medicare, are paid on or before the

 fifteenth of the month for the previous month.

State Withholding Taxes and City Withholding Taxes are paid

on or before the twentieth of the month for the previous

month.

FUTA and SUTA are paid on a yearly basis, and are due on

or before the end of January of the next year.

Sales Tax is due on or before the twentieth of the month for

the previous month. Currently, no clients are tax exempt.

A client will need to provide a valid Sales Tax Exemption

Certificate to be kept on file in order for Basswood Furniture

not to charge sales tax.

Ian Smith will inform you as to when and how much capital

he will withdraw from the company.

Expense and Revenue Summary is the same as Income

Summary and is used as a wash, or pass-through, account.

(A wash or pass-through account is an account whose balance

should always be zero. In the closing process, the revenues,

expenses, and withdraw account amounts are transferred

into the expense and revenue summary account and then

immediately transferred out to the capital account, keeping

the balance in the expense and revenue summary account at

zero. The balances are “passed through” the account.)

Tips

All forms and documentation for the project are provided in

the Documents and Forms booklet. Documents will be referred

to by form number, which appears in the upper left-hand

corner of the document. An ample supply of blank forms has

been provided to complete the project. If you feel you’ve made

a mess of the books and wish to start all over but don’t have

enough blank forms, then use notebook or copy paper. The

30 Basswood Furniture Project

lines on the paper don’t matter as long as the format is correct. No additional forms will be provided. There are enough

forms to complete the project as intended. (If desired, make

copies of the blank forms and documents before beginning

the project.)

When doing math for the project, try not to use a hand-held

calculator unless you absolutely have to. Instead, use a

printer calculator, or better yet, an Excel spreadsheet. Enter

the figures to be added in one column and sum them up. Do

the same thing again in a second column. Both totals should

match. If they don’t, enter the figures a third time and sum

them up. Two out of the three totals should match. Don’t just

assume that the matching totals are correct. Go back over

the columns to see why the totals were different in the first

place.

Using a hand-held calculator and just adding up the figures

in a column one time leads to very error-prone results. Book -

keeping is designed to have debits always equal credits.

Whether the entry you made is right or wrong is irrelevant

when it comes to debits equaling credits. If you make a wrong

entry, you should have a wrong debit that’s the same as the

wrong credit. A bookkeeper who is always “off” isn’t accurate

and won’t have work for long. Therefore, use a printer calculator or Excel spreadsheet so you can see what you entered,

and run the numbers more than once.

PART B—SPECIFIC

INSTRUCTIONS

Steps for Completing the Project

The following are the specific steps for completing the project.

It’s assumed that you’ve obtained the knowledge to complete

the steps from your previous coursework. For example, when

working with the payroll steps, it’s assumed that you know

how to do payroll. (Only the data will be presented.) If you’re

not sure as to what you should do with the payroll information, go back over your lessons and workbooks relating to

payroll.

Basswood Furniture Project 31

While the instructions provided lead you step-by-step through

the process of an accounting period from start to finish, if

you’re not sure what to do next or where you are in the

process, then call and speak with an instructor. Remember,

the instructors can help with the process, but not the

specifics of the project. Instructors can’t help with what

 journal entries to make, how to make calculations, etc.

At this point, you should have read through this study unit

thoroughly, and have a good understanding of what needs to

be done to complete the project. Doing this will go a long way

towards making the project easier for you. You’re now ready

to begin.

• Fill out an Employee’s Withholding Allowance Certificate

(Form 1) for yourself. Every new employee must fill out

this form and sign it when hired to determine how much

federal withholding tax will be held from the employee’s

paycheck. For purposes of this project, on Line 3 you’ll

select “Single” for your marital status. On Line 5, you’ll

use 0 (zero) allowances. No additional amount will be

withheld on line 6.

• Create the A/R accounts in the Accounts Receivable

Subsidiary Ledger. In the Documents and Forms booklet,

locate the section of blank forms for the Accounts

Receivable Subsidiary Ledger. Write in the account

name and account number on a blank form for each A/R

account. Enter in the beginning balances for each

account. Make sure the total of the beginning balances

in the subsidiary ledger matches the balance of the A/R

account on the G/L Trial Balance.

• Do the same for the Accounts Payable Subsidiary Ledger

accounts.

• Open the G/L accounts by locating the section in the

Documents and Forms booklet, entering the account

name and account number on each blank form. Enter

the beginning balances from the G/L Trial Balance in

each account. Make sure the total of the debits for the

beginning balances in the G/L accounts matches the

total of the debits on the trial balance and that the total

of the credits matches the total of the credits on the trial

balance.

32 Basswood Furniture Project

• Enter the balance in the Cash G/L account in the

Balance Brought Forward field of the check register,

toward the end of the Documents and Forms booklet

next to Check No. 2260.

• Process the transactions for the month of December laid

out in the following section, making journal entries, posting to the G/L accounts, and completing the forms or

paperwork where necessary.

December

Thursday, December 1, 20XX

• Received a bill (Form 2) from Hemlock Gas and Electric

Co. in the amount of $137.89 on account. Make the

journal entry for receipt of the bill and post to the proper

G/L and subsidiary accounts.

• Received a bill (Form 3) from the Atlantic Telephone Co.

in the amount of $232.64 on account. Make the journal

entry for receipt of the bill and post to the proper G/L

and subsidiary accounts.

• Received Check No. 268 (Form 4) in the amount of

$7,580.00 for payment in full from Liya Designs. Make

the journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

Friday, December 2, 20XX

• Received Check No. 1231 (Form 5) in the amount of

$6,437.00 for payment in full from Yu Wei Creations.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Complete a deposit ticket (found in the Documents and

Forms booklet), dating it December 2, 20XX, and include

the checks received from Liya Designs and Yu Wei

Creations. On the back of each check, to endorse the

checks for deposit, you would write “For Deposit Only,

Account # 309921” and then take the deposit to the

FCU (Federal Credit Union) where Basswood Furniture

does its banking. (Naturally, since this is a simulation,

Basswood Furniture Project 33

you won’t actually make a deposit.) Record the amount

deposited in the Check Register. Total the amount in the

check register.

• Verify the posting of all of the journal entries to the G/L

accounts and subsidiary accounts for the week. Verify the

amount on the check register is the balance in the G/L

Cash account. Any discrepancies need to be corrected.

Monday, December 5, 20XX

• Wayne Shriver and Ian met today to discuss making custom dining room, living room, and bedroom sets. The

contract amount is for $28,500.00 (including sales tax),

to be delivered by the end of the month (December 31).

Contracts are kept by Ian. Wayne gave Ian Check No.

10178 in the amount of $14,250.00 (Form 6) for the 50%

down payment, with the remainder to be paid in full upon

delivery. This will be Job #132 for reference purposes.

The down payment will be used to cover the purchase of

the materials needed. The down payment, even though

it’s not the full amount of the sale, will be recognized as

revenue with a journal entry. (If the final payment isn’t

received, the furniture won’t be delivered and the furniture will then become merchandise inventory.)

• Received Check No. 501 (Form 7) in the amount of

$200.00 for partial payment from Sam Little. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Billie Redmond sold one wine rack to Michael’s Furniture

in the total amount of $1,325.00 on account (Form 8).

Make a journal entry to record the sale and make a

 journal entry to remove the cost of the wine rack from

inventory and put it to COGS. You should also adjust

the Merchandise Inventory Valuation whenever you make

a journal entry that affects the Merchandise Inventory

account. This acts as a check. The balance on the valuation should be the balance of the G/L account. Both

should be the same balance as the inventory valuation

when a physical inventory is done at the end of the

accounting period.

34 Basswood Furniture Project

Tuesday, December 6, 20XX

• Billie Redmond went to Tom Baker to purchase the

materials needed for the Shriver furniture (Job #132).

The total invoice amount for the purchase was $5,700.00

(Form 9). The purchase was made on account. Make the

journal entry for the purchase of the materials to the

Purchase G/L account.

• Tuesday is the day Ian likes to cut checks for payment of

A/P accounts. First thing in the morning, you print out

the Schedule of Accounts Payable and put it on his desk

so he can decide which ones he would like to have paid.

You also write on the schedule the balance that’s in the

checking account based on the amount in the check register. Today, Ian would like you to pay the balances in

the following accounts:

â Hemlock Gas and Electric Co.

â The Home Improvement Center

â Atlantic Telephone Co.

â Two Guys Hardware

â Cheryl Wood Designs

• Beginning with Check No. 2260, write consecutive

checks for each A/P account in the correct amount,

adjust the check register accordingly, and place the

checks on Ian’s desk for his signature. When he returns

the checks to you, you’ll mark the invoices as paid and

mail a copy of the invoices with the checks to the vendors. (For purposes of this project, it has been assumed

that you have the invoices making up the amounts in

the accounts and that they’re correct, even though you

don’t have the details for November 20XX.) Make the correct journal entries for payment of the accounts and post

to the proper G/L and subsidiary accounts.

Wednesday, December 7, 20XX

• Ian sold one end table for cash in the total amount of

$291.50 to Jack Williams (Form 10). Make a journal

entry to record the sale and make a journal entry to

remove the cost of the end table from inventory and

move it to COGS.

Basswood Furniture Project 35

• Betty Gable went to an office supplies store on her lunch

break with Ian’s approval and purchased a printer cartridge for the office copier using her own cash. The

purchase was in the total amount of $31.79. You’ll reimburse her from petty cash using a Petty Cash Voucher

(Form 11). Complete the voucher. (You would normally

attach the receipt to the voucher and file it in the petty

cash box and have Betty sign the voucher.) Record the

voucher on the Petty Cash Payments Record found in the

Documents and Forms booklet under the correct account.

• Received Check No. 421 (Form 12) in the amount of

$860.00 for payment in full from Donna Bigelow. Make

the journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

Thursday, December 8, 20XX

• Ian met with Janet Martinez. She signed a contract for a

custom-built table and chair to be used in her hallway.

The amount was $1176.60 (including sales tax). The furniture is to be delivered in one week. Janet paid cash in

full (Form 13). This will be Job #133 for reference purposes. Make the journal entry for the sale and post to

the proper G/L accounts.

• Billie placed an order with Everything Wood for the purchase of exotic wood for Janet Martinez. Everything

Wood faxed a copy of the invoice for approval and

acceptance (Form 14) of the invoice on account. They’ll

ship the wood overnight. Make the journal entry for the

receipt of the invoice and post to the proper G/L and

subsidiary accounts.

• Ian felt the need for a better air ventilation/dust collection system. He went over to Rocker Woodcraft to

purchase a system, taking Check No. 2265 with him.

He brought back the dust collection system and the

invoice from Rocker Woodcraft (Form 15). He wrote the

check in the amount of $750.00 as partial payment, with

the remaining to be billed to Basswood Furniture on

account. The dust collection system is an asset. Its useful life will be three years, with a residual value (salvage

value) of zero. Record the journal entry for the invoice in

36 Basswood Furniture Project

the correct G/L accounts and create a new subsidiary

ledger account for Rocker Woodcraft. Create a Schedule

of Depreciation for the asset, assuming straight-line

depreciation. (The purchase of the system is being made

on the eighth of the month. According to GAAP, because

the purchase is made before the fifteenth of the month,

the depreciation of the asset can be recognized from the

beginning of the month. Therefore, for depreciation purposes, at the end of the accounting period, you’ll recognize

one month’s worth of depreciation for December as if the

asset was purchased on the first of the month.) At the

end of the accounting period, you’ll provide Jeremy Gates

with the asset information and schedule so that he can

review it and make any changes if necessary.

Friday, December 9, 20XX

• The following time cards (Figure 13) were given to you

during the week for you to calculate the payroll for the

period ending 12/02/20XX.

Time Card

Name Ian Smith

P/E 12/2/XX

Date Hours Worked

11/21

11/22

11/23

11/24

11/25

11/28

11/29

11/30

12/1

12/2

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/2/XX

Date Hours Worked

11/21 8.0

11/22 8.0

11/23 8.0

11/24 8.0 Holiday

11/25 8.0

11/28 8.0

11/29 8.0

11/30 8.0

12/1 8.0

12/2 8.0

Total Hours 80.0

Basswood Furniture Project 37

• Complete an Employee Earnings Record for each

employee and the Payroll Register for the payroll period

using the payroll information provided to you by Ian on

the first day you went to work for him. Write a check

payable to each employee for their net pay, beginning

with Check No. 2266, and complete the attached check

register. Place the checks on Ian’s desk for his signature

and distribution to the employees. Ian will also be

informing the employees that since the next pay date is

December 23 and the business will be closed for the holiday, checks will be distributed on Monday, December 26

instead of December 23. Make and post the journal entry

for the employees’ payroll. Make and post the journal

entry to record the additional payroll expense to the

employer for the employer’s portion of Social Security,

Medicare, FUTA, and SUTA using the tax expense

account.

Time Card

Name Betty Gable

P/E 12/2/XX

Date Hours Worked

11/21 8.0

11/22 8.0

11/23 8.0

11/24 8.0 Holiday

11/25 8.0

11/28 8.0

11/29 8.0

11/30 8.0

12/1 8.0

12/2 8.0

Total Hours 80.0

Time Card

Name Yourself

P/E 12/2/XX

Date Hours Worked

11/21 0.0

11/22 0.0

11/23 0.0

11/24 0.0 Holiday

11/25 0.0

11/28 0.0

11/29 0.0

11/30 0.0

12/1 8.0

12/2 8.0

Total Hours 16.0

FIGURE 13—Period Ending 12/02/XX Time Cards: Basswood Furniture

38 Basswood Furniture Project

• Make the deposit for the week. Complete a deposit ticket

for the checks received from Wayne Shriver, Sam Little,

and Donna Bigelow, plus the cash received during the

week for cash sales. Record the amount deposited in the

Check Register. Total the amount in the check register.

• Verify the posting of all of the journal entries to the

G/L accounts and subsidiary accounts for the week.

Verify the amount on the check register is the balance

in the G/L Cash account. Any discrepancies need to be

 corrected.

Monday, December 12, 20XX

• Received Check No. 511 (Form 16) in the amount of

$225.00 for payment in full from Sam Little. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Received Check No. 42 (Form 17) in the amount of

$925.00 for payment in full from Kenny Refinishing.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Billie sold two end tables and a coffee table to Quality

Furniture in the total amount of $996.40 on account

(Form 18). Make a journal entry to record the sale and

make a journal entry to remove the cost of the furniture

from inventory and move it to COGS. Post to the G/L.

• Billie drove to Carol’s Wood Supplies and purchased on

account (Form 19) materials to build the following items

for merchandise inventory: 2 each DSK-0001 Desk and

BCS-0001 Bookcase, and 1 FLK-0001 Footlocker. Record

the items in inventory, make a journal entry for the purchase on account, and post it to the G/L.

• Ian discussed advertising and marketing with John

Powell from Powell Marketing, Inc. During the meeting,

Ian wanted you to write out a check to Powell Marketing,

Inc. in the amount of $1,325.00 for billboard advertising

during the rest of the month of December. You wrote

Check No. 2270 for that amount, using it as the invoice

and receipt. After adjusting the check register, you then

made a journal entry and posted it to the G/L.

Basswood Furniture Project 39

Tuesday, December 13, 20XX

• Tuesday is the day to cut checks for payment of A/P

accounts. You print out the Schedule of Accounts Payable

and give it to Ian so he can decide which accounts to

pay. You also write on the schedule the balance that’s in

the checking account based on the check register. Today,

Ian would like you to pay the balances in the following

accounts:

â Carol’s Wood Supplies (only the amount in the

account as of the end of November)

â Woodworker Supplies

â Everything Wood (only the amount in the account as

of the end of November)

â Wood Imaginations

• Beginning with Check No. 2271, write a check for each

account in the correct amount, adjust the check register

accordingly, and place the checks on Ian’s desk for his

signature. When he returns the checks to you, you’ll mark

the invoices as paid and mail a copy of the invoices with

the checks to the vendors. (For purposes of this project,

it has been assumed that you have the invoices making

up the amounts in the accounts and that they’re correct

even though you don’t have the details for November

20XX.) Make the correct journal entries for payment of

the accounts and post to the proper G/L and subsidiary

accounts.

• Due to the excellent performance of the company this

year, Ian has decided to give each employee a bonus of

$1,500.00 (including yourself, even though you haven’t

been with the company for very long). He has instructed

you to issue a special payroll tomorrow. (A bonus amount

is treated the same a gross pay amount.)

• Pete Schwab, a friend of Ian’s, stopped in the shop to

see Ian. On his way out, Billie helped Pete load a dining

room set into Pete’s truck. Ian presented you with a

check (Form 20) in the amount of $9,155.75 from Pete as

payment in full for the purchase of DRS-0009 Dining

40 Basswood Furniture Project

Room Set. The dining room set retails for $17,275.00;

however, Ian gave Pete a 50% discount. Make a journal

entry to record the sale (don’t forget about the discount)

and make a journal entry to remove the cost of the furniture from inventory and move it to COGS. Post the

entries to the G/L.

Wednesday, December 14, 20XX

• Prepare the payroll for the holiday bonus. (Use the biweekly Federal Withholding Chart for FWT.) Write a

check payable to each employee for their net pay, beginning with Check No. 2275, and complete the attached

check register. Place the checks on Ian’s desk for his signature and distribution to the employees. Make and post

the journal entry for the employees’ payroll. Make and

post the journal entry to record the additional payroll

expense to the employer for Social Security, Medicare,

FUTA and SUTA.

• Received Check No. 149 (Form 21) in the amount of

$125.00 for payment in full from Jim and Pearl Jones.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Clean-It-Rite cleaning service performed the monthly

cleaning of the offices and shop. Ian paid the invoice

(Form 22) with Check No. 2279 in the amount of $275.00.

Make the journal entry as a miscellaneous expense and

post the entry to the G/L.

• Delivered custom furniture for Janet Martinez on Job

#133.

Thursday, December 15, 20XX

Tomorrow, Ian is treating all employees and their families to

a holiday party. Therefore, daily work that would normally be

done tomorrow will need to be completed today.

• Federal payroll withholding taxes need to be paid by the

fifteenth of the month for the previous month’s withholdings. The federal withholding tax (commonly referred to

as the 941 Tax) consists of the FWT withheld from the

employees and FICA. It’s submitted using Form 8109.

FICA is made up of the Social Security and Medicare

Basswood Furniture Project 41

withholdings from the employees and the matching

amounts from the employer. The amount to be paid is

for the previous month—November 20XX. Look at the

entries made in the G/L accounts to determine the

amounts that need to be paid. (Don’t just look at the

 balance in the accounts. If you assume the balance of

the G/L account is the amount to be paid, you’ll be

incorrect. Most likely, the balance includes a payroll

entry for the current month along with the balance from

the previous month. Once a mistake is made, it can take

up to two years of going back and forth with the government to get the error corrected.)

• Complete Form 8109 (Form 23), writing in the amount

of the deposit and the company’s EIN number, which is

40-37462. (Form 8109 acts as a deposit slip for the tax.

When you complete the form and write the check, you’ll

take it to the bank to make the deposit—“deposit” in this

case meaning a withdrawal from your checking account

and deposit into the government’s account.) Color in the

tilted oval next to “941” as the Type of Tax and the quarter that the tax period pertains to (November is in the

fourth quarter). Write Check No. 2280, payable to “U.S.

Treasury,” for the amount to be deposited. Be sure to

write the EIN, type of tax, and tax period on the check.

This deposit must be stamped by the fifteenth of the

month. This is a high priority, since today is the fifteenth.

Waiting until tomorrow will incur substantial penalties

and interest.

• Make the bank deposit, including the checks and/or

cash received during the week. Record the amount

deposited in the Check Register. Total the amount in the

check register.

• Pennsylvania Sales Tax is to be remitted to the state by

the twentieth of every month in the amount collected for

the previous month—in this case, November 20XX. Just

as you did with remitting the federal payroll taxes for the

previous month, you need to look at the entries in the

G/L account and determine the total amount that was

collected for the month of November. Complete the PA

Dept. of Revenue Sales Tax Collection Bureau form

42 Basswood Furniture Project

(Form 24). Use it to make the journal entry and post the

entry to the G/L. Payment of the sales tax will be done

electronically through the government’s Web site. In the

checkbook, void Check No. 2281 and complete the

check register showing the payment to the “PA Dept. of

Revenue—ETF” for the amount of the remittance. (ETF

stand for “Electronic Transfer Funds.”)

• Verify the posting of all of the journal entries to the G/L

accounts and subsidiary accounts for the week. Verify

that the amount on the check register is the balance in

the G/L Cash account. Any discrepancies need to be

 corrected.

Friday, December 16, 20XX

The holiday party was wonderful. The only work required for

the day is to reimburse Ian $187.50 for the receipts he provided you for having the party catered, out of petty cash.

• Create a petty cash voucher (Form 25) and make the

entry to the Petty Cash Payments Record.

December 19–23, 20XX

The business is closed for the week before Christmas.

Monday, December 26, 20XX

• The following time cards (Figure 14) were given to you

during the week for you to calculate the payroll for the

period ending 12/16/20XX.

• Complete an Employee Earnings Record and the Payroll

Register for the payroll period ending 12/16/XX. Write a

check payable to each employee for their net pay, beginning with Check No. 2282, and complete the attached

check register. Place the checks on Ian’s desk for his signature and distribution to the employees. Make and post

the journal and the additional payroll tax expense to the

employer.

Basswood Furniture Project 43

Time Card

Name Ian Smith

P/E 12/16/XX

Date Hours Worked

12/5

12/6

12/7

12/8

12/9

12/12

12/13

12/14

12/15

12/16

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 8.0

12/13 8.0

12/14 8.0

12/15 8.0

12/16 8.0

Total Hours 80.0

Time Card

Name Betty Gable

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 4.0

12/13 4.0

12/14 4.0

12/15 4.0

12/16 8.0

Total Hours 64.0

Time Card

Name Yourself

P/E 12/16/XX

Date Hours Worked

12/5 8.0

12/6 8.0

12/7 8.0

12/8 8.0

12/9 8.0

12/12 8.0

12/13 8.0

12/14 8.0

12/15 8.0

12/16 8.0

Total Hours 80.0

FIGURE 14—Period Ending 12/16/XX Time Cards: Basswood Furniture

44 Basswood Furniture Project

• Ian met with Fran Ogilvy from The Capitol Media Group,

Inc. about television advertising for the next quarter,

January 1 through March 31, 20XX. Ian wrote Check

No. 2286 in the amount of $8,725.00 to The Capitol

Media Group, Inc. in payment of the invoice (Form 26)

for the prepaid advertising. You’ll need to create a new

G/L account #145 for Prepaid Advertising. Journalize

and post the entry, completing the check register.

• Reimburse the petty cash by writing Check No. 2287

for the total amount of the receipts in the Petty Cash

Payments Record, making the check payable to “Cash.”

Journalize the entry from the Petty Cash Payments Record

and post it to the G/L accounts. Cash the check at the

FCU and replenish the cash in the petty cash box. The

amount of cash in the box should be the imprest amount.

Tuesday, December 27, 20XX

• Print out the Schedule of Accounts Payable and give it to

Ian so he can decide which accounts to pay. You also

write on the schedule the balance that’s in the checking

account based on the check register. Ian has decided not

to pay any of the A/P this week.

• Received Check No. 631 (Form 27) in the amount of

$1,234.00 for payment in full from Elizabeth Dante.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

• Received Check No. 11304 (Form 28) in the amount of

$350.00 for payment in full from The Antique Shoppe.

Make the journal entry for receipt of the check and post

to the proper G/L and subsidiary accounts.

Wednesday, December 28, 20XX

• Received Check No. 172 (Form 29) in the amount of

$50.00 for payment in full from Andy Mellow. Make the

journal entry for receipt of the check and post to the

proper G/L and subsidiary accounts.

• Delivered the custom furniture to Wayne Shriver for

Job #132 (Form 30). Received payment for the invoice

(Form 31) with Check No. 10769 in the amount of

Basswood Furniture Project 45

$14,250.00. Since the down payment was already

received and a journal entry already made to recognize

that portion of the sale, make the journal entry for receipt

of the check and post to the proper G/L accounts.

• Ian wishes to make a withdrawal from his capital account.

He presents you with a memo (Form 32) for the withdrawal. You make Check No. 2288 payable to Ian Smith

in the amount of $5,000.00 and use the memo to create

and post the journal entry to the G/L.

Thursday, December 29, 20XX

• Liya Adams from Liya Designs stopped by the store to

return an end table. The cost to make the custom-built

end table was $150.00. This end table will be added to

Merchandise Inventory as Item No. ETB-0012. Ian agreed

to issue her a credit memorandum (Form 33) and she

agreed that the credit could be put on her account. Make

the journal entry for the credit memorandum and post to

the proper G/L and subsidiary accounts.

Note: This can be a difficult entry to make. You need to

think through the transactions and the journal entries

made to be able to come up with the correct journal

entry. This is where using T-accounts as a tool helps.

First, a sale was made that was on account. The cost of

the materials for the custom-built furniture was paid for

with a check and put against purchases to have the

expenses match the revenues. These transactions

occurred in November. The accounting period was closed

and the profit transferred to the capital account. Then in

December, the receivable was paid for with a check. Now

the item is being returned and being entered into inventory. Instead of a check or cash, a credit to her account

is being given.

Friday, December 30, 20XX

Today is the last working day in the accounting period.

Therefore, there are a few things that need to be done to be

able to close out the accounting period.

46 Basswood Furniture Project

Note: For most businesses, the tasks will be similar. For

example, physical inventories need to taken. However, each

business will have its own set of tasks that will need to be

done. Also, just because it’s the last day of the month doesn’t

mean that the financial statements for the period end will be

completed on that day. They’ll usually be completed sometime into the next period, depending upon the size of the

business and the amount of work involved.

• You inform Betty that she needs to take a physical

inventory of all the merchandise that’s on hand, including the item number, a description of the item, and how

many of the item are physically present. When she

returns the form with the inventory, you’ll extend the

costs of the merchandise and use it as your merchandise

inventory valuation. This amount should be the same

amount as the balance in the Merchandise Inventory

account in the G/L. If it’s not the same, the discrepancy

must be looked into and a correction made.

Note: The reason Betty, the secretary, is taking the

inventory is for control purposes. If Billie takes the

inventory, it’s too easy for her to put down the quantity

of an item as, say, six, when only five are physically

there because she stole one. This is only one small part

of the control systems that accountants learn when getting their education.

• You inform Billie that she needs to take a physical inventory of all of the office supplies that are on hand. When

she returns the form with the inventory, you’ll extend the

costs of the office supplies and use it as your office supplies valuation.

• The following time cards (Figure 15) were given to you

during the week for you to calculate the payroll for the

period ending 12/30/20XX. Since the employees won’t

be paid for the pay period ending 12/30/20XX until

January 6, 20XX, this information will be needed to make

a payroll accrual adjusting entry when creating the

financial statements and closing out the accounting

period.

Basswood Furniture Project 47

Time Card

Name Ian Smith

P/E 12/30/XX

Date Hours Worked

12/19

12/20

12/21

12/22

12/23

12/26

12/27

12/28

12/29

12/30

Total Hours

Salary $2,500.00

Time Card

Name Billie Redmond

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

Time Card

Name Betty Gable

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

Time Card

Name Yourself

P/E 12/30/XX

Date Hours Worked

12/19 8.0 Holiday

12/20 8.0 Holiday

12/21 8.0 Holiday

12/22 8.0 Holiday

12/23 8.0 Holiday

12/26 8.0

12/27 8.0

12/28 8.0

12/29 8.0

12/30 8.0

Total Hours 80.0

FIGURE 15—Period Ending 12/30/XX Time Cards: Basswood Furniture

48 Basswood Furniture Project

• Make the bank deposit. Record the amount deposited

in the Check Register. Total the amount in the check

register.

• Verify the posting of all of the journal entries to the

G/L accounts and subsidiary accounts for the week.

Verify the amount on the check register is the balance

in the G/L Cash account. Any discrepancies need to be

 corrected.

January

Monday, January 2, 20XX

You’ll begin to close out the end of the accounting period for

December. To do this you’ll be using the blank forms in the

Documents and Forms booklet. You’ll use the Worksheet

and then use the forms provided for creating the financial

statements.

• On Friday, December 30, you should have made sure

that you posted all the entries in your journal to the G/L

accounts. If this hasn’t been done, then you must do it

now. Once done, total the balances in the G/L accounts.

• Create a 10-column Worksheet. (Review the study guide

Financial Reports along with the associated accounting

practices in the workbook for completing the Worksheet

if you’re unsure as to what you need to do.) The first two

columns should be labeled Trial Balance. The next two

should be labeled Adjustments. The next are Adjusted

Trial Balance, Income Statement, and Balance Sheet.

Each set of columns will have a debit and a credit column. Down the left side of the worksheet list all the G/L

accounts and put their balances in the appropriate debit

or credit column under Trial Balance. These are your

Pre-Adjusted Trial Balance figures. Foot (total) the debit

column and credit column. Your debits must equal your

credits.

Basswood Furniture Project 49

If your debits don’t equal your credits, then you’ve made a

technical error somewhere. This error must be corrected

before you can go any further. Often this is just a math error.

(This is why it was suggested you use a printer calculator or

Excel spreadsheet, to help you find math errors.) Subtract

the two totals and come up with a figure. Then scan your

work, looking through the journals and the general ledger

accounts to see where the mistake may be.

Note: You should not start the project over. This is a waste of

time, and can lead to further errors. If the error can’t be

found by carefully looking over your work, then follow the

procedure laid out below.

50 Basswood Furniture Project

Debits Equaling Credits Error Detection Procedure

It’s important to realize that debits not equaling credits has nothing to do with whether the

journal entries made are right or wrong. As an example, let’s say you pay rent in the amount

of $1,100.00. The entry for this should be a debit to Rent Expense for $1,100.00 and a credit

to Cash for $1,100.00. However, for whatever reason, the journal entry made is a debit to Rent

Expense for $1,010.00 and the credit to Cash for $1,010.00. While this entry is wrong because

it should be for $1,100.00, that’s irrelevant. The debit of $1,010.00 is equal to the credit of

$1,010.00. Debits equaling credits is purely a mechanical/technical issue unrelated to the

 correctness of the journal entry made. Therefore, focus on the numbers while following these

steps:

 1. Get several different-colored highlighters and make a copy of the journals.

 2. Set the original journals aside. You’ll use them only to make the correction when you’ve

found a mistake.

 3. Look at each journal entry. Look to see that the first entry has a debit equal to the

amount of the credit. If they’re the same or equal for a multiple-line entry, take a yellow

highlighter and highlight those numbers. Continue doing this for each and every journal

entry. When you come across a journal entry that has multiple line items, such as the

payroll entry, do the math several times when adding up the debit or credit. Do each and

every journal entry this way. Don’t just add up the debits on the page and the credits on

the page to see that they equal. You need to look at each journal entry.

 4. If you find an error, correct the original copy of the journal and the associated G/L

account. If the error is in the amount that makes your debits equal your credits, then

you’re finished. If not, then you must continue on. Remember, just like a bank reconciliation, if you’re off by some amount there may be multiple errors that net out to that

amount. Therefore, if you’re still off, keep looking.

 5. If you’ve gone through all of the journals and have highlighted all the journal entries but

haven’t found the error, then you’ll need to make a copy of the General Ledger. Put the

original aside.

 6. Using the copy of the highlighted journals and the copy of the G/L, take a different colored highlighter and begin checking the posting of the journal entries to the G/L accounts.

 7. This time, you’re not looking at each entry. Instead, you’re looking at each line item of

each entry. Look at your first journal entry and the first line item, which should be a debit

(it should be a debit because when making correct journal entries, the debits are listed

first before the credits) and look at the G/L account to which it was posted. Is it on the

debit side of the account? Is it the same exact number? If the answer to these two questions is yes, then highlight the number in the journal and the number in the ledger

signifying that it’s correct. Go through each and every line item in each and every journal

entry, highlighting when the posting is correct.

(Continued)

Basswood Furniture Project 51

Debits Equaling Credits Error Detection Procedure—Continued

 8. If an error is found, correct it on the original. Again, if the correction brings the total

debits back in line to equal your credits, you should be finished. If not, you must keep

looking.

 9. If you highlight all of the journal entries and their associated postings to the G/L accounts

and haven’t found the error, it’s time to do the math to get the balances in the G/L

accounts. In a G/L account, add up the debits several times. Add up the credits several

times. Subtract one from the other, giving you a balance. Whichever total figure was

greater, the debit or the credit, the balance goes on the greater side. If the balance is

correct, then place a checkmark next to the figure. If an error was made, correct it on the

original copy of the G/L.

10. If no error to the balances of the G/L accounts has been found, make a copy of the

Worksheet and set the original aside. Get out another colored highlighter and begin with

the first G/L account. Verify that the balance of the debit or the credit has been transferred to the Worksheet correctly—that is, it’s on the correct debit or credit side and in

the correct amount. If so, then highlight the G/L account balance and the figure on the

Worksheet. If not, make the correction on the original. If the correction brings the total

debits back in line to equal your credits, you’re finished. If not, you must continue.

11. If you’ve highlighted all of the figures on the Worksheet, the last thing to do is to foot the

debits and credits on the Worksheet several times for accuracy. The total amounts should

be equal.

12. If you focus and follow this procedure, you should be able to find the error or errors and

correct them.

Sometimes, you can get to the end of this procedure and still have your debits not equal the

credits. If this happens, then you not only made an error when you were originally doing the

books, but you also then made an error somewhere in doing the procedure and you should go

back through it again, making fresh copies of the original books.

There’s no excuse for the debits not equaling the credits. This is the fundamental, underpinning

rule of bookkeeping. Debits equaling credits goes a long way toward preventing “cooking the

books.” It’s the foundation of financial statements and the basis of the accounting equation.

The accounting equation is found on the Balance Sheet, and if it doesn’t balance, something is

wrong and the statement has no credibility. If the financial statements are fudged to bring

them into balance, this opens up the company to legal liabilities.

52 Basswood Furniture Project

• Assuming that the debits equal the credits in the Trial

Balance columns of the Worksheet, making adjusting/

correcting entries is the next step in the process of

 closing out the period. In the workplace it’s usually the

controller/accountant who handles the worksheet, making the adjusting journal entries, creating the financial

statements, and making the entries to close out the

accounting period. You’re doing these procedures to

become familiar with the process. It’s also possible that

the company will need financial statements for its own

internal use. Instead of paying a CPA to create financial

statements that will never be seen outside the company,

they’ll look to you (especially if you’re a full-charge bookkeeper), to create those financial statements.

• To make adjustments, look at each G/L account to make

sure it’s correct. You start at the top of the Trial Balance

and work your way down, account by account. If an

adjusting entry does need to be made, it should be dated

on the last day of the period (12/31/XX for the project)

to have it go into the correct accounting period.

â Is the G/L Cash—Business Checking account balance the same as the Check Register? If not, an

adjusting entry might need to be made to correct

the discrepancy.

The reason for the word “might” is because the

Check Register must be reconciled to the Bank

Statement for the period. In the workplace, you

would do a bank reconciliation and make adjusting

entries for things like service charges, NSF charges,

errors in amounts, etc. However, for this project,

we’re assuming that the balance in the Check

Register is the same balance on the Bank Statement

and no adjusting entry is needed if your G/L Cash

account has the same balance as the Check Register.

If not, then an entry would need to be made to

 correct the error. What you don’t do is go back and

change the incorrect entry. Instead, you should

make the adjusting entry with an explanation of the

error and what this adjusting journal entry is doing

Basswood Furniture Project 53

to correct it. This is what you do whenever you’re

correcting an error. You never just go back and

change the original entry. Doing this violates GAAP.

â Is the Petty Cash imprest amount $500.00? If yes,

then no adjusting entry needs to be made.

â Create an Accounts Receivable Subsidiary Ledger

Trial Balance. This is nothing more than a listing of

the A/R accounts and the balances in those accounts

with a total amount, similar to a G/L Trial Balance

(T/B). (The same will be done for the Accounts

Payable Subsidiary Ledger and G/L A/P account.) Are

the balances in the Accounts Receivable Subsidiary

Ledger Accounts correct? If not, then the error needs

to be found and an adjustment made. If yes, is the

total balance of the Subsidiary Ledger the same as

the balance in the G/L A/R account? If so, then no

adjusting entry needs to be made. If not, then the

error needs to be found and an adjustment made.

â Extend the value (calculate the total amount) of

the Merchandise Inventory from the physical inventory Betty gave you as the Merchandise Inventory

Valuation. This amount should be the same as the

amount in the G/L Merchandise Inventory account.

If not, an adjustment should be made. Note: Before

making that adjusting entry, go back over the transactions for the month and look at those that affected

Merchandise Inventory. At the beginning of the

period, the amount in the G/L account was the

same as the physical inventory at the end of the

accounting period in November. Therefore, whenever

an item was taken out of or put into the physical

inventory, a journal entry should have been made to

Merchandise Inventory. The balance in the account

should have always matched the physical inventory

because Basswood Furniture uses the specific ID

method of inventory. (Specific ID is used when you

can specifically account for each item. For example,

in a car lot that has 10 cars in inventory, you know

each specific car’s VIN. When the 2011 Cadillac gets

sold, you know exactly which one should be removed

54 Basswood Furniture Project

from inventory and its cost. It’s not useful for something like keeping an inventory of M&Ms. How do

you know which bag is sold or stolen?)

â Extend the value of the Office Supplies Inventory

from the physical inventory Billie gave you. The

Office Supplies Inventory Valuation comes to

$178.46. (You’re not being given the specific breakdown of the physical inventory. You’ll just use the

figure of $178.46 as the value of the physical inventory. You don’t need to create the Office Supplies

Inventory Valuation for the project.) Adjust the

Office Supplies Inventory to the correct amount.

â Rent was prepaid at the beginning of the year.

Using the information provided to you when you first

started working, make an adjustment to the Prepaid

Rent.

â Does an adjusting entry need to be made for Prepaid

Advertising, and if so how much?

â The Vehicles account should be the same because

there were no new purchases. However, an adjusting

entry for depreciation needs to be made in the Accum.

Depr.—Vehicles account. Take the figure from the

Schedule of Depreciation.

â The air ventilation/dust collection system was purchased. Make sure the balance in the Equipment

account is correct and make the adjusting entry for

depreciation in the Accum. Depr.—Equipment

account. Take the figures from the Schedule of

Depreciation.

â The Office Furniture and Equipment account should

be the same because there were no new purchases.

However, the adjusting entry for depreciation needs

to be made in the Accum. Depr.—Office Furniture

and Equipment account. Take the figures from the

Schedule of Depreciation.

â Verify the balance in the Accounts Payable

Subsidiary Ledger with the balance in the G/L A/P

account the same way that you did with the G/L A/R.

Basswood Furniture Project 55

â On Friday, you received the time cards for the P/E

12/30/XX. Since the next pay date isn’t until

01/06/XX an adjusting journal entry needs to be

made in the Payroll account to get the payroll into

the correct accounting period. Calculate and make

the adjusting accrued payroll entry. (Note: Once this

accounting period is closed, additional journal entries

would need to be made reversing the accrual entries

for payroll. If the reversing entries aren’t made, then

when you calculate and pay the payroll on 01/06/XX,

you’ll be making entries to the G/L accounts twice.)

â Go through the rest of the G/L Accounts looking at

the detail in each account to see if anything unusual

strikes you from what you know about each account.

If any errors are found, an adjusting entry should be

made.

Note: When you’re making an adjusting entry, you’re

making a journal entry in a journal. The amount

(debit or credit) for those accounts are also entered

in the adjustment columns of the Worksheet. When

all of the adjustments have been journalized and the

amounts are on the Worksheet, foot the debit column

and the credit column. On the Worksheet at this

point, the debits should equal the credits in the Trial

Balance columns and the Adjustment columns.

• Once all the adjusting entries have been journalized,

post the entries to the G/L accounts on the books.

Create a new Trial Balance. This is called the Adjusted

Trial Balance.

• On the Worksheet, do the math for the Adjusted Trial

Balance column. For example, in the Cash—Business

Checking account, total the debits and total the credits

from the Trial Balance and Adjustment columns. Subtract

one from the other and enter the amount in the Adjusted

Trial Balance column. Do this for each G/L account and

then foot the debit and credit columns. The debits must

equal the credits.

56 Basswood Furniture Project

• Compare the Adjusted Trial Balance with the Adjusted

Trial Balance columns on the Worksheet. They should be

the same. If not, find the error and correct it.

Note: You’re doing this because the accountant works on

the Worksheet. He or she writes down the adjustments

that need to be made as journal entries and hands them

to you to enter and post to the books. You’re taking care

of the books; the accountant is taking care of the Work -

sheet. If you make an error in entering and posting the

journal entries, then the books aren’t correct based on

what the accountant has on the Worksheet. Conversely,

you, the bookkeeper, may make and post the journal

entries correctly. However, the accountant can make a

math error on the Worksheet. Doing it this way provides

a check so the information is accurate.

• If the Adjusted Trial Balance and the Worksheet are in

agreement, then extend the account balance to the proper

Balance Sheet or Income Statement columns on the

Worksheet. Foot the debit and credit columns for each.

When doing this, the debits and credits won’t be equal in

the Income Statement or Balance Sheet columns. The

Balance Sheet will be “off” by the profit or loss from the

Income Statement. (The accounting equation is found on

the Balance Sheet. When you make journal entries, as

long as they only affect the accounting equation accounts,

the Balance Sheet would be in balance. As soon as a

journal entry is made to a revenue or expense account,

the accounting equation is out of balance. If the accounting equation is out of balance, the Balance Sheet is out

of balance. This is why the debits don’t equal the credits

when you transfer the figures over to their respective

columns. This is also why we must make closing journal

entries at the end of the accounting period—to bring the

Balance Sheet back into balance.)

• At the bottom of the Income Statement columns, subtract

the debit from the credit. This amount is the profit/loss.

Obviously, if the credit is larger than the debit, then

there’s a profit. If the debit is larger than the credit,

Basswood Furniture Project 57

there’s a loss. To have the debits equal the credits, you’ll

need to place the amount of the difference under the column with the smaller figure. (What you’re doing here is

representing your closing journal entries, when you’ll

move the profit/loss to the capital accounts.) Whichever

column you entered that amount to (debit or credit)

you’ll make the opposite entry under the Balance Sheet

columns. For example, if your credit is greater than your

debits by $500, then you have a profit of $500. To represent the closing entries, which bring the accounting

equation back into balance, and to bring the Income

Statement and Balance Sheet debits and credits back

into balance, you’ll need to enter the $500 on the Income

Statement debit side and the Balance Sheet credit side.

Foot the columns. The debits should equal the credits for

both the Income Statement and Balance Sheet columns.

(Note: If necessary, review the Financial Reports study

guide and workbook accounting practices covering the

Worksheet.)

• The Worksheet is complete. All that remains to do is to

create the Income Statement, make and post closing

journal entries, and create the Balance Sheet.

• Ian has copies of the Balance Sheet and Income

Statements (Figures 16 and 17) in a Microsoft Word file

from the quarter ending September 20XX.

Create an Income Statement for the period ending

December 31, 20XX using MS Word. (You should use the

financial statements shown in Figures 16 and 17 as a template to create the new financial statements. However, that

doesn’t mean you should copy them. There might have been

changes over the course of the accounting period that would

need to be taken into consideration when creating the new

financial statements.)

• Make closing journal entries (dating them the last day

of the accounting period) and post them to the G/L

accounts. (Look back in your program materials if you’re

unsure how to make closing entries.)

58 Basswood Furniture Project

BASSWOOD FURNITURE

BALANCE SHEET

As of September 30, 20XX

ASSETS

Cash – Business Checking $ 14,111.96

Petty Cash 500.00

Accounts Receivable 2,350.00

Merchandise Inventory 19,425.00

Office Supplies Inventory 168.36

Prepaid Rent 3,000.00

Vehicles $ 48,000.00

Less: Accum. Depr. – Vehicles 6,333.28 41,666.72

Equipment 23,500.80

Less: Accum. Depr. – Equipment 5,875.20 17,625.60

Office Furniture & Equipment 6,125.04

Less Accum. Depr. – Office Furniture & Equipment 1,531.26 4,593.78

TOTAL ASSETS $ 103,441.42

LIABILITIES

Accounts Payable $ 2,396.33

Payroll Payable —

Federal Income Tax Payable 584.82

Social Security Tax Payable 508.23

Medicare Tax Payable 118.86

State Income Tax Payable 251.66

City Income Tax Payable 81.97

FUTA Tax Payable 850.95

SUTA Tax Payable 5,743.94

Sales Tax Payable 3,247.50

TOTAL LIABILITIES 13,784.26

OWNER’S EQUITY

Ian Smith, Capital 89,657.16

TOTAL OWNER’S EQUITY 89,657.16

TOTAL LAIBITLITIES AND OWNER’S EQUITY $ 103,441.42

FIGURE 16—Balance Sheet for the Third Quarter: Basswood Furniture

Basswood Furniture Project 59

BASSWOOD FURNITURE

INCOME STATEMENT

For the Period Ending September 30, 20XX

REVENUES

Sales Revenue $ 54,125.00

Less: Sales Returns and Allowances —

Less: Sales Discounts 1,250.00

Net Sales $ 52,875.00

COGS - Cost of Goods Sold 3,275.00

Purchases 7,550.00

Less: Purchase Returns and Allowances 325.00

Less: Purchase Discounts —

Net Purchases 7,225.00

GROSS PROFIT 42,375.00

SELLING AND ADMINISTRATIVE EXPENSES

Payroll Expense $ 5,860.00

Payroll Tax Expense 436.57

Advertising Expense 16,450.00

Rent Expense 1,000.00

Office Supplies Expense 68.95

Telephone Expense 154.00

Utilities Expense 317.64

Supplies Expense 75.14

Miscellaneous Expense 68.23

Depreciation Expense 1,614.60

Cash Short and Over 20.00

TOTAL SELLING & ADMIN EXPENSES 26,065.13

NET PROFIT/LOSS $ 16,309.87

FIGURE 17—Income Statement for the Third Quarter: Basswood Furniture

60 Basswood Furniture Project

• Create a Post-Closing Trial Balance. (This is a G/L Trial

Balance after you make and post the closing entries.)

Compare the balances on the Trial Balance with the

 figures in the Balance Sheet column of the Worksheet.

Remember, the closing entries change the balances of

the equity accounts. You had previously simulated the

closing entries on the Worksheet to account for this.

• Create the Balance Sheet as of December 31, 20XX from

the Post-Closing Trial Balance

Note: At this point, you’re finished closing the accounting

period and would set up the books for the next accounting period. You don’t need to do that for this project.

You’ve now finished all the steps of the project. All that’s

left is to double-check your work and submit the project.

Formatting Financial Statements

The formatting of financial statements is very important.

These are professional documents. They reflect the image,

mindset, and character of the business. Poorly formatted

statements make the reader wonder: If the business can’t pay

attention to something as simple as typing and formatting,

then how is it going to perform in business relationships?

Will it care enough to correct mistakes? Will it even pay

attention when creating the product or performing the service

in the first place? Capital investors won’t invest in a business

if the financials are poorly formatted. Unless the annual

reports and other financials look sharp, they won’t even look

at the information. If the annual report of a big business like

Apple, Microsoft, Caterpillar, or Deere contains even one