Competencies

In this project, you will demonstrate your mastery of the following competencies:

Record and present financial information by applying the appropriate framework and guidelines of accounting for business transactions

Determine asset accounts and their disclosure in the financial statements

Determine liability and equity accounts and their disclosure in the financial statements

Scenario

You were recently hired as an entry-level bookkeeper for a service business that recently opened. This is the first month in operation for the business and your first task is to record business transactions for their first month using the source documents and transaction data the owner will provide to you. Because this is a small business that does not use computerized accounting, you will apply the accounting cycle in Excel to record transactions and generate financial reporting results for the owner.

Directions

I. Company Accounting Workbook

Use accepted accounting principles to follow and record your business transactions for a one-month period from the first step of the accounting cycle through the reporting process. You will build on the workbook you created in Milestones One and Two, or you may start over with the blank Company Accounting Workbook Template (linked below in the What to Submit section), incorporating instructor feedback where applicable. After you complete your workbook, you will prepare a summary report of your work.

Your completed accounting workbook will consist of journal entries for each transaction and postings of transactions to account ledgers. You will develop a trial balance from the ledger balances, and use these balances to prepare the income statement, statement of owner's equity, and the balance sheet. After the preparation of the financial statements, closing entries will be entered to transfer earnings to equity and prepare temporary accounts for the new accounting period.

Use the instructions below to complete your workbook. Specifically, you must address the following rubric criteria:

1. Record Financial Data: Use accepted accounting principles to accurately capture business transactions for the month using the data provided in the accounting data appendix (linked in the Supporting Materials section). You will need to address the following:

A. Accuracy: Prepare entries that are accurate in that they fully reflect the appropriate information.

B. Completeness: Prepare entries that are complete for the month, including transferring posted entries to T accounts.

C. Unadjusted Trial Balance: Prepare the unadjusted trial balance portion of the Trial Balance tab of the company accounting workbook, ensuring that the total debits and credits match.

2. Financial Statements: Create financial statements using appropriate methods based on accepted accounting principles. Be sure to prepare these financial statements in the order listed, as there are important interdependencies among them. Finalize the process by closing temporary accounts.

A. Income Statement: Prepare the income statement using the adjusted trial balance.

B. Statement of Owners Equity: Prepare the statement of owners equity using the adjusted trial balance.

C. Balance Sheet Assets: Prepare the balance sheet asset entries using the adjusted trial balance.

D. Balance Sheet Liabilities: Prepare the balance sheet liabilities entries using the adjusted trial balance.

E. Closing Entries: Complete the Closing Entries tab of the company accounting workbook by closing all temporary income statement amounts to create closing entries.

II. Summary Report

After you have finished preparing all the financial statements, analyze the statements and write a short report summarizing your findings. Use the template provided in the What to Submit section to complete your report. There is also a Final Project Walkthrough video available in Supporting Materials that will provide guidance for completing your template. In addition to the financial statement results, the owners have requested that you provide them with additional information as further growth is anticipated. They would like more input from you to support the best possible decisions for the business.

In addition, the owners are requesting that you provide them with some suggestions on simple internal controls they can integrate to ensure protection of company assets, and accuracy in the company's financial data. The owners are also considering acquiring more long-term/fixed assets, such as vehicles, equipment, buildings, and so on. They would like your input on the different options available for depreciation of these costs. Adding sales of product is also a consideration for expansion. The owners want to know what accounting considerations will be involved with this change.

3. Summary: Write a summary of what the financial statements indicate about the companys financial health and performance.

A. Purpose: Discuss the accounting process and the resulting financial statements as they relate to meeting the informational needs of the user.

B. Process: Explain the process used to produce accurate account balances and financial statements from the individual transaction data.

i. Consider what is being communicated through each of the financial statements you prepared (income statement, statement of equity and balance sheet) and how this information will be used in business decision making and planning.

C. Analysis: Explain the companys cash position, its net income as a percentage of sales, and its current liabilities to current assets position.

D. Results: Discuss the results regarding profitability of the first month of operations.

i. Consider how well the company is positioned to meet current liabilities.

ii. Be sure to include the percentage of revenues that result in profit/net income and the current ratio when discussing profitability and liquidity based on the recorded months results.

iii. Consider key points in your observations of results: is the company operating profitably (what percent of revenues result in profit/net income)? How well-poised are they to meet liabilities (discuss liquidity and current ratio)?

E. Recommendations: Recommend a simple system of controls that can be implemented to ensure protection of company assets and the accuracy and integrity of their financial data as they anticipate further growth.

i. Consider additional controls that will support the potential for adding merchandise and additional assets with business growth/expansion.

F. Asset Valuation: Discuss the treatment of current and long-term assets on the balance sheet.

i. Discuss at least two different methods of depreciation. Consider how the methods of depreciation will be determined.

ii. Discuss how LIFO, FIFO, and average methods will differ and provide examples of types of applicable merchandising.

iii. Consider how accounting will change with the addition of merchandise inventory.

The following events occurred in June:

June 1: Owner contributed $50,000 in cash to the business.

June 1: Owner purchased a company vehicle in the amount of $15,000.

June 3: Owner took out a small business loan in the amount of $25,000.

June 5: Owner paid rent for June, and prepaid office rent for a 6-month period to cover July through December at $1,195 per month.

June 5: Owner paid business license fees in the amount of $250 to the county.

June 5: Owner ordered office supplies, on account, in the amount of $750.00.

June 6: Owner performed service for client on account in the amount of $1,000.

June 9: Owner provided service for client in the amount of $1,500. Customer paid $750 at time of service. Client will be billed for the balance due.

June 10: Owner paid $250 in advertising costs to the local paper.

June 15: Owner recorded wages due to the part-time employee in the amount of $325. This will be paid on June 20.

June 15: Owner prepaid business insurance to cover July through December at the rate of $125 per month.

June 20: Owner paid wages due to part-time employee from period ending June 15.

June 21: Owner paid for plumbing repairs in the office in the amount of $210.

June 22: Owner withdrew $1,000 cash for personal use.

June 23: Customer paid balance due from June 6 service in the amount of $1,000.

June 25: Owner provided service to client in the amount of $800. Client paid at time of service.

June 28: Owner paid balance due for office supplies purchase on June 5.

June 29: Owner performed service for client on account in the amount of $2,225.00.

June 30: Owner received telephone bill for month of June in the amount of $155 and recorded the expense. This bill will not be paid until July.

June 30: Last day of pay period; owner owes part-time worker $325 for the June 16 through June 30 pay period. This will be paid on July 5.

June 30: Record depreciation on vehicle at $250.