Question: Introduction: Queta Johnson is about to open a new business - Chocolate Nirvana. It will be a small chocolate specialties store. She plans on selling a limited number of hand-made molded candies, some of which are holiday specific and others that are of a more generic nature, as well as carrying a line of top-end candy bars. The majority of her sales will come from walk-in customers which will all be on a cash only basis. She anticipates working full-time at the store and needing the help of four part-time employees. She uses a perpetual FIFO (First-in, First-Out) method to account for her inventory. So, every time you record a sale of merchandise you must also figure out the cost of the goods (determined from recording it in the merchandise inventory sheets and applying FIFO).
The purpose of this practice set is to allow you the chance to see how each of the separate components we have worked on this semester fit together. As you complete the set, you may find it necessary to look back at what we learned in various chapters to help remember exactly what to do.
Instructions: 1. Be sure to complete each form before moving on to the next form.
2. Read the form and decide which journal to put it in.
3. First - journalize the form into ONE of the journals. If it can go into one of the special journals, that is where you first put it. Only if you cannot (the transaction does not work for any of them) would you record it in the general journal. It would never go in two journals but it does have to go in one - you cannot record it anywhere else until you have journalized it.
CASH PAYMENTS JOURNAL - Use this if you are told to write a check. It must go in the Cash credit column, which means that it must also go to the check book and write out a check. Why did we pay it? On account would go in the Accounts Payable debit column, you would need the name of the business off to the left, and it would need to be recorded in the Accounts Payable subidiary. Some other reason? Would need to go in the Other column and you would need the name of an account from the chart of accounts. If we have an asset relating to what we are paying for we should use that. If not then we can use the expense or other appropriate account. If we pay for more than one thing with the single check we will need 2 lines to record it so that we can properly show the details.
CASH RECEIPTS JOURNAL - Use this one if you receive money FOR ANY REASON. The total amount of cash received must go in the Cash debit column and into the check book as a deposit. Why did you get the money? If you received it for a summary of cash sales, you must credit Sales - Store Sales and Sales Tax Payable. These numbers come from the bottom of the cash sales form. Then we must also take the things we sold into the merchandsie inventory sheets and record them as sales and determine what our COST in the goods sold would be. This is based on what we learned in chapter 7. If we received it for any other reason it needs to go in the Other column and we need the name of an account on the left.
PURCHASES JOURNAL - Used if you buy something on account (or receive a service that you will be paying for a bit later). Because everything in this journal will include a credit to Accounts Payable you will need the name of the business off to the left and have to take it to the Accounts Payable Subsidiary. Then, what did you buy? Merchandise? Then also put it in the Merchandise Inventory column and have to take it to the Inventory sheets and show the purchase. Something else? Then over on the right, put the amount in and then find an account from the chart of account that matches what you have gotten.
SALES JOURNAL - This business does not use a sales journal
GENERAL JOURNAL - Only if you cannot record it in one of these four journals would you record it in the general journal. Which means you should not record anything here that affects Cash. We study payroll in chapter 11. We will also use the general journal for our adjusting and closing entries.
Payroll - record the payroll as instructed -
1) into their employee earnings records,
2) then transfer the information into the payroll register and
3) after totaling the payroll register use that information to prepare a general journal entry and then from what we learned in chapter 11 also prepare the entry to record payroll tax expense. Specific data for each individual regarding their pay rate, status and number of allowances can be found on their earnings record sheets. Actual hours worked are given on the form. Federal Income Tax withholding amounts are found on the chart near the front of the booklet. First detemine their gross wages, then based on their claimed marital status go to the appropriate chart (married or single - in the front of the book) and find the intersection of their gross wages and how many allowances they are claiming. This is the dollar amount to take for their income tax withholding. Prepare the journal entries based off what we were taught in the textbook.
4. After journalizing all forms, total up every column from all four special journals and write down your total on the journal page. Compare your totals with the check figures. Do they match? If they do not, determine how far off they are. Try to determine where the error would come from.
5. Once you have your totals correct, begin posting into the general ledger. You must post all 5 journals (includes the general journal!!!) From the special journals, if you have the name of an account in the column heading, you will post ONLY the total from that column into the general ledger as either a debit (DR) or a credit (CR) based on what is shown in the column heading. For the "Other" columns you must post each amount individually. This comes from chapter 5. Notice in chapter 5 how your post reference numbers should look. From the general journal you need to post every account you have used.
6. As you post in the general ledger, keep running balances. Remember if you have a debit balance and a debit transaction they are added and stay a debit. If you have a credit balance and a credit transaction they are added and stay a credit. If you have one as a debit and the other as a credit they are subtracted and the balance goes to the higher side. Remember the rules for normal balances! Do not worry about an account's balance too much until you have posted all transactions - at that time all accounts should have their "normal" balance.
7 After posting all numbers from the journals into the general ledger, go to the Unadjusted Trial Balance in the back of the booklet. Write down each account, in order, from the general ledger that has a balance (you will have many accounts that do not yet have balances) and write in the balance amount - debit or credit - and add up your balances. Check your totals (this is a Trial BALANCE so your two balances should be the same) and compare to the check figures.
8. Use your chart of accounts page to begin work on your worksheet. List all accounts, in order, except you do not need to list Notes Payable - current, Income Summary, or Miscellaneous Expense.
9. For the accounts on your unadjusted trial balance, fill in their balances on to the worksheet in the Unadjusted Trial Balance columns. Leave all other accounts blank for these columns.
10. Journalize your adjusting entries in the general journal. You are given the information here, but you will need to also use the chart of accounts, sometimes you will need to look back at the form where we originally got the information we recorded for this charge, or you may need to look up on the forms, the ledger, or the trial balance a cost amount.
Prepare month end adjusting entries based on the following data for OCTOBER:
a) Record accrued interest on the long term note for 3 days - $13.56
b) Depreciation - calculate depreciation for JUST the month of October based on the following information:
Store Equipment - 5 year life, $3000 salvage value, use straight line depreciation
Office Equipment - 5 year life, $200 salvage value, use straight line depreciation
c) Record entry for expired insurance
d) Currently there are $45 worth of office supplies on hand
e) Currently there are $90 worth of store supplies on hand
f) Record entry for amount of advertising expired for the period just ended
g) Record wages earned, but unpaid, on Oct 31 of $110
11. Post your adjusting entries into the general ledger and get new running balances. Remember from chapter 3 what date we use and how we show this in the ledger.
12. Also, add your adjusting entries on to the worksheet in the Adjustments column. You will total your adjusting entries here.
13. You can now complete the worksheet. Your Adjusted Trial Balance columns should match your general ledger balances. What accounts need to get extended into the Income Statement columns (based on the Adjusted Trial Balance numbers) and which ones need to go into the Balance Sheet columns? Look at chapter 4 if you can't remember. Also, check chapter 4 to remind yourself how to show the totals on the bottom of the last page of the worksheet.
14. You are now ready to prepare your financial statements. Be sure to use chapter 6 examples as references.
15. Your Accounts Payable Vendor balance (Schedule of Accounts Payable) is from chapter 5. Simply list each vendor that you owe money to (Accounts Payable) and total them (example in chapter 5). You do not have to list any business that does not have a balance at the end of the month.
16. Income Statement - use a multiple step format. What all do you show, and in what columns (chapter 6) to get to gross profit? Where do you show Interest Expense? The company decided not to separate their operating expenses into selling and administrative but rather to list them all under Operating Expenses unless they are considered to be Other Expenses.
17. Statement of Owner's Equity - were we in business last month? Does that affect how we show anything on this statement?
18. Balance Sheet - be sure to use the classified format as described and illustrated in chapter 6. They show their Note Payable as a noncurrent liability rather than splitting it between current and noncurrent.
19. You are now ready to prepare your closing entries. These need to be journalized in the general journal. Use chapter 4 as a reference. If you prepared your worksheet correctly this is a great help in preparing the closing entries. Remember, though, we may have some accounts now that we did not have back in chapter 4 that still need to be closed because of the type of account they are. We close revenues and expenses - where are they found on the balance sheet? What amount should we have for the third entry? What are we trying to close in the 4th entry?
20. After journalizing the closing entries, you then need to post them into the general ledger. Do we put something in the item column?
21. After posting the closing entries, you will then prepare the post-closing trial balance. Which accounts should still be open?
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