Important Controls:
6 Reconciling the Cash Account to the Bank Statement
7 Control over the movement and costing of Inventory
8 Depreciation Schedules - Example of three methods of depreciation
9 Cost Accounting Example
10 Classification of Accounts
This workbook is used in conjunction with a course that is subject to copyright protection.
You may print, download and use this workbook for your own personal use in conjunction
with this course. You may not reproduce or redistribute this workbook without first
obtaining the express permission of the author:
Matt H. Evans, CPA, CMA, CFM
Email: matt@exinfm.com
Phone: 1-877-807-8756
an find information about
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ting period
Accounting Example - Chart of Accounts
Module 1 Course 1: The Basics of Accounting
We need to setup a Chart of Accounts in order to do accounting. You need to establish an account for all assets, liabilities,
equity, revenue and expenses that you anticipate in running your business.
Number Title
1001 Cash
1002 Accounts Receivable
1003 Inventory
1004 Furniture & Fixtures
1101 Warehouse Facility
1102 Accumulated Depreciation
2001 Accounts Payable
2002 Mortgage Payable - Current
2101 Mortgage Payable
3101 Capital Account
3001 Retained Earnings
4001 Cost of Goods Sold
4002 Office Supplies Expense
4003 Depreciation Expense
4004 Interest Expense
4005 Tax Expense
5001 Sales Revenue
6001 Income Summary Account
xample - Chart of Accounts Main Menu
rse 1: The Basics of Accounting
order to do accounting. You need to establish an account for all assets, liabilities,
nticipate in running your business.
Description
Entry 2 - The business orders some office furniture on March 15, 2008 in the amount of $ 6,104.50
2 03/15/08 Furniture and Fixtures $ 6,104.50
2 03/15/08 Accounts Payable $ 6,104.50
Entry 3 - The business purchases some office supplies on March 15, 2008 in the amount of $ 680.90
3 03/15/08 Office Supplies Expense $ 680.90
3 03/15/08 Cash $ 680.90
Entry 4 - The business purchases 1,000 units of inventory for resale to customers at a unit cost of $ 11.00
4 03/18/08 Inventory $ 11,000.00
4 03/18/08 Cash $ 11,000.00
Entry 5 - The business acquires a warehouse facility to store the inventory. The warehouse facility costs $ 55,000. Cash is
paid for $ 3,500 with a Mortgage for the balance. The closing takes place on March 22, 2008.
5 03/22/08 Warehouse Facility $ 55,000.00
5 03/22/08 Cash $ 3,500.00
5 03/22/08 Mortgage Payable $ 51,500.00
Entry 6 - 20 units of inventory are sold to a customer at a sales price of $ 35.00 per unit. The customer will pay for the
units in 20 days from the date of sale which is March 28, 2008.
6 03/28/08 20 units x $ 35.00 per unit Accounts Receivable $ 700.00
6 03/28/08 Sales Revenue $ 700.00
6 03/28/08 20 units x $ 11.00 per unit Cost of Goods Sold $ 220.00
6 03/28/08 Inventory $ 220.00
Entry 7 - 100 units of inventory are sold to a customer for cash on April 4, 2008. The sales price was $ 33.00 per unit.
7 04/04/08 100 units x $ 33.00 per unit Cash $ 3,300.00
7 04/04/08 Sales Revenue $ 3,300.00
7 04/04/08 100 units x $ 11.00 per unit Cost of Goods Sold $ 1,100.00
7 04/04/08 Inventory $ 1,100.00
Entry 8 - The outstanding Accounts Payable is paid on April 12, 2008 (see Entry No. 2)
8 04/12/08 Accounts Payable $ 6,104.50
8 04/12/08 Cash $ 6,104.50
Entry 9 - The outstanding Accounts Receivable is paid by the customer on April 17, 2008 (see Entry No. 6)
9 04/17/08 Cash $ 700.00
9 04/17/08 Accounts Receivable $ 700.00
Accounting Example - Ledger Accounts
Module 1 Course 1: The Basics of Accounting
All businesses must have a centralized system of general ledger accounts to facilitate accounting. Everytime you generate
a transaction, you will need to post both a debit and credit to two or more general ledger accounts. You must be in balance
at all times; i.e. the sum of your debit entries should equal the sum of your credit entries. Collectively, all general ledger
accounts and all of the entries that get posted provide us with a working trial balance.
Closing Balance $ -
Total $ 6,104.50 $ -
Closing Balance $ 6,104.50
Total $55,000.00 $ -
Total $ - $ -
ADJ01 05/01/08 $ 458.33
Closing Balance $ 458.33
Total $ - $ -
ADJ02 05/01/08 $ 305.81
Closing Balance $ 305.81
Total $ - $50,000.00
Total $ - $ -
ADJ04 05/01/08 $ 949.31
Closing Balance $ 949.31
Total $ - $ 4,000.00
ADJ04 05/01/08 $ 4,000.00
Closing Balance $ -
Total $ 1,320.00 $ -
ADJ04 05/01/08 $ 1,320.00
Closing Balance $ -
Total $ 680.90 $ -
ADJ04 05/01/08 $ 680.90
Closing Balance $ -
Total $ - $ -
ADJ01 05/01/08 $ 458.33
ADJ04 05/01/08 $ 458.33
Closing Balance $ -
Total $ - $ -
ADJ02 05/01/08 $ 278.96
ADJ04 05/01/08 $ 278.96
Closing Balance $ -
Total $ 312.50 $ -
Closing Balance $ 312.50
Adjusting Entry No. 3 - We need to accrue a payment that we will have to make on federal income taxes per our expected
taxable income. An estimate of this liability is summarized below:
NOTE: Once we have posted all of our accrual entries, we can generate an Income Statement
Adjusting Entry No. 4 - A final entry should be made to close out the balances in all revenue and expense accounts to the
Retained Earnings account. This is usually done through an Income Summary account.
NOTE: Once you have closed out the Income Statement through the Income Summary Account, you are ready
to start posting new transactions for the next reporting cycle.
Main Menu
Adjusting Entries Adjusted Trial Balance Income Statement Closing Entry ADJ03
(see below) April 30, 2008 Inception thru 4-30-08 April 30, 2008
Credit Debit Credit Debit Credit Debit
$ 32,714.60
$ -
$ 9,680.00
$ 6,104.50
$ 55,000.00
$ 458.33 $ 458.33
$ 458.33 $ 103,499.10 $ 458.33 $ - $ - $ -
$ 591.46 $ 591.46
$ 305.81 $ 305.81
$ 51,194.19
$ 50,000.00
$ -
$ 897.27 $ - $ 102,091.46 $ - $ - $ -
$ 949.31
Credit
rehouse Facility. The cost of
e of 10 years with no salvage
uld be $ 5,500 or $ 55,000 / 10.
###
anding principal of the mortgage is
eriod. You can use the financial
(6.5% divided by 12)
(10 years x 12 months)
(payment number)
###
###
$ 312.50
$ 1,320.00
$ 680.90
$ 458.33
$ 278.96
$ 312.50
$ 949.31
$ 949.31
$ 32,714.60
$ -
$ 9,680.00
$ 6,104.50
$ 55,000.00
$ 458.33
$ - $ 103,499.10 $ 458.33
$ 591.46
$ 305.81
$ 51,194.19
$ 50,000.00
$ 949.31 $ 949.31
$ 949.31 $ - $ 103,040.77
$ 1,320.00
$ 680.90
$ 458.33
$ 278.96
$ 312.50
$ 3,050.69 $ - $ -
$ 949.31
Revenues
Sales Revenues $ 4,000.00
Expenses
Cost of Goods Sold 1,320.00
Office Supply Expense 680.90
Depreciation Expense 458.33
Interest Expense 278.96
Tax Expense 312.50
Assets
Current Assets
Cash $ 32,714.60
Accounts Receivable 0.00
Inventory 9,680.00
Total Current Assets 42,394.60
Liabilities
Current Liabilities
Accounts Payable 591.46
Mortgage Payable - Current 305.81
Total Current Liabilities 897.27
Equity
Capital Account 50,000.00
Retained Earnings 949.31
Bank Reconciliation
As of 30-Apr-08
Bank Statement:
The Bank Statement and Cash Account should agree > Yes
Main Menu
Example - Inventory Control
Module 1 Course 1: The Basics of Accounting
Keeping track of inventories requires a breakdown by product so that we can identify at any given
point in time how much inventory do we have on hand and at what cost per a method such as
LIFO (Last In First Out), FIFO (First In First Out) or Weighted Average (per example below).
Product A Product B
Reconcile the Quantity of Inventory on Hand $ 125.00 $ 140.00
Total
500
150
30
70
300
40
650
-150
-230
280
-200
-350
1,090
$ 44,167.00
$ 149,798.50
$ 140,550.96
$ 93,456.66
$ 44,167.00
$ 129,015.50
$ 173,182.50
$ 93,456.66
$ 79,725.84
$ (12,619.70)
$ (20,011.85)
$ (17,268.64)
$ (29,825.66)
$ (79,725.84)
Example - Depreciation Schedules
Module 1 Course 1: The Basics of Accounting
A long-term fixed asset is depreciated over its useful life. In order to streamline this
accounting application, you should setup a depreciation schedule for each of your assets
that is subject to some form of capitalization (depeciation, amortization or depletion).
Total Cost to place asset into service: $ 105,000 (Double Declining method)
Salvage value at end of useful life $ 35,000
Cost basis for depreciation $ 70,000 (Straight Line & Sum of Years Digits only)
Estimated useful life in years 10
Date placed into service 6/1/2007
* to be more accurate, you should consider allocating each year's depreciation amount between each calendar ye
Main Menu
Book
Value
97,576
86,121
75,939
67,030
59,394
53,030
47,939
44,121
41,576
40,303
35,000
1. The expected production data for the upcoming year is summarized as follows:
Materials:
Standard price for Raw Materials $ 5.00 per pound
Standard usage of Raw Materials 3.00 pounds per unit
Labor:
Standard Hourly Rate for Labor $ 30.00 per hour
Standard Hours to produce 1 Unit 4.00 hours per unit
Overhead:
Budgeted Variable Overhead Rate $ 8.00 per Direct Labor Hours
Budgeted Fixed Overhead $ 7,600,000
Normal Production Capacity 100,000 units
Total planned standard hours 400,000 hours
Budgeted Fixed Overhead Rate $ 19.00 per Direct Labor Hours
Labor:
Average annual hourly labor rate $ 30.40 per hour
Total labor hours used during the year 385,000 hours
Overhead:
Actual Variable Overhead incurred $ 3,100,000
Actual Fixed Overhead incurred $ 7,650,000
Materials:
Materials Price Variance:
Actual Rate Paid $ 5.10
Standard Planned Rate $ 5.00
Total Materials Purchased 301,000
Variance $ 30,100.00 Unfavorable
Labor:
Labor Rate Variance:
Actual Labor Rate $ 30.40
Standard Labor Rate $ 30.00
Total Actual Hours 385,000
Variance $ 154,000.00 Unfavorable
Overhead:
Overhead Spending Variance:
Actual Overhead Incurred $ 10,750,000
Budgeted Overhead at Actual Hours $ 10,680,000
Variance $ 70,000.00 Unfavorable
4. Cost accounting entries for the production year are summarized below:
Debit Credit
Record the actual quantity of materials purchased during the production period
Materials $ 1,505,000
Materials Price Variance $ 30,100
Accounts Payable $ 1,535,100
Totals $ 1,535,100 $ 1,535,100
Comment