***Important note!: The income tax figure below is incorrect it should be $51,429.77. Sorry for the mixup.

**
Systems Understanding Aid
Waren Sports Assignment
OBJECTIVE: To help you learn about business processes, documents, internal controls, and the accounting cycle. The assignment provides an opportunity to observe a simple accounting system in action. The knowledge and understanding of the manual system will serve as a foundation for the topics to be discussed in the remainder of the course, and in future courses, especially auditing. REQUIRED: Complete all requirements in Part III. Requirements starting on page 10 of the instruction booklet. Use Option 2 for recording monthly transactions, and use Transaction List A, the blue one. You must completely fill out the worksheet that is in your packet in order to assure that you have done the accounting correctly. Important: This project is very time consuming. Please plan ahead so that you have time to check the solutions manual or consult with peers or the instructor. The project is due in Week 4. -You do not need to do a bank reconciliation, but you need to record the bank service charge ($27.50) to 41000 Other operating expense. -You do not need to create a statement of cash flows (although it is great practice). -You do need to create an income statement, a balance sheet, and trial balances for A/R, A/P, and fixed assets. You can do this using a word processor, spreadsheet, or pencil and paper. -Post transactions to the General Ledger only when instructed to do so. You do not need to post each transaction individually. Bring the completed packet, with the required financial statements to class. On the due date, at the beginning of class, I will give an open-packet quiz. I will not require the entire packetyou will be asked to turn in a few documents and reports, which will be determined on the day of the quiz. HELPFUL HINTS: General 1. Make the documents and reports neat; use a pencil so that you can erase errors, you are to submit something that you would be willing to give to a supervisor. 2. Make sure all general journal entries are correct. Use the reference book with your packet if you are having trouble. 3. Make sure you carefully follow the flowcharts and put proper signatures/initials on the documents. If there is no designated space for the signatures/initials, just be consistent and visible. 4. Write checks only when explicitly directed to do so. Do not write one because money is due, but when instructed to write the check. If you run out of checks, or have extras at the end, you have done something wrong.
1

5. You may wish to replace the separator tabs (Mailed/Given to Outsiders, Shipping/Banking, etc.) with file folders. Try to keep the documents in the proper files, but dont worry if they are out of place. I will hand out a page entitled File System that shows the final order of documents. 6. If you find a mistake and correct it, make sure that you correct both the recorded transaction and the related document. There should be an audit trail connecting documents, journals, ledgers, and financial statements. ** Also, make sure youve read the Important section above. Transactions Some transactions can be very confusing. If you get stuck on a transaction, skip it and move on until you can get help. The transactions do not need to be in order. 7. Every transaction in the General Journal should include a description in the Explanation column (e.g. December bank service charge). For transactions that require a calculation, show the complete calculation below your description. 8. On Dec. 22, Received check No. 28564 follow the flow chart on p. 21 9. On Dec. 22, Received legal notificationthe amount of the uncollectible debt from Stevenson College is more that you currently have available in the Allowance for Doubtful Accounts. This is OK it will just cause the Allowance account, which normally has a credit balance, to be negative, which results in a debit balance. When you prepare the Unadjusted Trial Balance portion of the worksheet, list this balance in the Debit column. (Using a negative number in the Credit column is fine too, but will cause your totals to differ from those in provided in the Check Figures). 10. On Dec. 23, Received vendor invoice No. 34719, remember that on Dec. 22 you only received part of the goods ordered. When you prepare the check, pay only for the goods you actually received. 11. Ignore the current balance in the Allowance for Doubtful Accounts when you prepare the yearend adjusting entry for Bad Debt Expense. Just use .4% of Net Sales as instructed. 12. When you are preparing the Federal Income Tax Expense adjusting entry, you must first create the worksheet, and calculate Total Income. Then, calculate the tax based on the information provided in the instructions. (The amount will be $52,429.77 if all transactions have been recorded correctly.) Finally, record the adjusting entry, and re-calculate Total Income.

Systems Understanding Aid

Check Figures 7th Edition Transaction List A, Main Solution

Journals Prior to Month-End Entries Sales Journal -- 2 entries Account # 10200 30200 Amount $ 49,398.00 $ 3,480.00 Cash Receipts Journal--4 entries Account # 10100 30300 10200 Amount $ 115,082.36 $ 261.64 $ 23,082.00 Purchases Journal--3 entries Account # 30500 20100 Amount $ 51,795.00 $64,279.15 Cash Disbursements Journal--3 entries Account # 10100 20100 30800 Amount $ 73,099.43 $59,162.00 $ 1,300.00 Payroll Journal--3 entries Account # 40500 20300 10100 Amount $ 15,152.48 $ 1,824.44 $ 12,168.89 General Journal1 entry Complete Project Financial Statements Current Assets Total Assets Net Sales Op. Exp. (excluding COGS, int exp, FIT) Net Income Accounts Receivable Aged Trial Balance Total Accounts Receivable Current Accounts Receivable Year-end Worksheet 12-31-01 Unadjusted Trial Balance Total Adjustments Column Total General Ledger Balances #10100--Cash #30100--Sales (pre closing) #30500--Purchases (pre closing) #30400--COGS (pre closing)

$362,240.75 $578,161.75 $1,516,028.18 $308,964.05 $ 128,236.25 $ 47,421.00 $ 26,316.00 $2,109,266.06 $1,247,780.69 $ 103,141.67 $1,592,545.00 $1,130,295.00 $1,028,021.74