Financial Accounting Module 4 Group Project 2017-2018

Financial Accountingmodule 4 Group Project 2017 2018financial Accoun

The table below provides a list of three different sole trader businesses. You are to choose one then give it an appropriate name and state the nature of the business; which MUST be in accordance WITH the items sold. After selecting, naming and describing the nature of the business as well as identifying at least three aims of the project, you should then perform the different actions outlined in Tasks 1-5 for period one (1), then Tasks 6-9 for period 2. You may choose goods from the following list to prepare transactions: * Computer Store Clothing & Accessories Store Small Appliances & Household Supplies Store A Keyboard Pants Irons B Mouse Blouse Blenders C Printer Hand Bags Juicers D Surge Protector Skirts Dish Drainers E Speakers Sandals Rugs The (business name) has been in operations for some time and has been having problems with maintaining its accounting books. the owner is not sure how profitable the business is and has therefore decided to hire you as an accountant to record the daily transactions carried out by the business in the relevant books. You are also required to prepare the necessary financial statements as well as to prepare reports on how the business is doing as well as to provide recommendations on how the business can improve. During your first month (January 2017) as the new accountant, the following transactions were carried out by (business name). You are required to carefully analyze each transaction, then enter them in the appropriate books of accounts as outlined in the different tasks below: 2017 January 1 Opening Entries / Balances: $ Capital 500,000 Cash at Bank 234,000 Cash in Hand 43,150 Debtors: M. Jackson 21,400 A. Lewis 14,200 Creditor: J & J Manufacturers Ltd 33,350 Delivery Van 62,840 Fixtures and Fittings 8,000 Land 100,000 Stock: 18 units Pants 36, dozen Blouse 6, dozen Skirts 7,360 Transactions during the month of January: January 1 Sold the following goods on credit to M. Jackson: · 1 dozen Pants @ $3,500 each · ½ dozen Blouse @ $1,650 each · 1 dozen Skirts @ $1,320 each January 1 Bought machinery by cheque $78,000. January 2 Bought the following items on credit from J & J Manufacturers: · 10 dozen Pants @ $2,000 each · 10 dozen Blouse @ $6500 per dozen · 7 boxes Juicer @ $2,500 per box · 6 dozen Skirts @ 2,250 each · 8 dozen Sandals @ $1,500 per dozen January 2 Withdrew $93,000 cash from the bank account to be used in the business. January 3 Cash Sales: · 1 dozen Pants @ $2,520 each · 1 dozen Blouse @ $2,950 each · 1 dozen Skirts @ $3,400 each January 3 Paid rent by cheque $40,000. January 5 Sold goods on credit to P. Simpson: · 18 units Pants @ $1,650 each · 3 dozen Blouse @ $1,200 each · 1 dozen Sandals @ $2,500 per dozen January 6 Bought fixtures with cash $55, 000. January 7 Cash Sales: · 3 boxes Hand Bags @ $5,875 per box · 1 dozen Skirts @ $2,400 each · 1 dozen Sandals @ $2,500 per dozen January 8 Paid wages $42, 000 by cheque. January 9. Returned goods to J & J Manufacturers as items were damaged: · 18 units Pants · 3 boxes Hand Bags January 11 Paid the following expenses by cheque: · Telephone $9,100; · Electricity $12,300 and · General Expenses $2,600 January 13 Sold goods on credit to A. Holness: · 2 dozen Pants @ $3,650 each · 2 dozen Blouse @ $1,250 each · 1 Hand Bags @ $3,000 per unit ï‚· 1 dozen Skirts @ $1,400 each January 15 Paid J & J Manufacturers by cheque and received a 5% cash discount. January 15 Paid office wages with cash $20,000 January 16 Owner withdrew $12,200 cash to pay his daughter’s school fees. January 18 Collected cheque from P. Simpson for goods sold on January 5th, 2017, allowing a 2.5% discount January 19 Purchased computer and desk from Singer Jamaica valued at $30,600, paying $15,000 in cash. January 20 Sold goods on credit to H. Jackman: · 3 dozen Pants @ $1,650 each · 3 dozen Blouse @ $1,200 each · 2 dozen Sandals @ $3,500 per dozen January 22 Paid wages with cheque $10,000. January dozen Skirts returned to us by A. Holness as they were the wrong brand. January 27 Bought goods on credit from J & J Manufacturers Ltd.: · 6 dozen Pants @ $ 2,100 each · 10 boxes Hand Bags @ $ 2,850 per box · 3 dozen Sandals @ $ 1,080 per dozen January 29 A. Holness paid half of what he owed us by cheque after deducting a 10% cash discount. January 30 H. Jackman sent us ½ dozen B January 30 Cash Sales: · 3 dozen Pants @ $ 2,935 each · 1 dozen Blouse @ $ 1,950 each · 4 Hand Bags @ $ 4,500 per box · 2 dozen Skirts @ $ 1,400 per dozen YOU ARE REQUIRED TO: Task 1: Enter the above transactions in the appropriate subsidiary book/book of original entry and then post the transactions to the relevant ledgers. Ensure that you use all the relevant books. The opening entries should be shown in the General Journal for the period. Task 2: Prepare the Trial Balance as at January 31, 2017. Task 3: On a Stock/Store Ledger, determine the value of the closing stock using the: LIFO method of stock valuation for the computer Store FIFO method of stock valuation for the Clothing Store. AVCO method of stock valuation for the Small Appliances and Household Items Store. Task 4: Prepare the Financial Statements for the period ending January 31, 2017. On February 5, 2017: the (business name) received the following bank statement from its bank, National Commercial Bank (NCB). After examining the bank statement below, you observed that the cheques used to pay for machinery purchased on January 1, 2017 and the one sent to J & J Manufacturers Limited were not included. The cheques collected from P. Jackson and A. Holness were not deposited until February 1, 2017. National Commercial Bank Date Particulars Withdrawals Deposits Balance Jan 1 Balance b/f 234,000 Jan 1 Cheque (M. Jackson) 20,000 Jan 2 Standing Order (Insurance Expense) 6,600 Jan 2 Cheque 93,600 Jan 8 Rent 40,600 Jan 8 Wages 42,600 Jan 11 Telephone expense 9,500 Jan 11 Electricity 12,200 Jan 11 General expenses 2,600 Jan 19 Cheque 15,000 Jan 22 Wages 10,000 Jan 24 Credit Transfer (J & J Manufacturers Ltd) 32,000) Jan 29 Standing Order 15,000) Jan 31 Bank charges ,650) Task 5: (1) Update the Cashbook for January 2017 and balance it off. (2) Draw up a Bank Reconciliation Statement as at January 31, 2017; reconciling the corrected cash book balance with the bank statement Period Two February 1 Bought goods on credit from J & J Manufacturers Ltd valued at · 12 boxes of Hand Bags @ $2,750 · 4 dozens Skirts @ $2,300 · 5 dozens Sandals @ $1,750 February 2. Sold the following to A. Holness on credit · Pants: 30 units @ $3,500 · Sandals: 2 dozen @ $2,000 February 3. Paid wages $10,000 by cash February 4. Paid cleaning expense $2,500 by cash February 5. Received a cheque from A. Lewis $14,200 February 6. Paid electricity bill by cheque $5,400 February 7. Deposit $80,000 of cash into bank. February 9. Paid water rate by cash $6,800 February 12. Paid J&J Manufacturers Ltd. by cheque $60,000 February 15. Paid for the maintenance of machinery $6,000 by cash February 17. Cash sales paid directly into bank: · Pants: 15 units @ $3,500 · Hand Bags: 3 boxes @ $2,500 · Sandals: 4 boxes @ $2,500 February18. Bought goods on credit from J & J Manufacturers Ltd. Pants: 50 units @ $2,000 per unit Blouse: 5 dozen @ $6,500 per dozen Hand Bags: 3 boxes @ $2,500 per box February 19. Paid wages $12,000 by cash February 20 Paid telephone bill of $8,000 by cash February 24. Sold the following to A. Holness on credit: Pants: 3 units @ $3,500 Blouse: 3 dozen @ $1,200 each Task 6: Enter the above transactions in the appropriate subsidiary book/book of original entry and then post the transactions to the relevant ledgers. Ensure that you use all the relevant books. The opening entries should be shown in the General Journal for the period. Task 7: Extract a trial balance as at February 28, 2017. Task 8: Prepare the Financial Statements for the period ending February 28, 2017. The following additional information must be considered when preparing the financial statements: 1. Closing Stock as per the stock valuation method used as per Task 3 above. 2. Depreciate non-current assets as follows: a. Fixtures & fittings – 15% on the straight line basis. b. Delivery van – 20% on the reducing balance basis c. Machinery – 20% on the reducing balance basis. d. Computer desk – 25% on the straight-line basis. e. Land is not depreciated. 3. The following expenses were outstanding at the end of February 2017: a. Water rates $3,500 b. Telephone $1,750 c. Electricity $2,. The following expenses were paid in advance: a. Machine Maintenance $1,500 b. Cleaning expense $. $1,800 of the amount owed by M. Jackson is to be written off as bad debt. Task 9: Calculate a minimum of five accounting ratios for BOTH periods. Use ratios to: a. comment on the performance of the business b. make comparisons – the use of tables, charts or graphs must be used to illustrate the comparisons. c. make a least three (3) suggestions and recommendations. The purpose of this exercise is to review the fundamentals of accounting for real estate transactions. A. Create a general ledger. B. Build a chart of accounts. C. Journal each transaction. D. Post the transactions to each account. E. Draw a trail balance. F. Create an income statement, a balance sheet and a cash flow statement. G. Identify the transactions that create cash vs. accrual differences. H. Prepare closing entries. You are a property investor purchasing your first building, a small 100,000 sf strip shopping center in Westchester County. You close on 1/1/2007. The center has three stores. All stores are leased. The stores are: a clothing store, 10,000 sf; a drug store, 30,000 sf; and a supermarket, 60,000 sf. The purchase price of the center is $15 million. You contribute $300,000 for five partnership units. You raise $3.0 million from friends and family by selling 30 partnership interests of $100,000 each. ($3 m for the purchase and $.3m for working capital) You borrow the remaining funds from a local bank at 6% for 10 years with a 30 year amortization schedule. You pay the mortgage monthly. Your accountant attributes 30% of the purchase price to land with the balance to buildings which depreciate over 39 years. Your tenants pay monthly rent as follows: Clothing Store $24 sf/yr Drug Store $20 sf/yr Supermarket $15 sf/yr Property taxes are paid twice yearly in June and December based on 2% of fair market value. At closing, you repay the seller for taxes paid this past December. (assume taxes were paid at the going forward rate) Insurance costs $0.30 sf/yr paid in two equal installments in April and November. Common area utilities cost $1.20 sf/yr paid monthly. The stores pay their own electric and HVAC directly. Repairs and maintenance cost $0.60 sf/yr paid monthly. Each month, in addition to rent the stores pay a “Common Area Maintenance†charge based on each stores’ square footage in an aggregate amount that will cover landlord costs (taxes, insurance, utilities and maintenance/repairs). In November, you must make a major roof repair for $10,000. This is not a “CAM charge,â it is a landlord cost. In July, the clothing store misses both its rent and CAM payment. They pay the past due charges plus a 5% late fee in August. You pay your accountant $6,000 per quarter for audit and tax fees. You pay your lawyer $50,000 for setting up and closing your property acquisition and $2,500 per month for general legal services. You earn 3% of all collected revenues (rent and CAM) as a management fee. This is an expense to the partnership. The clothing store gives you notice that they are closing on November 30th. They agree to pay a $50,000 lease termination fee. You find a new bath and tile store as a replacement tenant. The lease is signed on August 1. You must pay a brokerage commission of 2% of the total rent, 50% at signing and 50% at opening. You must also agree to pay $25/sf in tenant allowance. The tenant allowance is due on opening day, December 1st which is also the rent start date. Rent: Year 0 $2.50 for December Year 1-3 $35 sf/year Year 4-6 $40 sf/year Year 7-10 $45 sf/year In the event that sales exceed $360 sf/year the tenant will pay 8% of the marginal sales as percent rent. Sales in year 1 are expected to be $300/sf. Sales will grow 7% per year. Assume all of the CAM (expense) calculations remain the same. A brief reminder on accounting: The flow of Accounting: A company’s business activities are memorialized by accounting transactions. These transactions are recorded in a General Ledger using a system of accounting developed in Italy the 1400s. In the pre- industrial trading days, the primary assets of companies were the debts of their borrowers and these accounts were said to have debit balances. The primary owners of the companies were the suppliers of funds known as creditors, hence their accounts had balances known as credits. In every transaction, the impact on the debtor’s accounts had an equal and direct impact on the creditor’s accounts so debits must always equal credits. In this “dual entry system†each transaction represents the flow of value between a minimum of two accounts. . There are four primary types of accounts: Assets, Liabilities, Revenues and Expenses. Expenses represent the utilization of assets (the store of value of a company). These account types generally have debit balances . Revenues represent the returns on the company’s Liabilities (capital supplier’s investment), both represent the benefits of ownership. The capital suppliers, or creditors, (equity and note holders) own the company. Their accounts have credit balances . In accrual accounting, all transactions are said to occur when the economic effect occurs, not necessarily when cash changes hand. The income statement is developed for a period. Revenues and Expenses are income statement accounts. The balance sheet is taken a snapshot in time. Asset and Liabilities are balance sheet accounts. Balance sheets can be thought of as bookends to an activity period such as a month, quarter or year. Accounting years can be calendar or fiscal years. A fiscal year is an arbitrary period of 12 consecutive months representing a business cycle. Accounts are organized by type according to a chart of accounts . At the close of a period of activity, General Ledger transactions are sorted by account. The transaction list, sorted by account, with balances, and in accordance with the order specified in the chart of accounts, is called a trial balance . At the end of each accounting period a series of adjusting and closing entries is made. Periodic accounts (income statement) are brought to zero. Asset and liability accounts (balance sheet) are updated to reflect the impacts of the period’s business activity. Adjusting and closing entries are added to the general ledger. An adjusted trial balance is run. The balances are then fashioned into a set of financial statements . Note: the Income Statement is run before all of the periodic accounts are closed out at the end of the period, otherwise the values would all be zero. The balance sheet is run after all the closing entries have been made. Debits = credits so: If your ledger doesn’t balance then you have an error If any single transaction doesn’t balance you have an error Not every real estate financial analysis begins with a granular accounting. You do however need an understanding of accounting concepts to construct an accurate pro forma. This is a good format for an excel based ledger: Transaction # Date Account # Account Debit Credit Comment Use the data:sort and data:subtotal commands to create your trial balances. The following Chart of Accounts may be helpful. There are other ways to set up the accounts that will work as well. Balance Sheet a/o 12/31/2007 Assets Short Term 1000 Cash 1005 A/R 1020 Prepaid Expense Long Term 1050 RE Owned 1060 RE: Land 1070 RE: Building 1075 Legal Fees 1077 LT Asset Roof 1080 T/A 1090 Leasing Commission 1095 Acc Dep Total Assets Liabilities 2000 A/P 2010 Mortgage Total Liabilities Owners Equity 3010 Partnership equity Total Equity Income Statement Period ending 12/31/2007 Revenues 4010 Rent 4020 CAM Revenue 4030 Late Fee 4040 Termination Fee Expenses 5010 Maintenance Exp 5020 Prop Tax Expense 5030 CA Utility Exp 5040 Accounting Expense 5050 Legal Exp 5060 Management Fee 5070 Insurance Expense 6010