M1 C1 Case Study Workbook

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Module 1 Course 1: The Basics of Accounting

This workbook illustrates many of the concepts taught in the course The Basics of Accounting. You can find information about
this course as well as free resources at: www.exinfm.com.
Tab Accounting Example:

1 Chart of Accounts - Listing of general ledger accounts for posting accounting entries
2 Transactions - Examples of common transactions that require accounting within a business
3 Ledger Accounts - Complete set of accounts to capture all transactions during the accounting period
4 Trial Balance - Compiles all transactions to reflect changes in the ledger balances
5 Financial Statements - Final output from accounting is to generate financial statements
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
ss
ting period
Accounting Example - Chart of Accounts
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
Account for the cash on hand at the bank

Account for all money owed by customers
Account for all products the business plans to sell to customers
Account for office furniture, copy machines and fixtures
Account for the acquisition and sale of physical storage facilities
Account for all depreciation entries associated with the warehouse facility
Account for amounts the company must pay within the current year
Account for the current portion of the mortgage payable that must be paid
Account for the long-term outstanding balance of the mortgage that will be paid
Account for the investments and withdrawals of money by the business owner
Account for the accumulated profits and losses of the business
Account for all costs of inventory as it is sold to customers
Account for office supplies that are consumed
Account for the costs of the warehouse facility that is expensed
Account for the interest that must be paid on the mortgage
Account for state and federal taxes that must be paid on taxable income
Account for all sales revenues from customers
Clearing account to close out the Income Statement accounts
Entry 1 - Owner invests his own money to get the business started on March 5, 2008 in the amount of $ 50,000.00
1 03/05/08 Cash $ 50,000.00
1 03/05/08 Capital - William Sutton $ 50,000.00
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
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.
Entry Ref Date Cash (Account No. 1001)

Opening Balance $ -
1 03/05/08 $50,000.00
3 03/15/08 $ 680.90
4 03/18/08 $11,000.00
5 03/22/08 $ 3,500.00
7 04/04/08 $ 3,300.00
8 04/12/08 $ 6,104.50
9 04/17/08 $ 700.00
Total $54,000.00 $21,285.40
Closing Balance $32,714.60
Accounts Receivable (Account No. 1002)

Opening Balance $ -
6 03/28/08 $ 700.00
9 04/17/08 $ 700.00
Total $ 700.00 $ 700.00
Closing Balance $ -
Inventory (Account No. 1003)

Opening Balance $ -
4 03/18/08 Transaction 4 $ 11,000.00
6 03/28/08 Transaction 6 $ 220.00
7 04/04/08 Transaction 7 $ 1,100.00
Total $ 11,000.00 $ 1,320.00
Closing Balance $ 9,680.00
Furniture and Fixtures (Account No. 1004)

Opening Balance $ -
2 03/15/08 $ 6,104.50
Total $ 6,104.50 $ -
Closing Balance $ 6,104.50
Warehouse Facility (Account No. 1101)

Opening Balance $ -
5 03/22/08 $55,000.00
Total $55,000.00 $ -
Accumulated Depreciation (Account 1102)

Opening Balance $ -
Total $ - $ -
ADJ01 05/01/08 $ 458.33
Closing Balance $ 458.33
Accounts Payable (Account No. 2001)

Opening Balance $ -
2 03/15/08 $ 6,104.50
8 04/12/08 $ 6,104.50
Total $ 6,104.50 $ 6,104.50

ADJ02 05/01/08 $ 278.96
ADJ03 05/01/08 $ 312.50
Mortgage Payable - Current (Account No. 2002)

Opening Balance $ -
Total $ - $ -
ADJ02 05/01/08 $ 305.81
Mortgage Payable (Account No. 2101)

Opening Balance $ -
5 03/22/08 $51,500.00
Total $ - $51,500.00
ADJ02 05/01/08 $ 305.81
Capital Account - William Sutton (Account No. 3101)

Opening Balance $ -
1 03/05/08 $50,000.00
Total $ - $50,000.00
Retained Earnings (Account No. 3001)

Opening Balance $ -
Total $ - $ -
ADJ04 05/01/08 $ 949.31
Sales Revenue (Account No. 5001)

Opening Balance $ -
6 03/28/08 $ 700.00
7 04/04/08 $ 3,300.00
Total $ - $ 4,000.00
ADJ04 05/01/08 $ 4,000.00
Closing Balance $ -
Cost of Goods Sold (Account No. 4001)

Opening Balance $ -
6 03/28/08 $ 220.00
7 04/04/08 $ 1,100.00
Total $ 1,320.00 $ -
ADJ04 05/01/08 $ 1,320.00
Closing Balance $ -
Office Supply Expense (Account No. 4002)

Opening Balance $ -
3 03/15/08 $ 680.90
Total $ 680.90 $ -
ADJ04 05/01/08 $ 680.90
Closing Balance $ -
Depreciation Expense (Account No. 4003)

Opening Balance $ -
Total $ - $ -
ADJ01 05/01/08 $ 458.33
ADJ04 05/01/08 $ 458.33
Closing Balance $ -
Interest Expense (Account No. 4004)

Opening Balance $ -
Total $ - $ -
ADJ02 05/01/08 $ 278.96
ADJ04 05/01/08 $ 278.96
Closing Balance $ -
Tax Expense (Account No. 4005)

Opening Balance $ -
ADJ03 05/01/08 $ 312.50
Total $ 312.50 $ -
Income Summary Account (Account No. 6001)

Opening Balance $ - $ -
ADJ04 05/01/08 $ 949.31
ADJ04 05/01/08 $ 949.31
Total $ 949.31 $ 949.31

Closing Balance $ -
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. Everytime you generate

s. You must be in balance
ely, all general ledger
Accounting Example - Trial Balance
Everytime we close out an accounting period, we will pull off a Trail Balance to see what our balances are in each general
ledger account. This provides us with a rough, unadjusted working balance of all accounts. However, we need to make some
adjusting entries since we must do "accrual" accounting. Once you have closing balances, you are ready to pull off your financ
Unadjusted Trial Balance Adjusting Entries

Account April 30, 2008 (see below)
Number Account Title Debit Credit Debit
1001 Cash $ 32,714.60

1002 Accounts Receivable $ -
1003 Inventory $ 9,680.00
1004 Furniture & Fixtures $ 6,104.50
1101 Warehouse Facility $ 55,000.00
1102 Accumulated Depreciation
Sub Total - Assets $ 103,499.10 $ - $ -
2001 Accounts Payable
2002 Mortgage Payable - Current
2101 Mortgage Payable $ 51,500.00 $ 305.81
3101 Capital Account $ 50,000.00
3001 Retained Earnings
Sub Total - Liab + Equity $ - $ 101,500.00 $ 305.81
5001 Sales Revenue $ 4,000.00

Sub Total - Revenues $ - $ 4,000.00 $ -
4001 Cost of Goods Sold $ 1,320.00
4002 Office Supplies Expense $ 680.90
4003 Depreciation Expense $ 458.33
4004 Interest Expense $ 278.96
4005 Tax Expense $ 312.50
Sub Total - Expenses $ 2,000.90 $ - $ 1,049.79
6001 Income Summary Account
TOTAL - All Debits and Credits $ 105,500.00 $ 105,500.00 $ 1,355.60
Accrual Entries to Trial Balance
Ref Date Account Debit

Adjusting Entry No. 1 - Depreciation for the month of April 2008 should be accrued on the Warehouse Facility. The cost of
the Warehouse Facility was $ 55,000.00. The asset is depreciated over a useful life of 10 years with no salvage
value using the straight line method of depreciation. A full year of depreciation would be $ 5,500 or $ 55,000 / 10.
We will accrue only 1 month or 1/12 x $ 5,500.
ADJ01 05/01/08 4003 Depreciation Expense $ 458.33

ADJ01 05/01/08 1102 Accumulated Depreciation
Adjusting Entry No. 2 - Accrued interest on mortgage that will be paid in April 2008. The outstanding principal of the mortgage
$ 51,500 with interest payable monthly at an annual rate of 6.5% over a 10 year period. You can use the financial
functions in Excel to calculate the monthly payment: Monthly Rate 0.54%
Months 120
Monthly Payment > ($584.77) Loan Amount $ 51,500
Interest Payment > ($278.96) Payment No 1
Principal Payment > ($305.81)
Reclassify a portion of the longterm mortgage payable as current:

ADJ02 05/01/08 2101 Mortgage Payable $ 305.81
ADJ02 05/01/08 2002 Mortgage Payable - Current
Accrue interest expense for April 2008:
ADJ02 05/01/08 4004 Interest Expense $ 278.96
ADJ02 05/01/08 2001 Accounts Payable
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:
Expected Taxable Income based on sales and expenses $ 1,250.00

Federal Income Tax Rate 25%
Federal Income Tax Expense $ 312.50
ADJ03 05/01/08 4005 Tax Expense $ 312.50

ADJ03 05/01/08 2001 Accounts Payable
NOTE: Once we have posted all of our accrual entries, we can generate an Income Statement
Closing Entry for the period ending April 30, 2008
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.
ADJ04 05/01/08 5001 Sales Revenues $ 4,000.00

ADJ04 05/01/08 4001 Cost of Goods Sold
ADJ04 05/01/08 4002 Office Supplies Expense
ADJ04 05/01/08 4003 Depreciation Expense
ADJ04 05/01/08 4004 Interest Expense
ADJ04 05/01/08 4005 Tax Expense
ADJ04 05/01/08 6001 Income Summary
ADJ04 05/01/08 6001 Income Summary $ 949.31
ADJ04 05/01/08 3001 Retained Earnings
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.
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balances are in each general

owever, we need to make some
u are ready to pull off your financial statements.
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 $ - $ - $ -
$ 4,000.00 $ 4,000.00 $ 4,000.00

$ - $ - $ 4,000.00 $ 4,000.00 $ 4,000.00
$ 1,320.00 $ 1,320.00
$ 680.90 $ 680.90
$ 458.33 $ 458.33
$ 278.96 $ 278.96
$ 312.50 $ 312.50
$ - $ 3,050.69 $ - $ 3,050.69 $ - $ -
$ 949.31
$ 1,355.60 $ 106,549.79 $ 106,549.79 $ 3,050.69 $ 4,000.00 $ 4,949.31

$ 949.31
Profit Loss
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)
###
###
ome taxes per our expected
$ 312.50
nd expense accounts to the
$ 1,320.00
$ 680.90
$ 458.33
$ 278.96
$ 312.50
$ 949.31
$ 949.31
unt, you are ready

Closing Entry ADJ03 Balance Sheet
April 30, 2008 as of April 30, 2008
Credit Debit Credit
$ 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
$ 4,949.31 $ 103,499.10 $ 103,499.10

Accounting Example - Financial Statements
After you have adjusted the Trial Balance, you are ready to generate a set of financial statements.
Sutton Supply Company

Income Statement
For the Period: Inception through April 30, 2008
Revenues
Sales Revenues $ 4,000.00
Total 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
Total Expenses 3,050.69
Net Income $ 949.31

Balance Sheet
As of April 30, 2008
Assets
Current Assets
Cash $ 32,714.60
Accounts Receivable 0.00
Inventory 9,680.00
Total Current Assets 42,394.60
Long Term Assets

Furniture & Fixtures 6,104.50
Warehouse Facility $ 55,000.00
Less Accumulated Depreciaiton 458.33
Net Warehouse Facility 54,541.67
Total Long Term Assets 60,646.17
Total Assets 103,040.77
Liabilities
Current Liabilities
Accounts Payable 591.46
Mortgage Payable - Current 305.81
Total Current Liabilities 897.27
Long Term Liabilities

Mortgage Payable 51,194.19
Total Long Term Liabilities 51,194.19
Total Liabilities 52,091.46
Equity
Capital Account 50,000.00
Retained Earnings 949.31
Total Equity 50,949.31
Total Liab + Equity $ 103,040.77

Statement of Cash Flows - Direct
Beginning Cash Balance $ -
Cash Flows from Operating Activities

Purchases of Furniture, Fixtures, Supplies (6,785.40)
Purchases of Inventories (11,000.00)
Sales Revenues Received 4,000.00
Net Cash Flows - Operating Activities
Cash Flows from Investment Activities

Invest in Warehouse Facility (3,500.00)
Cash Flows from Financing Activities

Owner Start Up Capital 50,000.00
Ending Cash Balance $ 32,714.60

Statement of Cash Flows - Indirect
Net Income $ 949.31
Add Back Depreciation Expense (non cash flow) 458.33

Beg Bal End Bal Cash Flow - Operating Activities:
$ - $ - Change in Accounts Receivable -
$ - $ 9,680.00 Change in Inventory (9,680.00)
$ - $ 591.46 Change in Accounts Payable 591.46
Cash Flow - Investment Activities

Investment in Furniture & Fixtures (6,104.50)
Investment in Warehouse Facility (3,500.00)
Cash Flow - Financing Activities

Owner start up capital 50,000.00
Change in Cash Balance 32,714.60

Beginning Cash Balance 0.00
Ending Cash Balance $ 32,714.60
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Example - Reconciling the Cash Account
An important internal control within accounting is to reconcile your cash account on a monthly basis to
the bank statement.
Bank Reconciliation
As of 30-Apr-08
Bank Statement:
Balance per statement $ 38,105.30

Date
Add Deposit in Transit 700.00
Add Deposit in Transit
Add Deposit in Transit
Add Bank Error
Add Other
Total Additions 700.00
Number
Deduct Outstanding Check 1004 6,104.50
Deduct Outstanding Check
Deduct Bank Error
Deduct Other
Total Deductions 6,104.50
Adjusted balance per reconciliation $ 32,700.80
Cash Account (General Ledger):
Balance per accounting records $ 32,714.60
Add Interest earned on bank balance 16.20

Add Accounting error
Add Other
Total Additions 16.20
Deduct Bank Charge 30.00

Deduct Bank Charge
Deduct Bank Charge
Deduct Accounting error
Deduct Other
Total Deductions 30.00
Adjusted balance per reconciliation $ 32,700.80
The Bank Statement and Cash Account should agree > Yes
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Example - Inventory Control
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
Units on Hand as of January 1, 2008 300 200
Date Movement Type Price - A Price - B

1/11/2008 Units Purchased $ 88.50 $ 91.60 100 50
1/17/2008 Units Purchased $ 89.75 $ 91.60 30
1/26/2008 Units Purchased $ 88.00 $ 91.60 40 30
2/4/2008 Units Purchased $ 82.50 $ 89.40 200 100
2/14/2008 Units Purchased $ 86.00 $ 89.40 40
2/22/2008 Units Purchased $ 81.00 $ 87.30 400 250
3/6/2008 Units Sold -150
3/13/2008 Units Sold -100 -130
3/19/2008 Units Purchased $ 82.00 $ 87.30 200 80
3/22/2008 Units Sold -100 -100
3/26/2008 Units Sold -250 -100
Units on Hand as of March 31, 2008 670 420
Reconcile the Cost of Inventory as Quantity Changes Weighted Average Method
Beginning Inventory Amount $ 26,058.00 $ 18,109.00
Date Movement Type

1/11/2008 Units Purchased $ 8,850.00 $ 4,580.00
1/17/2008 Units Purchased $ 2,692.50
1/26/2008 Units Purchased $ 3,520.00 $ 2,748.00
2/4/2008 Units Purchased $ 16,500.00 $ 8,940.00
2/14/2008 Units Purchased $ 3,576.00
2/22/2008 Units Purchased $ 32,400.00 $ 21,825.00
Total Costs of Inventory @ 2/22/2008 $ 90,020.50 $ 59,778.00

Total Units on Hand @ 2/22/2008 1,070 670
Current Weighted Average Unit Cost $ 84.13 $ 89.22
3/6/2008 Units Sold (150)

Cost of Goods Sold $ (12,619.70)
3/13/2008 Units Sold (100) (130)

Cost of Goods Sold $ (8,413.13) $ (11,598.72)
3/19/2008 Units Purchased - Amount $ 16,400.00 $ 6,984.00

Units Purchased - Units 200 80
Total Units on Hand @ 3/19/2008 1,020 620
Current Weighted Average Unit Cost $ 83.71 $ 88.97
3/20/2008 Units Sold (100) (100)

3/26/2008 Units Sold (250) (100)


Total Units on Hand @ 3/31/2008 670 420
Summarize Cost of Goods Sold @ 3/31/2008
Beginning Inventory $ 26,058.00 $ 18,109.00

Purchases $ 80,362.50 $ 48,653.00
Available for Sale $106,420.50 $ 66,762.00
Less Ending Inventory $ 56,087.98 $ 37,368.68
Cost of Goods Sold $ 50,332.52 $ 29,393.32
Sold on 3/6/2008 $ (12,619.70)

Sold on 3/13/2008 $ (8,413.13) $ (11,598.72)
Sold on 3/20/2008 $ (8,371.34) $ (8,897.30)
Sold on 3/26/2008 $ (20,928.35) $ (8,897.30)
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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
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).
Example used in the Course:
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
Depreciation Schedule - Straight Line Method
Beginning Annual Partial Depreciation Ending

Year Book Value Depreciation Year Amount Book Value
2007 $ 105,000 $ 7,000 58.33% $ 4,083 $ 100,917
2008 $ 100,917 $ 7,000 $ 7,000 $ 93,917
2009 $ 93,917 $ 7,000 $ 7,000 $ 86,917
2010 $ 86,917 $ 7,000 $ 7,000 $ 79,917
2011 $ 79,917 $ 7,000 $ 7,000 $ 72,917
2012 $ 72,917 $ 7,000 $ 7,000 $ 65,917
2013 $ 65,917 $ 7,000 $ 7,000 $ 58,917
2014 $ 58,917 $ 7,000 $ 7,000 $ 51,917
2015 $ 51,917 $ 7,000 $ 7,000 $ 44,917
2016 $ 44,917 $ 7,000 $ 7,000 $ 37,917
2017 $ 37,917 $ 7,000 41.67% $ 2,917 $ 35,000
Depreciation Schedule - Double Declining Balance
Book Depreciation Annual Partial Depreciation Ending

Year Value Rate Depreciation Year Amount Book Value
2007 $ 105,000 20.00% $ 21,000 58.33% $ 12,250 $ 92,750
2008 $ 92,750 20.00% $ 18,550 $ 18,550 $ 74,200
2009 $ 74,200 20.00% $ 14,840 $ 14,840 $ 59,360
2010 $ 59,360 20.00% $ 11,872 $ 11,872 $ 47,488
2011 $ 47,488 20.00% $ 9,498 $ 9,498 $ 37,990
2012 $ 37,990 20.00% $ 7,598 $ 2,990 $ 35,000
2013 $ 35,000
2014 Under the Double Declining Method, we stop depreciating
2015 the asset when we reach our final salvage value for the asset.
2016
2017
Depreciation Schedule - Sum of Years Digits Method
Useful Depreciation Depreciation Depreciation Partial Accumulated

Life Yrs Year Rate Basis Amount Year Depreciation
1 2007 18.18% $ 70,000 12,727 58.33% 7,424
2 2008 16.36% $ 70,000 11,455 18,879
3 2009 14.55% $ 70,000 10,182 29,061
4 2010 12.73% $ 70,000 8,909 37,970
5 2011 10.91% $ 70,000 7,636 45,606
6 2012 9.09% $ 70,000 6,364 51,970
7 2013 7.27% $ 70,000 5,091 57,061
8 2014 5.45% $ 70,000 3,818 60,879
9 2015 3.64% $ 70,000 2,545 63,424
10 2016 1.82% $ 70,000 1,273 64,697
2017 Final Adjustment 5,303 * 70,000
* to be more accurate, you should consider allocating each year's depreciation amount between each calendar ye
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f Years Digits only)
Book
Value
97,576
86,121
75,939
67,030
59,394
53,030
47,939
44,121
41,576
40,303
35,000
etween each calendar year.

Example - Cost Accounting
Manufacturing operations may use formal cost accounting to help manage the costs
of production. The following example illustrates how cost accounting gets applied.
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
2. The actual production data for the year is summarized as follows:
Total Units Produced 95,000

Materials:
Average annual price paid for Raw Materials $ 5.10 per pound
Total materials used during the year 290,000 pounds
Total materials purchased during the year 301,000 pounds
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
3. Variances for the production year are summarized as follows:
Materials:
Materials Price Variance:
Actual Rate Paid $ 5.10
Standard Planned Rate $ 5.00
Total Materials Purchased 301,000
Variance $ 30,100.00 Unfavorable
Materials Usage Variance:

Quantity Used 290,000
Standard Quantity Planned 285,000
Standard Planned Rate $ 5.00
Labor:
Labor Rate Variance:
Actual Labor Rate $ 30.40
Standard Labor Rate $ 30.00
Total Actual Hours 385,000
Labor Usage Variance:

Hours Used 385,000
Standard Hours 380,000
Standard Hourly Rate $ 30.00
Overhead:
Overhead Spending Variance:
Actual Overhead Incurred $ 10,750,000
Budgeted Overhead at Actual Hours $ 10,680,000
Overhead Efficiency Variance:

Budgeted Overhead at Actual Hours $ 10,680,000
Budgeted Overhead at Std Hours $ 10,640,000
Overhead Volume Variance:

Budgeted Overhead at Std Hours $ 10,640,000
Overhead Applied $ 10,260,000
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
Record the materials used during the production period

Work in Process $ 1,425,000
Materials Quantity Variance $ 25,000
Materials (Used) $ 1,450,000
Totals $ 1,450,000 $ 1,450,000
Record the labor applied to production during the year

Work in Progress $ 11,400,000
Labor Rate Variance $ 154,000
Labor Efficiency Variance $ 150,000
Wages Payable $ 11,704,000
Totals $ 11,704,000 $ 11,704,000
Record the applied overhead during the production year

Work in Progress $ 10,260,000
Applied Overhead $ 10,260,000
Totals $ 10,260,000 $ 10,260,000
Record the actual overhead incurred and related variances

Applied Overhead $ 10,260,000
Overhead Spending Variance $ 70,000
Overhead Efficiency Variance $ 40,000
Overhead Volume Variance $ 380,000
Manufacturing Overhead $ 10,750,000
Totals $ 10,750,000 $ 10,750,000
Main Menu
Classification of Accounts
Here is a more complete listing of how you should classify different accounts used in accounting (alphabetical order by title)
Normal Report account balance

Account Title Classification Balance in the following statement
Accounts Payable Current Liability Credit Balance Sheet

Accounts Receivable Current Asset Debit Balance Sheet
Accumulated Amortization Fixed Asset Credit Balance Sheet
Accumulated Depreciation Fixed Asset Credit Balance Sheet
Advertising Expense Operating Expense Debit Income Statement
Allowance for Doubtful Accounts Current Asset Credit Balance Sheet
Amortization Expense Operating Expense Debit Income Statement
Bonds Payable Long Term Liability Credit Income Statement
Building Fixed Asset Debit Balance Sheet
Capital Account - Owners Equity Credit Balance Sheet
Capital Stock - Stockholders Equity Credit Balance Sheet
Cash Currrent Asset Debit Balance Sheet
Cash Dividends Paid Equity Debit Retained Earnings Statement
Cash Dividends Payable Current Liability Credit Balance Sheet
Common Stock Equity Credit Balance Sheet
Cost of Goods Sold Operating Expense Debit Income Statement
Deferred Income Tax Payable Liability Credit Balance Sheet
Discount on Bonds Payable Long Term Liability Credit Balance Sheet
Dividend Revenue Other Income Credit Income Statement
Donated Capital Equity Credit Balance Sheet
Equipment Fixed Asset Debit Balance Sheet
Exchange Gain Other Income Credit Income Statement
Exchange Loss Other Expense Debit Income Statement
Factory Overhead - Overapplied Deferred Credit Credit Balance Sheet
Factory Overhead - Underapplied Deferred Debit Debit Balance Sheet
Federal Income Tax Payable Current Liability Credit Balance Sheet
Finished Goods Currrent Asset Debit Balance Sheet
Gain on Disposal of Fixed Assets Other Income Credit Income Statement
Gain on Sale of Investments Other Income Credit Income Statement
Goodwill Intangible Asset Debit Balance Sheet
Income Tax Expense Non Operating Expense Debit Income Statement
Income Tax Payable Current Liability Credit Balance Sheet
Insurance Expense Operating Expense Debit Income Statement
Insurance Payable Current Liability Credit Balance Sheet
Interest Expense Non Operating Expense Debit Income Statement
Interest Receivable Currrent Asset Debit Balance Sheet
Interest Payable Current Liability Credit Balance Sheet
Interest Revenue Non Operating Revenue Credit Income Statement
Investment in Stock Currrent Asset Debit Balance Sheet
Land Fixed Asset Debit Balance Sheet
Loss on Disposal of Fixed Asset Other Expense Debit Income Statement
Loss on Sale of Investments Other Expense Debit Income Statement
Marketable Securities Currrent Asset Debit Balance Sheet
Materials Currrent Asset Debit Balance Sheet
Merchandise Inventory Currrent Asset Debit Balance Sheet
Notes Payable Current Liability Credit Balance Sheet
Notes Receivable Currrent Asset Debit Balance Sheet
Organizational Costs Intangible Asset Debit Balance Sheet
Patents Intangible Asset Debit Balance Sheet
Paid in Capital in Excess of Par Equity Credit Balance Sheet
Payroll Tax Expense Operating Expense Debit Balance Sheet
Pension Expense Operating Expense Debit Balance Sheet
Petty Cash Currrent Asset Debit Balance Sheet
Premium on Bonds Payable Long Term Liability Credit Balance Sheet
Prepaid Insurance Currrent Asset Debit Balance Sheet
Prepaid Rent Currrent Asset Debit Balance Sheet
Preferred Stock Equity Credit Balance Sheet
Purchases Cost of Goods Sold Debit Income Statement
Purchase Discounts Cost of Goods Sold Credit Income Statement
Rent Expense Operating Expense Debit Income Statement
Retained Earnings Equity Credit Balance Sheet
Salaries Expense Operating Expense Debit Income Statement
Salaries Payable Current Liability Credit Balance Sheet
Sales Operating Revenues Credit Income Statement
Sales Discounts Operating Revenues Debit Income Statement
Sales Returns and Allowances Operating Revenues Debit Income Statement
Sales Tax Payable Current Liability Credit Balance Sheet
Sinking Fund Cash Investments Debit Balance Sheet
Stock Dividends Equity Debit Retained Earnings Statement
Supplies Currrent Asset Debit Balance Sheet
Supplies Expense Operating Expense Debit Income Statement
Treasury Stock Equity Debit Balance Sheet
Uncollectable Accounts Expense Operating Expense Debit Income Statement
Utilities Expense Operating Expense Debit Income Statement
Work in Progress Currrent Asset Debit Balance Sheet
Main Menu
phabetical order by title)
Comment
Contra to Intangible Assets

Contra to Property Plant & Equipment
Contra to Accounts Receivable
May be current and long-term liability

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Module 1 Course 1: The Basics of Accounting

Tab Accounting Example:

Account for the cash on hand at the bank

Entry Ref Date Cash (Account No. 1001)

Closing Balance $32,714.60

Accounts Receivable (Account No. 1002)

Total $ 700.00 $ 700.00

Inventory (Account No. 1003)

Closing Balance $ 9,680.00

Furniture and Fixtures (Account No. 1004)

Warehouse Facility (Account No. 1101)

Closing Balance $55,000.00

Accumulated Depreciation (Account 1102)

Accounts Payable (Account No. 2001)

Total $ 6,104.50 $ 6,104.50

Mortgage Payable - Current (Account No. 2002)

Mortgage Payable (Account No. 2101)

Capital Account - William Sutton (Account No. 3101)

Closing Balance $50,000.00

Retained Earnings (Account No. 3001)

Sales Revenue (Account No. 5001)

Cost of Goods Sold (Account No. 4001)

Office Supply Expense (Account No. 4002)

Depreciation Expense (Account No. 4003)

Interest Expense (Account No. 4004)

Tax Expense (Account No. 4005)

Income Summary Account (Account No. 6001)

Total $ 949.31 $ 949.31

. Everytime you generate

Unadjusted Trial Balance Adjusting Entries

1001 Cash $ 32,714.60

5001 Sales Revenue $ 4,000.00

6001 Income Summary Account

TOTAL - All Debits and Credits $ 105,500.00 $ 105,500.00 $ 1,355.60

Accrual Entries to Trial Balance

Ref Date Account Debit

ADJ01 05/01/08 4003 Depreciation Expense $ 458.33

Reclassify a portion of the longterm mortgage payable as current:

Expected Taxable Income based on sales and expenses $ 1,250.00

ADJ03 05/01/08 4005 Tax Expense $ 312.50

Closing Entry for the period ending April 30, 2008

ADJ04 05/01/08 5001 Sales Revenues $ 4,000.00

balances are in each general

$ 4,000.00 $ 4,000.00 $ 4,000.00

$ 1,355.60 $ 106,549.79 $ 106,549.79 $ 3,050.69 $ 4,000.00 $ 4,949.31

ome taxes per our expected

nd expense accounts to the

unt, you are ready

$ 4,949.31 $ 103,499.10 $ 103,499.10

Sutton Supply Company

Total Revenues 4,000.00

Total Expenses 3,050.69

Net Income $ 949.31

Sutton Supply Company

Long Term Assets

Total Assets 103,040.77

Long Term Liabilities

Total Liabilities 52,091.46

Total Equity 50,949.31

Total Liab + Equity $ 103,040.77

Sutton Supply Company

Beginning Cash Balance $ -

Cash Flows from Operating Activities