0201202LB04A-24 (Pack 4) - U.S. Career Institute

Explore the possibilities

BookkeepingInstruction Pack 4 Lessons 17-20

0201202LB04A-24

Bookkeeping

Instruction Pack 4

Lesson 17: Daily Bookkeeping Concepts

Lesson 18: Partnerships, Corporations and Non-profit Organizations

Lesson 19: Discounts, Reversing Entries and Allowances

Lesson 20: Sole Proprietorship Business Project

No part of this document may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of U.S. Career Institute.

Copyright © 2014, Weston Distance Learning, Inc. All Rights Reserved. 0201202LB04A-24

AcknowledgmentsAuthorsRobert James

Editorial StaffJanet PerryKimberly FieldsChristine DunlapElizabeth MunsonBrian KaufmanCarolina TownsendKaryn Madison

Design/LayoutConnie HunsaderSandy Petersen

U.S. Career InstituteFort Collins, CO 80525

www.uscareerinstitute.edu

Pack 4—Table of Contents

0201202LB04A-24 III

Table of Contents

Lesson 17: Daily Bookkeeping ConceptsStep 1: Learning Objectives for Lesson 17 ................................................................................................................... 1Step 2: Lesson Preview .................................................................................................................................................... 1Step 3: Terms You Will Need to Know ......................................................................................................................... 1Step 4: Daily Cash and Accounts ................................................................................................................................... 2Step 5: Cash Receipts Portion of the Summary ........................................................................................................... 4

Cash Sales .......................................................................................................................................................... 4Collections on Account ................................................................................................................................... 4Refunds .............................................................................................................................................................. 4

Step 6: Cash on Hand Section of the Summary........................................................................................................... 5Step 7: Petty Cash and Change Bank ............................................................................................................................ 5Step 8: Cash Short and Cash Over ................................................................................................................................ 5Step 9: Total Sales ............................................................................................................................................................ 6Step 10: Practice Exercise 17-1 ...................................................................................................................................... 8Step 11: Review Practice Exercise 17-1 ....................................................................................................................... 10Step 12: Handling the Petty Cash/Change Bank ....................................................................................................... 11

The Amount in the Petty Cash/Change Bank ............................................................................................ 11Petty Cash Slips (Vouchers) .......................................................................................................................... 12

Step 13: Journalizing Petty Cash Slips and Cash Over/Short .................................................................................. 12Step 14: Lesson Summary ............................................................................................................................................. 17Step 15: Quiz 17 ............................................................................................................................................................. 17

Lesson 18: Partnerships, Corporations and Non-profit OrganizationsStep 1: Learning Objectives for Lesson 18 ................................................................................................................... 1Step 2: Lesson Preview ................................................................................................................................................... 1Step 3: Terms You Will Need to Know ........................................................................................................................ 2Step 4: Partnerships ........................................................................................................................................................ 2

Co-ownership ................................................................................................................................................... 2

Bookkeeping

IV 0201202LB04A-24

Step 5: A Partner’s Interest ............................................................................................................................................ 3Transferring Interest ........................................................................................................................................ 3Goodwill ........................................................................................................................................................... 4Capital Accounts .............................................................................................................................................. 5Additional Investment .................................................................................................................................... 7Drawing Accounts ........................................................................................................................................... 8The Worksheet and Financial Statements .................................................................................................... 8Figuring Division of Income or Loss ............................................................................................................ 8Preparing a Distribution of Net Income Statement .................................................................................... 9

Step 6: Practice Exercise 18-1 ..................................................................................................................................... 10Step 7: Review Practice Exercise 18-1 ........................................................................................................................ 12Step 8: The Capital Statement ..................................................................................................................................... 13Step 9: Preparing Partnership Balance Sheets .......................................................................................................... 15Step 10: Closing Accounts in a Partnership .............................................................................................................. 15

Closing the Drawing Accounts .................................................................................................................... 17Step 11: Corporations .................................................................................................................................................. 18

Stocks and Stockholders ................................................................................................................................ 18Dividends and Retained Earnings ................................................................................................................ 19Types of Stock ................................................................................................................................................. 19Trading Stock .................................................................................................................................................. 20

Step 12: Practice Exercise 18-2 ................................................................................................................................... 20Step 13: Review Practice Exercise 18-2 ...................................................................................................................... 21Step 14: What is a Non-profit Organization? ............................................................................................................ 21

Non-profit Organizations and the Accounting ......................................................................................... 22Services Professional ..................................................................................................................................... 22Form 990 for Non-profit Organizations ..................................................................................................... 22

Step 15: Practice Exercise 18-3 ................................................................................................................................... 36Step 16: Review Practice Exercise 18-3 ...................................................................................................................... 36Step 17: Lesson Summary ............................................................................................................................................ 36Step 18: Quiz 18 ............................................................................................................................................................. 36

Pack 4—Table of Contents

0201202LB04A-24 V

Lesson 19: Discounts, Reversing Entries and AllowancesStep 1: Learning Objectives for Lesson 19 ................................................................................................................... 1Step 2: Lesson Preview .................................................................................................................................................... 1Step 3: Terms You Will Need to Know ......................................................................................................................... 1Step 4: Purchase Discounts ............................................................................................................................................ 2Step 5: Journalizing Purchase Discounts ...................................................................................................................... 2Step 6: Practice Exercise 19-1 ........................................................................................................................................ 4Step 7: Review Practice Exercise 19-1 ........................................................................................................................... 4Step 8: Handling Accounts Receivable Purchase Discounts ............................................................................................5Step 9: Reversing Entries ................................................................................................................................................ 6Step 10: Practice Exercise 19-2 ...................................................................................................................................... 7Step 11: Review Practice Exercise 19-2 ......................................................................................................................... 8Step 12: Allowances for Uncollectible Accounts ......................................................................................................... 9Step 13: Getting Started a Bookkeeper ...................................................................................................................... 10Step 14: Practice Exercise 19-3 .................................................................................................................................... 13Step 15: Review Practice Exercise 19-3 ....................................................................................................................... 13Step 16: Lesson Summary ............................................................................................................................................. 14Step 17: Quiz 19 ............................................................................................................................................................. 14

Just for Fun ...................................................................................................................................................... 15

Lesson 20:Sole Proprietorship Business ProjectStep 1: Lesson Preview .................................................................................................................................................... 1Step 2: Completing the Project ...................................................................................................................................... 1Step 3: The Final Project ................................................................................................................................................. 2Step 4 Bright Ideas Light Center .................................................................................................................................... 4

Background ....................................................................................................................................................... 4List of Transactions .......................................................................................................................................... 4End-of-the-Week Procedures ........................................................................................................................ 8End-of-the-Week Procedures ....................................................................................................................... 12End-of-the-Week Procedures ....................................................................................................................... 16End-of-the-Week Procedures ....................................................................................................................... 24End-of-the-Month Procedures .................................................................................................................... 24End-of-the-Year Procedures.......................................................................................................................... 25Congratulations! ............................................................................................................................................. 26

Bookkeeping

VI 0201202LB04A-24

Chart of Accounts ........................................................................................................................................... 27Customers ........................................................................................................................................................ 28Creditors .......................................................................................................................................................... 29Audit Check Answers ..................................................................................................................................... 29Previous Year’s Statements ............................................................................................................................. 30

Answer KeyLesson 17 .......................................................................................................................................................................... 1

Practice Exercise 17-1 ...................................................................................................................................... 1Lesson 18 .......................................................................................................................................................................... 3

Practice Exercise 18-1 ...................................................................................................................................... 3Practice Exercise 18-2 ...................................................................................................................................... 4Practice Exercise 18-3 ...................................................................................................................................... 4

Lesson 19 .......................................................................................................................................................................... 5Practice Exercise 19-1 ...................................................................................................................................... 5Practice Exercise 19-2 ...................................................................................................................................... 6Practice Exercise 19-3 ...................................................................................................................................... 7Lesson 19 Just for Fun ...................................................................................................................................... 8

Lesson 17 Daily Bookkeeping Concepts

Step 1: Learning Objectives for Lesson 17After completing the instruction in this lesson, you will be trained to do the following:

● Work with the different daily accounts and receipts.

● Explain the difference between petty cash and change accounts.

● Prepare a daily summary of receipts.

● Journalize the daily summary.

Step 2: Lesson PreviewUp until now, we have discussed bookkeeping procedures as they apply to “specific accounting periods.” These accounting periods are usually months, quarters or years. There are, however, many businesses that must have some bookkeeping done every day. These daily bookkeeping procedures enable business owners, especially those in retail sales and service businesses, to keep a running tab on how their business is doing. You may be asked to prepare a daily summary of receipts for such an owner. This lesson will show you how to prepare that document. In addition, you will learn how to handle petty cash and change accounts, as well as cash receipts and sales. These items all work together to prepare the daily summary.

Step 3: Terms You Will Need to KnowHere are the bookkeeping terms you will learn about in this lesson:

● cash on hand

● cash receipts

● change bank

● petty cash fund

● petty cash slip

● cash over

● cash short

0201202LB04A-17-24

Bookkeeping

17-2

● collections on account

● total sales

● total cash on hand

● daily cash and sales summary

Step 4: Daily Cash and AccountsYou’ve probably had the experience of going into a store just minutes before closing to make a last minute purchase. You may have found that the clerk is busy with the end-of-the-day procedure—counting the cash in the register and recording and filing credit slips.

Keeping track of the daily cash and accounts is often the responsibility of the bookkeeper. This section will show you how to organize those receipts into a summary called the daily cash and sales summary.

You may wonder why a daily summary is so important. It is important for three reasons:1. It reconciles the daily sales with the amount of money brought in.2. It keeps employees honest—an employee who knows his or her cash drawer will be

reconciled at the end of the day will be careful to handle each sale accurately.3. It provides an easy-to-read source of information for journalizing the day’s transactions.

Let’s look at a sample daily cash and sales summary.

0201202LB04A-17-24

Daily Bookkeeping Concepts

17-3

Daily Cash and Sales Summary

Date: November 11, 20XX

Cash Receipts1. Cash Sales $_____________2. Collections on Account _____________3. Minus Refunds _____________ TOTAL RECEIPTS _____________ _____________

Cash on Hand4. Cash in Register $_____________5. Coins in Register _____________6. Checks in Register _____________7. Credit Card Receipts in Register _____________ TOTAL CASH FROM REGISTER $_____________

8. Petty Cash/Change Fund $____________9. Less Petty Cash Slips ____________

10. Total Petty Cash/Change Fund _____________ TOTAL CASH on HAND $_____________ _____________

If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $_____________

If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $_____________

TOTAL SALES13. Cash Sales $_____________14. Sales made On Account Total _____________15. TOTAL SALES $_____________ _____________

Form Prepared By: _________________________

Let’s go through the form line by line to understand how it is filled out. First, we will discuss the cash receipts portion of the summary.

0201202LB04A-17-24

Bookkeeping

17-4

Step 5: Cash Receipts Portion of the SummaryThe cash receipts portion of the summary is where you list the total amount of money collected during the business day. The first line in this section is for listing the total amount of cash sales.

Cash SalesThe most common type of receipt for a cash sale is the paper receipt from a cash register. In many stores, the cash register tape records not only the exact item sold and its price, but also the time and date of the sale. Most cash registers keep a running total of everything rung up each day. At the end of the day, you can find the total amount of cash sales by pressing the correct button on the register. It will print out totals for items sold, cash refunds made and sales tax collected. Some smaller businesses may have a manual cash register or perhaps just a calculator. These businesses often issue handwritten receipts and keep carbon copies.

Whatever the method of recording the cash sales, the total must be calculated and entered on line 1 of the daily cash and sales summary at the end of each business day.

Cash sales (remember, cash sales include sales made with cash, checks or credit cards) are not the only transactions that require a receipt. Payments on accounts receivable must also be recorded.

Collections on AccountLine 2 of the daily cash and sales summary is for listing the amount of money collected on account. As discussed in the lesson on accounts receivable, some businesses extend credit to individuals and other businesses. Periodically, these customers who charge items from the shop will make payments on their accounts. They might pay by mail or they might come in and drop off a payment. Either way, any payment received must be accounted for on that day’s daily cash and sales summary as collections on account. To find this figure, simply total all the payments made on account for the day. In this case, you are not worried about who paid for which accounts. That will be listed in the accounts receivable ledgers. Here, you are looking simply for the total payments received for the day. Add up the receipts for these transactions and enter the amount on the appropriate line on the summary.

RefundsThe third item in the cash receipts section concerns refunds given during the day. If a customer buys an item and later returns it for a refund, the business deducts the amount of the refund from the cash receipts total. This is because when the customer returns the item, he is essentially unwinding the transaction—it’s as if the transaction never took place.

When a refund is issued, the business should fill out a credit slip (or ring up the refund on the cash register). Enter the total of all these refund receipts in the appropriate space on the daily summary.

Note: Do not include refunds made to accounts receivable accounts in this total. This section only concerns cash refunds.

Now that we have covered the cash receipts section of the daily summary. Let’s go on to the cash on hand section.

0201202LB04A-17-24


17-5

Step 6: Cash on Hand Section of the Summary Cash on hand is the amount of money currently in the cash register, money drawer, safe or other storage area. This total includes all the cash and coins in the register, plus the total of the checks and credit card slips. The summary sheet has a space to enter each of these totals. The term “cash” on line 4 refers to the currency (paper money); “coins” refers to the change, such as quarters, dimes, nickels and pennies; “checks” refers to customers’ personal checks and money orders; “credit card receipts” refers to the total amount of credit card charge slips.

Simply total up all the items listed to calculate the total cash on hand, the amount of cash taken in on a single day. The next part of this section deals with petty cash and the change bank.

Step 7: Petty Cash and Change BankMost businesses have a standard change bank amount that is in the register each morning. This change bank is used for making change for customers during the day. Additionally, the business may have a certain amount of money designated for a petty cash fund. The petty cash fund is used by the business for incidental expenses during the day.

First, find out what the standard amounts for each of these are and enter the total amount on line 8 of the daily cash and sales summary. For example, the business may have $300 for the change bank and $200 for petty cash. You would then write $500 on line 8.

As mentioned above, the petty cash fund is used by the business to buy incidental items throughout the day. We will discuss the handling of petty cash in detail later in this lesson, but for now, let’s say that the business owner discovers she is out of staples for the stapler. She has ordered a large quantity from the local office supply store, but the order won’t be delivered until tomorrow. The business owner decides to use $2 from petty cash to buy enough staples to get through the day. She takes $2 out of the cash register and fills out a petty cash slip to indicate how much she took out.

At the end of the day, the total of the petty cash slips is entered on line 9 of the daily cash and sales summary.

Now deduct the amount of petty cash slips from the total petty cash/change fund amount you listed on line 8. Enter the result on line 10.

Now you deduct the amount on line 10 from the total cash from register amount. This gives you the total daily cash on hand. This amount should be the same as your total receipts in the cash receipts portion of the summary.

Step 8: Cash Short and Cash OverSometimes when you compare your total daily cash on hand with your total receipts, you will find the two numbers are different.

If the total daily cash on hand is greater than the total receipts, you have more money in the cash register or money drawer than you should (according to your receipts). This excess is called cash over.

0201202LB04A-17-24

Bookkeeping

17-6

If, on the other hand, your total daily cash on hand figure is less than the total receipts, you have less money in the cash register or money drawer than you should (according to your receipts). This shortfall is called cash short.

If you are over or short, the first step is to look for an error in one of four areas:1. The figures in the summary added incorrectly.2. A sale entered in the register incorrectly (check the cash register tape).3. Petty cash slips filled out or added incorrectly.4. Accounts receivable slips omitted or added incorrectly.

Another possible reason for a difference in these two amounts is that the clerk gave someone the wrong amount of change. This is difficult to discover.

If, after checking each of the items previously mentioned in the four steps discussed you are still over or short, enter the amount of the difference in the appropriate spot on the daily cash and sales summary.

The final section of the daily cash and sales summary concerns total sales, regardless of whether they were cash or on account.

Step 9: Total Sales Total sales is the combination of cash sales and sales made on account. To find the total sales for a business, take the cash sales and add to it any sales made on account. This allows you to see how many sales were made during the day. The sales made on account are usually recorded with some type of invoice or sales slip. Some cash registers will make a notation.

The reason the sales made on account are added in last is that these transactions do not affect your cash on hand. It is an important figure, however, and must be accounted for.

After you have figured total sales, the daily cash and sales summary is complete. Look at this sample of the completed daily cash and sales summary for Jim’s Motorcycle Parts.

0201202LB04A-17-24


17-7

Daily Cash and Sales SummaryJim’s Motorcycle Parts

Date: November 14, 20XX

Cash Receipts1. Cash Sales $496.752. Collections on Account 21.003. Minus Refunds 10.00 TOTAL RECEIPTS $507.75

Cash on Hand4. Cash in Register $486.005. Coins in Register 19.456. Checks in Register 51.317. Credit Card Receipts in Register 48.99 TOTAL CASH FROM REGISTER $605.75

8. Petty Cash/Change Fund $150.00 9. Less Petty Cash Slips 52.00

10. Total Petty Cash/Change Fund 98.00 TOTAL CASH on HAND $507.75

If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $-0-

If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $-0-

TOTAL SALES13. Cash Sales $496.7514. Sales made On Account Total 122.5415. TOTAL SALES $619.29

Form Prepared By: John Doe

0201202LB04A-17-24

Bookkeeping

17-8

Step 10: Practice Exercise 17-1Select the best single answer for the following items. Write your answers on scratch paper.

1. Which of the following is classified as a cash sale? _____a. When a customer uses a credit card to pay for a purchase.b. When a customer buys something on account.c. When a customer uses cash to pay for a purchase.d. Both a and c

2. The total of all cash, checks and credit card slips in the cash register is called _____.a. cash on handb. cash salesc. collections on accountd. refunds

3. When your daily cash on hand is less than the total receipts, you have a situation of _____.a. cash overb. cash shortc. cash underd. cash overextended

4. _____ is cash sales and sales made on account added together.a. Total salesb. Cash salesc. Cash underd. Cash receipts

5. Why are sales made on account the last items on the daily cash summary? ______a. These sales affect cash on hand.b. These sales do not affect cash on hand.c. These sales are considered first on the daily cash summary.d. None of the above.

0201202LB04A-17-24


17-9

Now, use the following information to complete a daily cash and sales summary for Joan’s Gems.

At the end of business on December 22, 20XX, Joan’s Gems has the following:

Cash receipts —$3,255.65 Cash sales 288.00 Collections on account 155.00 Refunds

Cash on Hand —$3,299.00 Cash in registers 54.97 Coins in register 75.68 Checks 215.00 Credit card receipts

The business keeps a petty cash/change bank of $500.00 each day. There is a total of $245 in petty cash slips.

The business had $565.98 in sales made on account.

0201202LB04A-17-24

Bookkeeping

17-10

Daily Cash and Sales SummaryJoan’s Gems

___________________________

Cash Receipts1. Cash Sales $_____________2. Collections on Account _____________3. Minus Refunds _____________ TOTAL RECEIPTS _____________

Cash on Hand4. Cash in Register $_____________5. Coins in Register _____________6. Checks in Register _____________7. Credit Card Receipts in Register _____________ TOTAL CASH FROM REGISTER $_____________

8. Petty Cash/Change Fund $____________9. Less Petty Cash Slips ____________

10. Total Petty Cash/Change Fund _____________ TOTAL CASH on HAND $_____________

If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $_____________

If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $_____________

TOTAL SALES13. Cash Sales $_____________14. Sales made On Account Total _____________15. TOTAL SALES $_____________

Form Prepared By: _________________________

Step 11: Review Practice Exercise 17-1Check your answers with the Answer Key at the back of this book. Correct any mistakes you may have made.

0201202LB04A-17-24


17-11

Step 12: Handling the Petty Cash/Change BankBusinesses often keep a small amount of cash on premises, to allow them to purchase miscellaneous supplies and keep change ready for the cash registers. The petty cash/change bank is a set amount of money kept on hand for this purpose. The petty cash/change bank is an important part of any business operation. There are three things to remember about these funds:

1. The petty cash/change bank must begin each day with the same amount of money in it.2. Whenever money is removed from petty cash, it must be accounted for with a petty cash slip

(also called a petty cash voucher).3. When change is made from the change bank, that money must be replaced. In other words,

clerks should “buy” change from the change bank—put in a $10 bill and remove two $5 bills, for example.

At the end of the day, the petty cash slips are used to journalize the money that went out from petty cash. Then the amount taken out is repaid by issuing a check to the person in charge of the petty cash fund so that the next day’s petty cash/change fund starts at the standard amount.

The Amount in the Petty Cash/Change BankAs we mentioned earlier, when a business opens each day, there will be a set amount of money that goes into the cash registers for making change and for making petty cash purchases. This money is known as the petty cash/change bank. Sometimes businesses have their petty cash in a separate place of its own—a box in the manager’s office, for example. Smaller businesses usually use the change bank as petty cash—if the business needs something and pays for it from petty cash, the clerk writes up a petty cash slip and takes the money from the register. In larger businesses, there is someone in charge of petty cash and change. If a clerk needs change, he must go to this person and “buy” it—putting in a $20 bill and getting back the change (a $10 and two $5 bills for example). In any case, at the end of the day, the petty cash/change bank must be brought back to its original amount.

It is important that the petty cash/change bank remains at a set amount. This makes it much easier to figure total cash on hand. By being able to subtract out the money you started the day with (the petty cash/change bank), you are able to figure how much money was taken in. For example, if you end the day with $600 in the register, and you know the petty cash/change bank is $100 every day, you are able to figure the total cash on hand as $500. Imagine if the petty cash/change bank was different each day. If you assumed it was $100, but today it was only $67, what would that do to your total cash on hand figures?

Another important part of managing the petty cash/change bank is keeping track of the amount of money that went out of the petty cash account during the day.

0201202LB04A-17-24

Bookkeeping

17-12

Petty Cash Slips (Vouchers)Imagine this scenario: At the T-Shirt Shoppe, the clerks are running around helping customers. A shipping company brings in a package that is C.O.D.—Collect on Delivery. This package requires the business to pay $5.75 for the part that is inside. Since the company that sent the part does not accept checks for C.O.D. payments, the clerk walks over to a stack of forms behind the cash register. She selects a petty cash slip and fills it out with the date, the amount and description of the transaction. A petty cash slip is a record used to manage your petty cash/change bank. Then she gets a receipt from the shipping company and staples that receipt to the petty cash slip. She puts the petty cash slip with the receipt attached in the cash register, takes out $5.75 and pays the delivery person.

By filling out the petty cash slip and attaching the receipt for the expenditure, the clerk has accounted for a payout of $5.75 from the petty cash bank. It sounds simple, and it is. As long as every petty cash expenditure is treated in this manner, your job as a bookkeeper is that much easier. A petty cash slip (or voucher) may look something like this:

PETTY CASH SLIP

Date: ____________ Amount: $___________

Description of Expense: __________________________

(attach receipt here)

Approved by ___________________________________

Paid out by ____________________________________

After you have prepared the daily cash and sales summary, you will need to journalize the petty cash transactions and the cash over/cash short amount, if any.

Step 13: Journalizing Petty Cash Slips and Cash Over/ShortRemember, petty cash is cash used for the business. As it is paid out, it must be accounted for, just like every other business transaction.

When you journalize petty cash slips, first determine what accounts the expenditure affects. This information should come from the description section of the slip. After you have determined what account the expenditure applies to, you then enter that transaction into the journal. This can be done in one of two ways:

1. Petty cash as an account itself2. Petty cash as part of the cash account

0201202LB04A-17-24


17-13

If you have a system where there is a petty cash account, then you journalize the slips like this:

General Journal

Date Description P/R Dr Cr

Supplies 5 75 Petty Cash 5 75

Enter each slip individually, and pay close attention to the account each one affects.

You then repay your petty cash account by taking money from the cash account and putting it into the petty cash account. If you have a total of $75 in petty cash expenditures and the account normally has $150 in it, you need to repay the difference so the account stays at $150.

The journal entries for a petty cash purchase of $5.75 for office supplies would look like this:

General Journal


Office Supplies 5 75 Petty Cash 5 75Petty Cash 5 75

Cash 5 75

0201202LB04A-17-24

Bookkeeping

17-14

The second technique used for petty cash is a little simpler than the one shown above. By classifying petty cash as part of the cash account, it eliminates the need to “reimburse” the petty cash account from cash. But it also eliminates the extra accuracy check that reimbursement gives you. To journalize the same $5.75 expense shown above in a system where petty cash is part of cash, you simply enter this:

General Journal


Office Supplies 5 75 Cash 5 75

Businesses that use petty cash extensively might create a petty cash journal. This is a specialized journal in which you enter all petty cash transactions for an accounting period. From this journal, you post information to the proper ledgers at the end of each month.

Another item that must be journalized is the amount of cash over or cash short shown on the summary. Because the shortage or excess occurs in the cash dealings, you handle cash over and cash short as part of petty cash.

To enter a $1 cash short situation in the petty cash account, you would journalize it like this:

General Journal


Office Supplies 5 75 Over/Short 1 00 Petty Cash 6 75

0201202LB04A-17-24


17-15

Then, a check for $6.75 is written to reimburse petty cash and journalized this way:

General Journal


Petty Cash 6 75 Cash 6 75

In the case of a business without a separate petty cash account, the entire process would be journalized in one step:

General Journal


Office Supplies 5 75 Over/Short 1 00 Cash 6 75

0201202LB04A-17-24

Bookkeeping

17-16

Now, in the case of a cash over entry, you would make the same entries, except you would change the entry on the over/short line to a credit. To find the total for cash reimbursement, you subtract the over amount from the expense. For example, in the case of a $5.75 office supply expense and a $1 cash over situation, your journal entry would look like this:

General Journal


Office Supplies 5 75 Over/Short 1 00 Cash 4 75

If there is a separate petty cash account, the entry would look like this:

General Journal


Office Supplies 5 75 Over/Short 1 00 Petty Cash 4 75

0201202LB04A-17-24


17-17

and when the check is written to reimburse petty cash:

General Journal


Petty Cash 4 75 Cash 4 75

The total of $4.75 reflects the additional $1 in the petty cash as a result of the cash over situation. Because there is $1 additional in the account, the reimbursement is $1 less.

Step 14: Lesson SummaryBookkeeping is not just about monthly statements and annual documents. There are many bookkeeping functions that are performed on a daily basis. The daily cash and sales summary illustrates these functions. Many businesses use petty cash and change banks along with the daily cash receipts to figure day-to-day earnings in the business.

Step 15: Quiz 17Once you’ve mastered the course content, locate this Quiz in your Assignment Pack. Read and follow the Quiz instructions carefully.

0201202LB04A-17-24

Bookkeeping

17-18

Lesson 18 Partnerships, Corporations and

Non-profit Organizations


● Define partnerships, and explain the various characteristics of the partnership arrangement.

● Account for partners’ shares in assets and liabilities, as well as in drawing accounts.

● Explain the differences between a partnership and a corporation.

● Explain the characteristics of a non-profit organization and how it maintains tax-exempt status.

Step 2: Lesson Preview So far in this course, we have covered bookkeeping from the view of the sole proprietorship; that is, businesses with one owner and a single drawing account. This lesson will move into three more areas of ownership—partnerships, corporations and non -profit organizations.

A partnership is defined as the association of two or more persons who agree to run a business for profit. The partners in this agreement enter into the arrangement willingly. A corporation divides personal and business finances by establishing the company as a separate legal entity. Owners of a corporation are called shareholders because they own a “share” of the company.

Corporations have certain advantages over partnerships. A corporation is continuous (it doesn’t expire upon the death of shareholders). A partnership’s profit is taxed as personal income, and owners are subject to self-employment taxes. In a corporation, salaries (not profits) are taxed, which can result in a substantial tax savings. And, corporations have more options when trying to raise money. However, partnerships have some advantages not enjoyed by corporations. They are easier (and less costly) to establish. And partnerships aren’t required to carry unemployment insurance taxes (at the current rate, this can save partners up to $434 per partner per year).

A non-profit organization works for a public interest with no intent to earn a profit. Non-profits are structured similarly to corporations, but any profit earned is invested back in the company, rather than given to shareholders. For this reason, the non-profit enjoys certain tax advantages.

As you might imagine, bookkeeping procedures differ, depending on whether the company you work for is a partnership, corporation or non-profit organization. The lesson will cover bookkeeping concepts and procedures for all three business types.

0201202LB04A-18-24

Bookkeeping

18-2

Step 3: Terms You Will Need to Know Here are the bookkeeping terms you will learn about in this lesson:

● board of directors ● partnership ● checklist of required schedules ● par value ● chief executive officer (CEO) ● percentage interest ● common factor ● percentage method ● common stock ● preferred stock ● co-owners ● retained earnings ● corporations ● shareholders ● distribution of net income statement ● statement of program services accomplishments ● dividends ● statement regarding other IRS filings and tax compliance ● goodwill ● stock ● goodwill fee ● stock exchange ● incorporated ● stockholders ● mutual agents ● treasury stock ● non-profit organization

Step 4: Partnerships As explained in the introduction to this lesson, partnerships are agreements between two or more people who enter into a business for profit. Although every partnership agreement is unique, there is one main characteristic of a partnership that is always present—the concept of co-ownership.

Co-ownership When a partnership is formed, all parties in the partnership become co-owners of the business. That is, if two people decide to enter into a 50-50 partnership, they each own half of the business. The 50-50 refers to the percent owned by each partner. Percentages do not need to be equal. Every partner must own something, and the total must equal 100. For example, a 40-30-30 partnership gives a larger share of the business to the first partner and equal shares to the other two partners. The total adds up to 100 (signifying 100 percent of the company).

The amount of the business a partner owns is known as percentage interest. The percentage interest helps determine a partner’s share of profit and loss and liability. Percentage interest does not, however, affect the next characteristic—mutual agents.

No matter how much a partner owns (how big his or her percentage interest in the company is), each partner can make decisions for the entire firm. This is known as the concept of mutual agents. These decisions include entering into binding contracts, as long as the contracts lie in the normal scope of the firm’s business. A partner in the Rock Hard Gym and Health Club could sign a contract to purchase exercise equipment, for example. However, if the equipment was not normally used in a health club, the partner would not have the authority to enter into a binding contract.

0201202LB04A-18-24

Partnerships, Corporations and Non-profit Organizations

18-3

Because a partnership involves people, the length of the partnership agreement can vary. People change, and situations change. As changes occur, the establishment or dissolution of partnerships takes place.

There are some elements of the partnership that must always be in writing. These include percentage interest of each partner, pay-out information and the length of the partnership.

Having the agreement in writing ensures that the terms of the agreement are understood by all parties involved and eliminates possible misunderstandings.

Each partner in a business is personally liable for the debts the partnership incurs while that partner is associated with the business. This is a very important concept. Partners are not shielded by the business, and if a partner leaves the business, he or she is still personally responsible for the share of debt incurred by a business while he or she was a partner.

Additionally, when a partner leaves a firm, he must give adequate public notice of his departure. This is the only way he can keep from being held liable for debts incurred after he leaves.

As the bookkeeper for a partnership, you will be asked to figure each partner’s ownership of liabilities and assets.

Step 5: A Partner’s Interest As explained previously, percentage interest is the amount of a business owned by a partner. This is the figure that you, the bookkeeper, will use to figure how much each partner owes, earns and is responsible for as far as the business finances go.

The percent interest can be broken down into a ratio that is often used to determine division of net income or net loss in a partnership. To figure the ratio, you find the greatest common factor of the percent interest figures. In a 25-25-50 partnership, the greatest common factor (the largest number that can be evenly divided into each of the percentage interest figures) is 25. And 25 goes into 25 once and into 50 twice. The ratio, therefore, is 1:1:2.

Transferring Interest In a partnership, each partner owns some part of the business, and all the partners’ shares added up equal 100 percent of the business. That means there is no portion of the business available to new investors. This doesn’t stop new partners from being able to buy into the firm. Existing partners can sell a percentage of their percent interest. This allows new partners to join.

For example, say Company A has three partners: Bob, Jim and Chuck. Bob owns 50 percent of the company. Jim and Chuck own 25 percent each. Bob decides to sell Aaron half of his interest. Well, half of Bob’s 50 percent is 25 percent of the entire business. After Bob sells Aaron 25 percent of the business, all four partners are now equal.

Some partnership agreements require all partners to agree to allow new partners to buy into the company; some do not. Most of the time, partners are allowed to sell their percentage for whatever sum they wish, as long as the buyer pays at least what the percentage is worth to the partner. If Bob’s share of the business was worth $50,000, he wouldn’t want to sell half of his share for $10,000 (it’s worth $25,000).

0201202LB04A-18-24

Bookkeeping

18-4

Sometimes, new partners have to pay a fee to join a company. This goodwill fee reduces the amount of percentage interest they acquire. Let’s discuss this concept in more detail.

Goodwill When a company offers quality products or services, it doesn’t take long for the word to get around. Newspapers sometimes take surveys to find the best restaurant, the best night club or the best hardware store. When people think a company delivers quality, that increases that company’s reputation. Goodwill means that a company has a good reputation. It is an intangible asset that adds value to a company. Sometimes, a new partner might be charged a fee for joining a company with a good reputation. This fee is called a goodwill fee.

Franchises take advantage of goodwill. If you want a hamburger, there are several fast food outlets whose names might pop into your head. If you need building supplies or a plumber, the same thing might happen. Whatever company’s name pops into your head probably works the hardest to get your business. That may or may not be good, but it does increase sales.

For example, working harder for your business might mean all-out advertising blitzes designed to drive the company name into the customer’s head. On the other hand, it could be subtle and the result of local word of mouth (“The best at what you need is Company A.... My brother had them do some work, and it was excellent.”).

Many franchisers charge franchise fees. Whether a company charges goodwill fees or franchise fees, the fees for an initial investment must be entered into the books. Let’s look at how you would journalize this for the investor.

General Journal Page 1

Date Description P/R Dr Cr1 5 Cash 1 0 0 0 0 0 00

Goodwill 1 0 0 0 0 00I.M. Investor, Capital 9 0 0 0 0 00

Initial Investment

As you can see, the investor received $90,000 worth of capital for his $100,000 investment. He is relying on the company growing and making money for him to recoup the $10,000 goodwill fee.

0201202LB04A-18-24


18-5

When the company receives a goodwill fee, the other partners see their capital increase. Suppose I.M. Investor bought into a company owned by Jon Dyer. Dyer’s journal would look something like this, if Dyer started out with $500,000 cash in the business:


Date Description P/R Dr Cr1 5 Cash 5 0 0 0 0 0 00

Goodwill 1 0 0 0 0 00Dyer, Capital 5 1 0 0 0 0 00

Initial Investment

Many bookkeeping tasks are the same for sole proprietorships and partnerships. The main difference is the capital accounts.

Capital Accounts With partnerships, there are two or more people involved in a business. Each partner has contributed a different amount of equity or capital to the business. As the bookkeeper, you will need to keep track of the equity and capital amounts each partner holds in the business. This information is kept in individual capital accounts for each partner.

Note: When a business becomes a partnership, you should allow a bookkeeper to set up the different accounts for the business. The bookkeeper is better prepared to perform this task. Use the balance sheet provided by the bookkeeper to establish the amounts in each account, and then go from there.

0201202LB04A-18-24

Bookkeeping

18-6

Let’s look at the capital accounts from a partnership between John Jones and Alice White.

John Jones, Capital Account No. 31

Date Description P/R Dr Cr8 31 Beginning Capital 2 0 0 0 00

Alice White, Capital Account No. 32

Date Description P/R Dr Cr8 31 Beginning Capital 5 0 0 0 00

As you can see, John Jones has $2,000 capital in the business while Alice White has $5,000. Just as with a sole proprietorship, any addition to the capital account by any partner must be recorded in the general journal and posted to the proper ledger accounts, including the individual capital accounts. To record an addition to capital (known as an investment), follow these steps:

1. Determine who is making the additional investment. 2. Make the appropriate journal entry. 3. Post the journal entry to the appropriate ledger accounts.

0201202LB04A-18-24


18-7

Let’s take our previous example of initial capital investment by Mr. Jones and Ms White. Imagine that for this situation, the amounts invested represent additional capital. With that in mind, we would record Mr. Jones’ new investment like this:


Date Description P/R Dr Cr1 31 Cash 2 0 0 0 00

John Jones, Capital 2 0 0 0 00Additional Investment

A company that uses specialized journals would enter this in the Cash Receipts Journal since cash is being taken by the company.

Additional Investment The journal entries would then be posted to the ledger. The first account is the cash account. You enter a $2,000 debit. Then, you go to John Jones’ capital account and credit it $2,000. Investments can take the form of cash, hardware, inventory or any number of things the company needs.

Other factors affect capital accounts. Net income and drawing accounts both need to be accounted for in individual capital accounts. This is done in the same manner as it would be in a sole proprietorship—through the closing of the books process. We’ll get to that process later in this lesson.

One difference between a partnership and a sole proprietorship is that a partnership changes the Assets = Liabilities + Capital equation. It doesn’t really change the numbers, but the order is a bit different. Remember, you have more than one person involved with the business, so now you have to account for as many partners as there are in the partnership. For example, if a business has three partners, the assets formula looks like this:

Assets = Liabilities + Capital Partner #1 + Capital Partner #2 + Capital Partner #3

0201202LB04A-18-24

Bookkeeping

18-8

Drawing Accounts The drawing accounts in a partnership serve the same purpose as that in a sole proprietorship—to provide the partners with funds from their capital accounts. Any withdrawals from the drawing account are recorded in the same manner as we discussed previously in this course. You credit the cash account, and debit the drawer’s capital account. Let’s say Nora Smith from the bakery has a drawing account. She decides to take out $500 for personal use. That transaction would be journalized like this:


Date Description P/R Dr Cr7 31 Nora Smith, Drawing 5 0 0 00

Cash 5 0 0 00Personal draw, ck. 482

If the company uses specialized journals, this transaction would be entered in the Cash Payments Journal.

The Worksheet and Financial Statements The worksheet for a sole proprietorship and a partnership are very similar. The only difference is that for a partnership, there are extra capital and drawing accounts for each partner.

The financial statements for a partnership are very similar to those for a sole proprietorship. However, a partnership also has an additional statement called the distribution of net income statement. In addition, the balance sheet for a partnership is a little different than that of a sole proprietorship. As with a sole proprietorship, a partnership prepares an operating statement. This document is prepared the same for a partnership as for a sole proprietorship.

Figuring Division of Income or Loss Every investor wants a return on his investment. Partners are entitled to whatever share their agreement dictates of the business’ profit or loss. Look back to the note in this lesson about ratios to see the way to figure each partner’s share. If the partnership agreement dictates that Partner A gets 25 percent and Partner B gets 75 percent of the business’ net income or net loss, you must figure how much money each partner receives. There are two ways to do this: the ratio method and the percentage method.

0201202LB04A-18-24


18-9

The percentage method of figuring the division of income or loss simply takes the total net income or loss and multiplies it by the percentage of the company each partner owns. If Partner A’s and B’s combined net income is $50,000, then using the percentage method, we would figure their shares like this:

Partner A: Partner A is entitled to 25 percent of the $50,000. To find this, multiply $50,000 by 25% (0.25). This gives you Partner A’s share: $12,500.

Partner B: Partner B is entitled to 75 percent of the $50,000. Take $50,000 and multiply it by 75% (0.75). This gives you Partner B’s share: $37,500.

To check your work, take the total shares and add them together. The result should equal the total net income or loss of the company.

Partner A: $12,500

Partner B: + 37,500

Total $50,000

Preparing a Distribution of Net Income Statement As you can see from the previous section, the partners divide the net income of the business. You learned how to figure each partner’s share; now you will see how to record this information on a special document—the distribution of net income statement.

The distribution of net income statement spells out who received how much of the business’ net income. It looks like this:

Sue & Martha’s FlowersDistribution of Net Income Statement

Month ending Dec. 31, 20XX

Sue Miller 50% of Net Income ................. $2,500

Martha Jones 50% of Net Income ................... 2,500

Net Income .................................... $5,000

To complete the statement, follow these steps: 1. Use the operating statement to determine the share of net income for each partner. 2. Head up the distribution of net income statement with the business name, the words

“Distribution of Net Income Statement” and the dates the statement covers.

0201202LB04A-18-24

Bookkeeping

18-10

3. Fill out the statement by entering each partner’s name and that partner’s share (expressed as a percentage) of the business. This entry should be in this form:

Name of Partner Percentage Share of Net Income

4. In the column to the right of the “Percentage Share of Net Income” label, fill in the dollar amount that partner is entitled to. This amount can be found by completing the steps you learned in the previous section.

5. After all partners are entered on the statement, add up all the dollar amounts shown. The total of the partners’ interest should equal the total net income (or net loss) shown on the partnership’s statement.

6. If your figures are correct (the total on the distribution of net income statement matches the total on the operating statement), draw a double line under the total on the distribution of net income statement. You are finished with this document.

7. If the figures do not match, you have made an error. To find the error, first, check the percentage interest for each partner. Add up the percentages—they should total 100 percent. If they don’t, there is your error. If they do, check your math in figuring the dollar amounts due each partner. Then check your net income statement. The error must lie somewhere in one of these areas.

Now, take a few moments to review what you’ve learned.

Step 6: Practice Exercise 18-1

Part 1Select the best single answer for the following items. Write your answers on scratch paper.

1. When a partnership is formed, all partners become _____ of the business. a. sole owners b. co-owners c. equal co-owners d. all of the above

2. _____ interest refers literally to how much of the company a partner owns. a. Percentage b. Current c. Depreciating d. Asset

0201202LB04A-18-24


18-11

3. The concept allowing each partner to enter into binding contracts for the firm is known as _____. a. depreciation b. mutual agents c. submissive contractual obligation d. underwritten law

4. The length of a partnership agreement _____. a. can varyb. must be in writing c. is never spelled out in the partnership agreement d. both a and b

5. When a partnership is formed, the professional bookkeeper must create a(n) _____ account for each partner. a. capital b. expense c. liability d. travel

6. To figure the ratio of percent interest, you must first determine the _____. a. highest common ratio b. single highest factor affecting net income c. greatest common factor d. business type

7. The _____ method of figuring the division of income or loss takes the total net income or loss and multiplies it by the percentage of the company each partner owns. a. percentage b. ratio c. net loss d. double declining balance

0201202LB04A-18-24

Bookkeeping

18-12

Part 2Complete this distribution of net income statement for Iris’ Flower Bin. Write your answer on a form you create on scratch paper

Iris Hirmins owns 55 percent of Iris’ Flower Bin. John Yoder owns 35 percent, and Bev Yoder owns 10 percent. For the month ending December 31, 20XX, the business shows a $7,500.00 net income. What is each partner due?

______________________________

Distribution of Net Income StatementMonth ending Dec. 31, 20XX

_______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________ _______________________________

Step 7: Review Practice Exercise 18-1 Check your answers with the Answer Key at the back of this book. Correct any mistakes you may have made.

0201202LB04A-18-24


18-13

Step 8: The Capital Statement When you complete the distribution of net income statement, you determine how much each partner has gained or lost for a given month. One place you enter this figure is on the capital statement. On the capital statement for a partnership, you must account for each owner. The capital statement is laid out like the following example:

Sue & Martha’s FlowersCapital Statement

Month Ending December 31, 20XXSue Miller

Capital, December 1, 20XX 36 0 7 5 50Share of Net Income 2 5 0 0 00Less withdrawals 5 0 0 00Net Increase in Capital 2 0 0 0 00Capital, December 31, 20XX 38 0 7 5 50

Martha JonesCapital, December 1, 20XX 36 0 7 5 50Share of Net Income 2 5 0 0 00Less withdrawals 4 0 0 00Net Increase in Capital 2 1 0 0 00Capital, December 31, 20XX 38 1 7 5 50

Total Capital, December 31, 20XX 76 2 5 1 00

To fill out a capital statement for a given month, you should follow these steps for each partner:

1. Determine the beginning balance in the capital account for the month or accounting period you are working with by locating the capital account for each owner in the general ledger.

2. Enter this information on the capital statement by writing the partner’s name on the capital statement, then on the next line, enter the description “capital” and the beginning balance date. Enter the beginning balance in the middle column.

3. Next, add in the partner’s share of net income for the month. This is entered in the left column.

4. After you have figured the partner’s share of net income, take her withdrawals from her drawing account, and enter them in the left column, directly under the income share amount.

5. Take the figures in steps 3 and 4, and subtract the smaller from the larger. Enter the result in the middle column.

6. If the withdrawn amount is larger than the net income share amount, subtract the result of step 5 from the beginning capital balance.

0201202LB04A-18-24

Bookkeeping

18-14

7. Write the result of step 6 in the center column with the description “Net Decrease in Capital.” Because the number is negative, you should place parentheses around it. Then, subtract that amount from the beginning capital. Enter the result in the far right column with the description “Capital” and the date the statement period ended.

8. If the share of net income amount is larger than the withdrawn amount, add the total from step 5 to the beginning capital balance. Write the result of step 6 in the center column with the description “Net Increase in Capital.” Then, add that amount to the beginning capital. Enter the result in the far right column with the description “Capital” and the date the statement period ended.

Look at this example:

Iris’ Flower Bin

Capital StatementMonth Ending December 31, 20XX

Iris HirminsCapital, December 1, 20XX 22 5 0 0 00Share of Net Income 4 1 2 5 00Less withdrawals 6 2 5 00Net Increase in Capital 3 5 0 0 00Capital, December 31, 20XX 26 0 0 0 00

John YoderCapital, December 1, 20XX 15 0 0 0 00Share of Net Income 2 6 2 5 00Less withdrawals 3 0 0 0 00Net Decrease in Capital (3 7 5 00)Capital, December 31, 20XX 14 6 2 5 00

Bev YoderCapital, December 1, 20XX 10 0 0 0 00Share of Net Income 7 5 0 00Less withdrawals - 0 -Net Increase in Capital 7 5 0 00Capital, December 31, 20XX 10 7 5 0 00

Total Capital, December 31, 20XX 51 3 7 6 00

If a partner invests additional assets into a company during the month, that partner would be credited with that investment as an increase in capital. To do this, simply add the amount of the additional investment to the partner’s existing capital. Then complete the capital statement using this revised beginning capital amount.

0201202LB04A-18-24


18-15

Step 9: Preparing Partnership Balance Sheets There is only one difference between a balance sheet for a partnership and one for a sole proprietorship. That difference lies in the equity (capital) section.

In a partnership, the amount of equity held by each partner is shown individually. A balance sheet for a partnership will look like this:

BALANCE SHEET ASSETS LIABILITIES

Current Assets Current Liabilities Cash $1,000 Accounts Payable $1,000 Acc. Receivable 1,000 Total Current Liabilities $1,000Total Current Assets $2,000 Long-Term Liabilities Fixed Assets Mortgage Payable $500 Equipment $1,000 Total Long-term Liabilities $ 500 Building 1,000 TOTAL LIABILITIES $1,500

EQUITYTotal Fixed Assets $2,000 J. Jones, Equity $1,500 A. White, Equity 1,000 TOTAL EQUITY $2,500

TOTAL ASSETS $4,000 TOTAL LIABILITIES & EQUITY $4,000

Step 10: Closing Accounts in a Partnership A partnership’s books must be closed out at the end of the accounting period, just like any other business. The procedure for closing out the books for a partnership is very similar to the sole proprietorship process. The main difference lies with the number of drawing and capital accounts you must deal with.

0201202LB04A-18-24

Bookkeeping

18-16

To close the books, follow these steps:

1. Make the adjusting entries to the inventory into the income summary as you would for a sole proprietorship:


Date Description P/R Dr CrAdjusting Entries

Income Summary 2 0 0 0 00Inventory 2 0 0 0 00

Inventory 1 8 0 0 00Income Summary 1 8 0 0 00

2. Make the revenue and expense entries the same way:


Date Description P/R Dr CrClosing Entries

Revenue 2 0 0 0 00Income Summary 2 0 0 0 00

Income Summary 5 0 0 00Rent Expense 2 5 0 00Supply Expense 2 5 0 00

3. The income summary account now looks like this after our example postings:

General Ledger Page 8

Income Summary


Adjusting Entry J8 2 0 0 0 00

Adjusting Entry J8 1 8 0 0 00Closing Entry—Sales J8 2 0 0 0 00Closing Entry—Expenses J8 5 0 0 00Account Balance 1 3 0 0 00

0201202LB04A-18-24


18-17

When you complete this step, you should have your distribution of net income statement handy. In our example, we’ll say John Jones and Alice White each get 50 percent of the net income.

The account balance shown by the income summary should match the net income line of the distribution of net income statement. From that statement, determine how much each partner is entitled to. Then make the next entry to close the income summary:



Income Summary 1 3 0 0 00John Jones, Capital 6 5 0 00Alice White, Capital 6 5 0 00

The $650 reflects the percentage shown on the distribution of net income statement.

Closing the Drawing Accounts After you have closed the income summary, the next step is closing the drawing accounts. To do this, take these steps:

1. Determine each partner’s balance in his or her drawing accounts either from the individual accounts or from the worksheet.

2. Next, close each account as you’ve learned previously. Remember, however, that now you have two or more drawing accounts to close. If, for example, Mr. Jones and Ms. White each had a $200 balance in the drawing accounts, the accounts would be closed this way:



John Jones, Capital 2 0 0 00John Jones, Drawing 2 0 0 00

Alice White, Capital 2 0 0 00Alice White, Drawing 2 0 0 00

0201202LB04A-18-24

Bookkeeping

18-18

3. Finally, post all closing entries to the appropriate ledger accounts. In this case, capital accounts and drawing accounts for both John Jones and Alice White would be posted with the information from the journal.

Now let’s see how corporations differ from partnerships.

Step 11: Corporations If you look up business listings in the phone book, you may see the abbreviation “Inc.” This abbreviation stands for incorporated. Incorporated means the business is a corporation instead of a partnership or sole proprietorship. In the Lesson Preview, you were introduced to some of the differences between corporations and other business forms. In this segment, we’ll cover some of the aspects of the corporation in more detail. You’ll learn how corporations are owned, how profits are distributed and how some profits are kept within the organization for future investment. By the end of the segment, you’ll have a better grasp of businesses that incorporate!

It’s important to note that this segment is not designed to prepare you to work as a bookkeeper for a corporation. Corporations often employ certified accountants to keep their financial records. The additional training you need to work for a corporation is covered in more advanced accounting classes. You may consider taking advanced course work after you’ve accumulated some experience as a bookkeeper. Until then, keep the information from this Lesson Step in the back of your mind. It may come in handy as your career progresses!

Stocks and StockholdersYou already know how partnerships and sole proprietorships are owned. Corporations are different. They attain a legal separation of person and business assets and liabilities. What does this mean? Suppose you’re an owner of a sole proprietorship. Your company and your personal belongings are both part of your individual assets. If your company goes broke, you may have to sell your house or car to settle outstanding debts. A corporation is different. If the corporation goes broke, your house and car and other personal belongings are not affected, because a corporation is a separate legal entity.

So how does ownership of a corporation work? Generally, corporations issue stock in the company. Stock (also called shares) refers to a portion of a company that is sold to generate money for the business. People who own stock are called stockholders (or shareholders) because they own stock (a share of the company).

Small corporations can be owned by as few as two people. All of the available stock may be owned by a handful of friends or by the members of a family. Some corporations are large enough to list in the newspaper business section. People all around the world may own a small piece of these large businesses.

Now, imagine a company with thousands of stockholders. With so many owners, how does a corporation make basic day-to-day decisions? In general, the company is headed by a chief executive officer (CEO), who oversees company operations. Who supervises the CEO? The board of directors is a governing board that is responsible for hiring the CEO and evaluating the results of company policies. And the board of directors is elected by stockholders. If you own ten shares of stock in a company, you generally have 10 votes to apply to the election of board members.

0201202LB04A-18-24


18-19

In general, when you purchase stock, the corporation issues you a certificate signifying that you own a specific portion of the company. This certificate entitles you to your share of company earnings. But how do you get paid? Let’s take a look at how corporations pay their stockholders.

Dividends and Retained EarningsIn a sole proprietorship or partnership, owners have a drawing account. Corporations are different. In exchange for the money invested in the company, stockholders are paid dividends. Dividends are money paid per share of stock by the company. Usually, the company limits its total dividend payout, so stocks do not automatically earn dividends. At the end of an accounting period, the company determines its net income and decides how much of that income to pass on to its stockholders. Dividends are paid on a per-share basis. That is, each stockholder receives an amount of money based on how many shares of stock are owned.

Even when a corporation has a profitable year, the company may not want to pay all of its profits out as dividends. Instead, the company will hold back some of the profit to reinvest in the company and help it grow. This reinvestment of profit is known as retained earnings. Retained earnings affect how large and how often dividends are paid.

Suppose a company earns a million dollars over the course of the year. The company decides to keep 90 percent of its profit as retained earnings and pass on the remaining 10 percent as dividends ($100,000). And imagine that the company has 10,000 shares of stock issued. This means that each share of stock earns a $10 dividend. If you own five shares of the company’s stock, you will get a check for $50.

Generally, that’s how dividends work. However, not all shares of stock work the same. In the next segment, we’ll look at the three major types of stock, and how they differ.

Types of StockCommon stock is an ordinary unit of ownership in a corporation. Each share is basically the same, no matter who owns it. The owners of common stock split profits equally and have equal voting rights. Preferred stock is a special kind of stock that gets first shot at dividends. Suppose a company wants to reinvest in a new location and limits the amount to be paid in dividends. Preferred stockholders are more likely to benefit from the available payout. In addition, if the corporation goes bankrupt, preferred stockholders are paid after creditors, but before common stockholders. However, there is often a tradeoff to owning this type of stock. Preferred stockholders don’t always have voting privileges.

A third kind of stock is treasury stock—stock that the company buys back from stockholders. Treasury stock is not an asset, and shares of treasury stock don’t carry voting rights. When a company holds treasury stock, it doesn’t “own itself.” So why would a corporation buy its own stock? Some companies like to have treasury stock to give to valued employees as a “bonus.” And, when a company buys its own stock, the remaining shares are more likely to go up in value because there are less shares on the open market—a benefit to all stockholders.

0201202LB04A-18-24

Bookkeeping

18-20

Trading StockWhen a company begins operations, the stock is sold for an initial amount called the par value (or face value). For example, suppose Robert buys 500 shares of a new company for $5,000. The par value of the stock is $10 because that’s how much each share originally cost.

But stock values don’t stay the same. If the company does poorly, the price per share may go down. If the company is successful, a share of stock can go up in price. Some shares of big company are bought and sold at a stock exchange—an institution that provides facilities for the exchange of stocks from one owner to another. The biggest of these exchanges is the New York Stock Exchange. Visit the following Web site: https://nyse.nyx.com/

Suppose you own a share of an auto company that comes up with a popular new car with great gas mileage and a snazzy design. Sales are great, and the company records excellent profits. As a stockholder, you might collect a dividend check. But suppose the company’s stock price rises. You might decide to sell your shares of stock in order to receive a payoff for your investment. After selling, you won’t receive any more dividend checks—the new owner will receive them instead. But you can share in the success of the auto company by selling your stock for more than you invested.

Hopefully, you understand more about ownership and profit distribution for corporations. In the next segment, we’ll look at non-profit organizations. But first, complete the following Practice Exercise and see how well you understand the material so far.

Step 12: Practice Exercise 18-2 Select the best answer for the following items. Write your answers on scratch paper.

1. There are _____ steps in completing a capital statement for a partnership. a. 12 b. 8 c. 9 d. 2

2. The first step in completing a capital statement for a partnership is to _____. a. determine the beginning balance b. enter the information on the capital statement c. add the partners’ share of net income d. enter the withdrawals in the left column

3. The difference in a balance sheet for a partnership lies in the _____. a. assets b. assets and liabilities c. liabilities d. capital

0201202LB04A-18-24


18-21

4. To close the income summary, you should have the _____ statement handy. a. income b. distribution of net income c. operating d. capital

5. When closing the drawing account for a partnership, _____ drawing account(s) should be closed. a. both b. only one c. the company president’s d. neither

6. _____ stock is likely to have voting rights for board of director elections.a. Commonb. Preferredc. Treasury

7. Corporations sometimes reinvest their profits by using _____ to buy new assets.a. dividendsb. retained earningsc. the stock exchanged. shareholders


Step 14: What is a Non-profit Organization? A non-profit organization means just exactly what the name implies; an organization that works for a public interest without the intent of earning a profit from the services it renders. Non-profit organizations involve a large variety of religious, civic, public service and activist organizations.

To qualify for non-profit status, an organization must meet requirements set by federal law and be approved by the IRS. The laws govern how a non-profit can earn money. In addition, the expenditures must fall within non- profit purposes. Once an organization has been approved by the IRS, it then becomes exempt from paying income tax.

Even though a non-profit organization is tax exempt, it is still very important for it to accurately account for the organization’s money. In the next section, you will learn how a non-profit organization may use a bookkeeper.

0201202LB04A-18-24

Bookkeeping

18-22

Non-profit Organizations and the BookkeeperAs a bookkeeper, you may be called upon to provide services for a non-profit organization. It would seem strange that an organization that does not need to pay taxes needs a bookkeeper, but they do. The government requires non-profit organizations to file returns and financial statements in order to maintain their tax-exempt status. Many times, non-profit organizations have a small margin of funds from which to provide services. Knowing how much they have and how much has been spent can be very important budgeting tools. Most organizations accept contributions; for contributions of $250 or more, a receipt must be provided to the contributor. This receipt is normally generated at the end of the year. In non-profit organizations that have employees, bookkeepers are needed to provide preliminary payroll services. Non-profit organizations also must manage receivables and payables.

So as you can see, just about any service you can provide for a business can also be provided to a non-profit organization. Now let’s talk a bit about that IRS return that non-profit organizations must file: Form 990, Return of Organization Exempt from Income Tax.

Form 990 for Non-profit Organizations All non-profit organizations must file Form 990 or Form 990 EZ in order to maintain their tax-exempt status. Take a look at the form on the following pages and compare to the following basic outline of the information required to complete it.

The top part of Form 990 is completed with the organization’s name, address, EIN, exemption number, and the type of organization.

Part I summarizes the organization’s revenues, expenses and assets.

Part II is the signatures block. This is where the officer of the non-profit and the paid preparer sign the return.

Part III involves a statement of program services accomplishments—a formal list of the particulars of the non-profit’s operations and accomplishments.

Part IV is a checklist of required schedules—a worksheet to help the non-profit note all of the accompanying forms that the IRS requires when completing the 990 form.

Part V is a statement regarding other IRS filings and tax compliance—a second checklist for additional forms and information that the IRS requires.

Part VI involves more documentation of the non-profit’s governance, including management, policies and how information available for public inspection is posted during the year.

Part VII requires the non-profit organization to list all of its officers, directors, trustees and key employees.

Part VIII lists the non-profit’s revenue.

Part IX lists the non-profit’s expenses involved with providing program services, managing those services and fundraising.

0201202LB04A-18-24


18-23

Part X is a summary of an organization’s assets, liabilities and capital. A completed balance sheet is most helpful in completing this portion of the form.

Part XI tracks net assets (or fund balances) at the end of the year.

Part XII asks parting information about how the company handles its accounts. What accounting method was used (cash or accrual)? Did an independent accountant review the 990 return?

Take a moment to review the blank 990 form that follows.

0201202LB04A-18-24

Bookkeeping

18-24

Form 990

Department of the Treasury Internal Revenue Service

Return of Organization Exempt From Income TaxUnder section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code (except black lung

benefit trust or private foundation)

The organization may have to use a copy of this return to satisfy state reporting requirements.

OMB No. 1545-0047

2012Open to Public

Inspection

A For the 2012 calendar year, or tax year beginning , 2012, and ending , 20

B Check if applicable:

Address change

Name change

Initial return

Terminated

Amended return

Application pending

C Name of organization

Doing Business As

Number and street (or P.O. box if mail is not delivered to street address) Room/suite

City, town or post office, state, and ZIP code

D Employer identification number

E Telephone number

F Name and address of principal officer:

G Gross receipts $

H(a) Is this a group return for affiliates? Yes No

H(b) Are all affiliates included? Yes No

If “No,” attach a list. (see instructions)

H(c) Group exemption number

I Tax-exempt status: 501(c)(3) 501(c) ( ) (insert no.) 4947(a)(1) or 527

J Website:

K Form of organization: Corporation Trust Association Other L Year of formation: M State of legal domicile:

Part I Summary

Ac

tivit

ies &

Go

ve

rna

nc

e

1 Briefly describe the organization’s mission or most significant activities:

2 Check this box if the organization discontinued its operations or disposed of more than 25% of its net assets.3 Number of voting members of the governing body (Part VI, line 1a) . . . . . . . . . 3

4 Number of independent voting members of the governing body (Part VI, line 1b) . . . . 4

5 Total number of individuals employed in calendar year 2012 (Part V, line 2a) . . . . . 5

6 Total number of volunteers (estimate if necessary) . . . . . . . . . . . . . . 6

7 a Total unrelated business revenue from Part VIII, column (C), line 12 . . . . . . . . 7a

b Net unrelated business taxable income from Form 990-T, line 34 . . . . . . . . . 7b

Re

ve

nu

eE

xp

en

se

sN

et

Asse

ts o

r F

un

d B

ala

nc

es

Prior Year Current Year

8 Contributions and grants (Part VIII, line 1h) . . . . . . . . . . . .9 Program service revenue (Part VIII, line 2g) . . . . . . . . . . .

10 Investment income (Part VIII, column (A), lines 3, 4, and 7d) . . . . . .11 Other revenue (Part VIII, column (A), lines 5, 6d, 8c, 9c, 10c, and 11e) . . .12 Total revenue—add lines 8 through 11 (must equal Part VIII, column (A), line 12)13 Grants and similar amounts paid (Part IX, column (A), lines 1–3) . . . . .14 Benefits paid to or for members (Part IX, column (A), line 4) . . . . . .15 Salaries, other compensation, employee benefits (Part IX, column (A), lines 5–10)16a Professional fundraising fees (Part IX, column (A), line 11e) . . . . . .

b Total fundraising expenses (Part IX, column (D), line 25) 17 Other expenses (Part IX, column (A), lines 11a–11d, 11f–24e) . . . . .18 Total expenses. Add lines 13–17 (must equal Part IX, column (A), line 25) .19 Revenue less expenses. Subtract line 18 from line 12 . . . . . . . .

Beginning of Current Year End of Year

20 Total assets (Part X, line 16) . . . . . . . . . . . . . . . .21 Total liabilities (Part X, line 26) . . . . . . . . . . . . . . . .22 Net assets or fund balances. Subtract line 21 from line 20 . . . . . .

Part II Signature Block

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than officer) is based on all information of which preparer has any knowledge.

Sign

Here

Signature of officer Date

Type or print name and title

Paid Preparer Use Only

Print/Type preparer’s name Preparer's signature DateCheck if self-employed

PTIN

Firm’s name Firm's EIN

Firm's address Phone no.

May the IRS discuss this return with the preparer shown above? (see instructions) . . . . . . . . . . . . Yes No

For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11282Y Form 990 (2012)

0201202LB04A-18-24


18-25

Form 990 (2012) Page 2

Part III Statement of Program Service Accomplishments

Check if Schedule O contains a response to any question in this Part III . . . . . . . . . . . . . .1 Briefly describe the organization’s mission:

2 Did the organization undertake any significant program services during the year which were not listed on theprior Form 990 or 990-EZ? . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No

If “Yes,” describe these new services on Schedule O.3 Did the organization cease conducting, or make significant changes in how it conducts, any program

services? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yes No

If “Yes,” describe these changes on Schedule O.4 Describe the organization's program service accomplishments for each of its three largest program services, as measured by

expenses. Section 501(c)(3) and 501(c)(4) organizations are required to report the amount of grants and allocations to others, the total expenses, and revenue, if any, for each program service reported.

4 a (Code: ) (Expenses $ including grants of $ ) (Revenue $ )

4b (Code: ) (Expenses $ including grants of $ ) (Revenue $ )

4 c (Code: ) (Expenses $ including grants of $ ) (Revenue $ )

4d Other program services (Describe in Schedule O.)(Expenses $ including grants of $ ) (Revenue $ )

4e Total program service expenses

Form 990 (2012)

0201202LB04A-18-24

Bookkeeping

18-26

Form 990 (2012) Page 3

Part IV Checklist of Required SchedulesYes No

1 Is the organization described in section 501(c)(3) or 4947(a)(1) (other than a private foundation)? If “Yes,” complete Schedule A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2 Is the organization required to complete Schedule B, Schedule of Contributors (see instructions)? . . . 2

3 Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office? If “Yes,” complete Schedule C, Part I . . . . . . . . . . . . . . 3

4 Section 501(c)(3) organizations. Did the organization engage in lobbying activities, or have a section 501(h) election in effect during the tax year? If “Yes,” complete Schedule C, Part II . . . . . . . . . . . 4

5 Is the organization a section 501(c)(4), 501(c)(5), or 501(c)(6) organization that receives membership dues, assessments, or similar amounts as defined in Revenue Procedure 98-19? If “Yes,” complete Schedule C, Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

6 Did the organization maintain any donor advised funds or any similar funds or accounts for which donors have the right to provide advice on the distribution or investment of amounts in such funds or accounts? If“Yes,” complete Schedule D, Part I . . . . . . . . . . . . . . . . . . . . . . . . 6

7 Did the organization receive or hold a conservation easement, including easements to preserve open space, the environment, historic land areas, or historic structures? If “Yes,” complete Schedule D, Part II . . . 7

8 Did the organization maintain collections of works of art, historical treasures, or other similar assets? If “Yes,” complete Schedule D, Part III . . . . . . . . . . . . . . . . . . . . . . . . . . 8

9 Did the organization report an amount in Part X, line 21, for escrow or custodial account liability; serve as a custodian for amounts not listed in Part X; or provide credit counseling, debt management, credit repair, or debt negotiation services? If “Yes,” complete Schedule D, Part IV . . . . . . . . . . . . . . 9

10 Did the organization, directly or through a related organization, hold assets in temporarily restrictedendowments, permanent endowments, or quasi-endowments? If “Yes,” complete Schedule D, Part V . . 10

11 If the organization’s answer to any of the following questions is “Yes,” then complete Schedule D, Parts VI, VII, VIII, IX, or X as applicable.

a Did the organization report an amount for land, buildings, and equipment in Part X, line 10? If “Yes,”complete Schedule D, Part VI . . . . . . . . . . . . . . . . . . . . . . . . . . 11a

b Did the organization report an amount for investments—other securities in Part X, line 12 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part VII . . . . . . . . 11b

c Did the organization report an amount for investments—program related in Part X, line 13 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part VIII . . . . . . . . 11c

d Did the organization report an amount for other assets in Part X, line 15 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part IX . . . . . . . . . . . . . . 11d

e Did the organization report an amount for other liabilities in Part X, line 25? If “Yes,” complete Schedule D, Part X 11e

f Did the organization’s separate or consolidated financial statements for the tax year include a footnote that addresses the organization’s liability for uncertain tax positions under FIN 48 (ASC 740)? If “Yes,” complete Schedule D, Part X . 11f

12 a Did the organization obtain separate, independent audited financial statements for the tax year? If “Yes,” complete Schedule D, Parts XI and XII . . . . . . . . . . . . . . . . . . . . . . . . . . . 12a

b Was the organization included in consolidated, independent audited financial statements for the tax year? If “Yes,” and if the organization answered "No" to line 12a, then completing Schedule D, Parts XI and XII is optional . . . . . . . 12b

13 Is the organization a school described in section 170(b)(1)(A)(ii)? If “Yes,” complete Schedule E . . . . 13

14 a Did the organization maintain an office, employees, or agents outside of the United States? . . . . . 14a

b Did the organization have aggregate revenues or expenses of more than $10,000 from grantmaking, fundraising, business, investment, and program service activities outside the United States, or aggregate foreign investments valued at $100,000 or more? If “Yes,” complete Schedule F, Parts I and IV . . . . . 14b

15 Did the organization report on Part IX, column (A), line 3, more than $5,000 of grants or assistance to anyorganization or entity located outside the United States? If “Yes,” complete Schedule F, Parts II and IV . . 15

16 Did the organization report on Part IX, column (A), line 3, more than $5,000 of aggregate grants or assistance to individuals located outside the United States? If “Yes,” complete Schedule F, Parts III and IV . . . . 16

17 Did the organization report a total of more than $15,000 of expenses for professional fundraising services onPart IX, column (A), lines 6 and 11e? If “Yes,” complete Schedule G, Part I (see instructions) . . . . . 17

18 Did the organization report more than $15,000 total of fundraising event gross income and contributions on Part VIII, lines 1c and 8a? If “Yes,” complete Schedule G, Part II . . . . . . . . . . . . . . . 18

19 Did the organization report more than $15,000 of gross income from gaming activities on Part VIII, line 9a? If “Yes,” complete Schedule G, Part III . . . . . . . . . . . . . . . . . . . . . . . 19

20 a Did the organization operate one or more hospital facilities? If “Yes,” complete Schedule H . . . . . . 20a

b If “Yes” to line 20a, did the organization attach a copy of its audited financial statements to this return? . 20b

Form 990 (2012)

0201202LB04A-18-24


18-27

Form 990 (2012) Page 4

Part IV Checklist of Required Schedules (continued)Yes No

21 Did the organization report more than $5,000 of grants and other assistance to any government or organization in the United States on Part IX, column (A), line 1? If “Yes,” complete Schedule I, Parts I and II . . . . . 21

22 Did the organization report more than $5,000 of grants and other assistance to individuals in the United States on Part IX, column (A), line 2? If “Yes,” complete Schedule I, Parts I and III . . . . . . . . . . . . 22

23 Did the organization answer “Yes” to Part VII, Section A, line 3, 4, or 5 about compensation of theorganization’s current and former officers, directors, trustees, key employees, and highest compensatedemployees? If “Yes,” complete Schedule J . . . . . . . . . . . . . . . . . . . . . . 23

24a Did the organization have a tax-exempt bond issue with an outstanding principal amount of more than $100,000 as of the last day of the year, that was issued after December 31, 2002? If “Yes,” answer lines 24bthrough 24d and complete Schedule K. If “No,” go to line 25 . . . . . . . . . . . . . . . . 24a

b Did the organization invest any proceeds of tax-exempt bonds beyond a temporary period exception? . . 24b

c Did the organization maintain an escrow account other than a refunding escrow at any time during the year to defease any tax-exempt bonds? . . . . . . . . . . . . . . . . . . . . . . . . 24c

d Did the organization act as an “on behalf of” issuer for bonds outstanding at any time during the year? . . 24d

25a Section 501(c)(3) and 501(c)(4) organizations. Did the organization engage in an excess benefit transaction with a disqualified person during the year? If “Yes,” complete Schedule L, Part I . . . . . . . . . 25a

b Is the organization aware that it engaged in an excess benefit transaction with a disqualified person in a prior year, and that the transaction has not been reported on any of the organization’s prior Forms 990 or 990-EZ? If “Yes,” complete Schedule L, Part I . . . . . . . . . . . . . . . . . . . . . . . . 25b

26 Was a loan to or by a current or former officer, director, trustee, key employee, highest compensated employee, or disqualified person outstanding as of the end of the organization’s tax year? If “Yes,” complete Schedule L, Part II . . 26

27 Did the organization provide a grant or other assistance to an officer, director, trustee, key employee, substantial contributor or employee thereof, a grant selection committee member, or to a 35% controlledentity or family member of any of these persons? If “Yes,” complete Schedule L, Part III . . . . . . . 27

28 Was the organization a party to a business transaction with one of the following parties (see Schedule L, Part IV instructions for applicable filing thresholds, conditions, and exceptions):

a A current or former officer, director, trustee, or key employee? If “Yes,” complete Schedule L, Part IV . . 28a

b A family member of a current or former officer, director, trustee, or key employee? If “Yes,” complete Schedule L, Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28b

c An entity of which a current or former officer, director, trustee, or key employee (or a family member thereof) was an officer, director, trustee, or direct or indirect owner? If “Yes,” complete Schedule L, Part IV . . . 28c

29 Did the organization receive more than $25,000 in non-cash contributions? If “Yes,” complete Schedule M 29

30 Did the organization receive contributions of art, historical treasures, or other similar assets, or qualified conservation contributions? If “Yes,” complete Schedule M . . . . . . . . . . . . . . . . 30

31 Did the organization liquidate, terminate, or dissolve and cease operations? If “Yes,” complete Schedule N, Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

32 Did the organization sell, exchange, dispose of, or transfer more than 25% of its net assets? If “Yes,”complete Schedule N, Part II . . . . . . . . . . . . . . . . . . . . . . . . . . 32

33 Did the organization own 100% of an entity disregarded as separate from the organization under Regulations sections 301.7701-2 and 301.7701-3? If “Yes,” complete Schedule R, Part I . . . . . . . . . . . 33

34 Was the organization related to any tax-exempt or taxable entity? If “Yes,” complete Schedule R, Part II, III, or IV, and Part V, line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

35 a Did the organization have a controlled entity within the meaning of section 512(b)(13)? . . . . . . . 35a

b If "Yes" to line 35a, did the organization receive any payment from or engage in any transaction with a controlled entity within the meaning of section 512(b)(13)? If “Yes,” complete Schedule R, Part V, line 2 . . 35b

36 Section 501(c)(3) organizations. Did the organization make any transfers to an exempt non-charitablerelated organization? If “Yes,” complete Schedule R, Part V, line 2 . . . . . . . . . . . . . . 36

37 Did the organization conduct more than 5% of its activities through an entity that is not a related organization and that is treated as a partnership for federal income tax purposes? If “Yes,” complete Schedule R, Part VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

38 Did the organization complete Schedule O and provide explanations in Schedule O for Part VI, lines 11b and 19? Note. All Form 990 filers are required to complete Schedule O . . . . . . . . . . . . . . 38

Form 990 (2012)

0201202LB04A-18-24

Bookkeeping

18-28

Form 990 (2012) Page 5

Part V Statements Regarding Other IRS Filings and Tax Compliance

Check if Schedule O contains a response to any question in this Part V . . . . . . . . . . . . . .Yes No

1a Enter the number reported in Box 3 of Form 1096. Enter -0- if not applicable . . . . 1a

b Enter the number of Forms W-2G included in line 1a. Enter -0- if not applicable . . . . 1b

c Did the organization comply with backup withholding rules for reportable payments to vendors and reportable gaming (gambling) winnings to prize winners? . . . . . . . . . . . . . . . . . 1c

2a Enter the number of employees reported on Form W-3, Transmittal of Wage and Tax Statements, filed for the calendar year ending with or within the year covered by this return 2a

b If at least one is reported on line 2a, did the organization file all required federal employment tax returns? . 2b

Note. If the sum of lines 1a and 2a is greater than 250, you may be required to e-file (see instructions) . .3a Did the organization have unrelated business gross income of $1,000 or more during the year? . . . . 3a

b If “Yes,” has it filed a Form 990-T for this year? If “No,” provide an explanation in Schedule O . . . . . 3b

4a At any time during the calendar year, did the organization have an interest in, or a signature or other authority over, a financial account in a foreign country (such as a bank account, securities account, or other financialaccount)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4a

b If “Yes,” enter the name of the foreign country: See instructions for filing requirements for Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.

5a Was the organization a party to a prohibited tax shelter transaction at any time during the tax year? . . . 5a

b Did any taxable party notify the organization that it was or is a party to a prohibited tax shelter transaction? 5b

c If “Yes” to line 5a or 5b, did the organization file Form 8886-T? . . . . . . . . . . . . . . . 5c

6a Does the organization have annual gross receipts that are normally greater than $100,000, and did theorganization solicit any contributions that were not tax deductible as charitable contributions? . . . . . 6a

b If “Yes,” did the organization include with every solicitation an express statement that such contributions or gifts were not tax deductible? . . . . . . . . . . . . . . . . . . . . . . . . . . 6b

7 Organizations that may receive deductible contributions under section 170(c).

a Did the organization receive a payment in excess of $75 made partly as a contribution and partly for goods and services provided to the payor? . . . . . . . . . . . . . . . . . . . . . . . . 7a

b If “Yes,” did the organization notify the donor of the value of the goods or services provided? . . . . . 7b

c Did the organization sell, exchange, or otherwise dispose of tangible personal property for which it was required to file Form 8282? . . . . . . . . . . . . . . . . . . . . . . . . . . . 7c

d If “Yes,” indicate the number of Forms 8282 filed during the year . . . . . . . . 7d

e Did the organization receive any funds, directly or indirectly, to pay premiums on a personal benefit contract? 7e

f Did the organization, during the year, pay premiums, directly or indirectly, on a personal benefit contract? . 7f

g If the organization received a contribution of qualified intellectual property, did the organization file Form 8899 as required? 7g

h If the organization received a contribution of cars, boats, airplanes, or other vehicles, did the organization file a Form 1098-C? 7h

8 Sponsoring organizations maintaining donor advised funds and section 509(a)(3) supporting

organizations. Did the supporting organization, or a donor advised fund maintained by a sponsoring

organization, have excess business holdings at any time during the year? . . . . . . . . . . . 8

9 Sponsoring organizations maintaining donor advised funds.

a Did the organization make any taxable distributions under section 4966? . . . . . . . . . . . . 9a

b Did the organization make a distribution to a donor, donor advisor, or related person? . . . . . . . 9b

10 Section 501(c)(7) organizations. Enter:a Initiation fees and capital contributions included on Part VIII, line 12 . . . . . . . 10a

b Gross receipts, included on Form 990, Part VIII, line 12, for public use of club facilities . 10b

11 Section 501(c)(12) organizations. Enter:a Gross income from members or shareholders . . . . . . . . . . . . . . . 11a

b Gross income from other sources (Do not net amounts due or paid to other sources against amounts due or received from them.) . . . . . . . . . . . . . . . 11b

12a Section 4947(a)(1) non-exempt charitable trusts. Is the organization filing Form 990 in lieu of Form 1041? 12a

b If “Yes,” enter the amount of tax-exempt interest received or accrued during the year . . 12b

13 Section 501(c)(29) qualified nonprofit health insurance issuers.

a Is the organization licensed to issue qualified health plans in more than one state? . . . . . . . . 13a

Note. See the instructions for additional information the organization must report on Schedule O.b Enter the amount of reserves the organization is required to maintain by the states in which

the organization is licensed to issue qualified health plans . . . . . . . . . . 13b

c Enter the amount of reserves on hand . . . . . . . . . . . . . . . . . 13c

14a Did the organization receive any payments for indoor tanning services during the tax year? . . . . . . 14a

b If "Yes," has it filed a Form 720 to report these payments? If "No," provide an explanation in Schedule O . 14b

Form 990 (2012)

0201202LB04A-18-24


18-29

Form 990 (2012) Page 6

Part VI Governance, Management, and Disclosure For each “Yes” response to lines 2 through 7b below, and for a “No” response to line 8a, 8b, or 10b below, describe the circumstances, processes, or changes in Schedule O. See instructions.Check if Schedule O contains a response to any question in this Part VI . . . . . . . . . . . . . .

Section A. Governing Body and ManagementYes No

1a Enter the number of voting members of the governing body at the end of the tax year . . 1a

If there are material differences in voting rights among members of the governing body, or if the governing body delegated broad authority to an executive committee or similar committee, explain in Schedule O.

b Enter the number of voting members included in line 1a, above, who are independent . 1b

2 Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee? . . . . . . . . . . . . . . . . . . 2

3 Did the organization delegate control over management duties customarily performed by or under the direct supervision of officers, directors, or trustees, or key employees to a management company or other person? . 3

4 Did the organization make any significant changes to its governing documents since the prior Form 990 was filed? 4

5 Did the organization become aware during the year of a significant diversion of the organization’s assets? . 5

6 Did the organization have members or stockholders? . . . . . . . . . . . . . . . . . . 6

7a Did the organization have members, stockholders, or other persons who had the power to elect or appoint one or more members of the governing body? . . . . . . . . . . . . . . . . . . . . 7a

b Are any governance decisions of the organization reserved to (or subject to approval by) members, stockholders, or persons other than the governing body? . . . . . . . . . . . . . . . . . 7b

8 Did the organization contemporaneously document the meetings held or written actions undertaken during the year by the following:

a The governing body? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8a

b Each committee with authority to act on behalf of the governing body? . . . . . . . . . . . . 8b

9 Is there any officer, director, trustee, or key employee listed in Part VII, Section A, who cannot be reached at the organization’s mailing address? If “Yes,” provide the names and addresses in Schedule O . . . . . 9

Section B. Policies (This Section B requests information about policies not required by the Internal Revenue Code.)Yes No

10a Did the organization have local chapters, branches, or affiliates? . . . . . . . . . . . . . . 10a

b If “Yes,” did the organization have written policies and procedures governing the activities of such chapters, affiliates, and branches to ensure their operations are consistent with the organization's exempt purposes? 10b

11a Has the organization provided a complete copy of this Form 990 to all members of its governing body before filing the form? 11a

b Describe in Schedule O the process, if any, used by the organization to review this Form 990.12a Did the organization have a written conflict of interest policy? If “No,” go to line 13 . . . . . . . . 12a

b Were officers, directors, or trustees, and key employees required to disclose annually interests that could give rise to conflicts? 12b

c Did the organization regularly and consistently monitor and enforce compliance with the policy? If “Yes,” describe in Schedule O how this was done . . . . . . . . . . . . . . . . . . . . . . 12c

13 Did the organization have a written whistleblower policy? . . . . . . . . . . . . . . . . . 13

14 Did the organization have a written document retention and destruction policy? . . . . . . . . . 14

15 Did the process for determining compensation of the following persons include a review and approval by independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?

a The organization’s CEO, Executive Director, or top management official . . . . . . . . . . . . 15a

b Other officers or key employees of the organization . . . . . . . . . . . . . . . . . . . 15b

If “Yes” to line 15a or 15b, describe the process in Schedule O (see instructions).16a Did the organization invest in, contribute assets to, or participate in a joint venture or similar arrangement

with a taxable entity during the year? . . . . . . . . . . . . . . . . . . . . . . . . 16a

b If “Yes,” did the organization follow a written policy or procedure requiring the organization to evaluate its participation in joint venture arrangements under applicable federal tax law, and take steps to safeguard theorganization’s exempt status with respect to such arrangements? . . . . . . . . . . . . . . 16b

Section C. Disclosure

17 List the states with which a copy of this Form 990 is required to be filed 18 Section 6104 requires an organization to make its Forms 1023 (or 1024 if applicable), 990, and 990-T (Section 501(c)(3)s only)

available for public inspection. Indicate how you made these available. Check all that apply.

Own website Another’s website Upon request Other (explain in Schedule O)19 Describe in Schedule O whether (and if so, how), the organization made its governing documents, conflict of interest policy,

and financial statements available to the public during the tax year.20 State the name, physical address, and telephone number of the person who possesses the books and records of the

organization:

Form 990 (2012)

0201202LB04A-18-24

Bookkeeping

18-30

Form 990 (2012) Page 7

Part VII Compensation of Officers, Directors, Trustees, Key Employees, Highest Compensated Employees, and

Independent Contractors

Check if Schedule O contains a response to any question in this Part VII . . . . . . . . . . . . . .Section A. Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees

1a Complete this table for all persons required to be listed. Report compensation for the calendar year ending with or within the

organization’s tax year. • List all of the organization’s current officers, directors, trustees (whether individuals or organizations), regardless of amount of

compensation. Enter -0- in columns (D), (E), and (F) if no compensation was paid.

• List all of the organization’s current key employees, if any. See instructions for definition of “key employee.” • List the organization’s five current highest compensated employees (other than an officer, director, trustee, or key employee)

who received reportable compensation (Box 5 of Form W-2 and/or Box 7 of Form 1099-MISC) of more than $100,000 from theorganization and any related organizations.

• List all of the organization’s former officers, key employees, and highest compensated employees who received more than $100,000 of reportable compensation from the organization and any related organizations.

• List all of the organization’s former directors or trustees that received, in the capacity as a former director or trustee of the organization, more than $10,000 of reportable compensation from the organization and any related organizations.List persons in the following order: individual trustees or directors; institutional trustees; officers; key employees; highest compensated employees; and former such persons.

Check this box if neither the organization nor any related organization compensated any current officer, director, or trustee.

(A)

Name and Title

(B)

Average

hours per week (list any

hours for related

organizations below dotted

line)

(C)

Position (do not check more than one box, unless person is both an officer and a director/trustee)

Individ

ual trustee or d

irector

Institutional trustee

Officer

Key em

ployee

Highest com

pensated em

ployee

Former

(D)

Reportable compensation

from the

organization (W-2/1099-MISC)

(E)

Reportable

compensation from related

organizations

(W-2/1099-MISC)

(F)

Estimated amount of

other compensation

from the organization and related

organizations

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

Form 990 (2012)

0201202LB04A-18-24


18-31

Form 990 (2012) Page 8

Part VII Section A. Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees (continued)

(A)

Name and title

(B)

Average

hours per week (list any

hours for related

organizations below dotted

line)

(C)

Position (do not check more than one box, unless person is both an officer and a director/trustee)

Individ

ual trustee or d

irector

Institutional trustee

Officer

Key em

ployee

Highest com

pensated em

ployee

Former

(D)

Reportable compensation

from the

organization (W-2/1099-MISC)

(E)

Reportable

compensation from related

organizations

(W-2/1099-MISC)

(F)

Estimated amount of

other compensation

from the organization and related

organizations

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

1b Sub-total . . . . . . . . . . . . . . . . . . . . .

c Total from continuation sheets to Part VII, Section A . . . . .

d Total (add lines 1b and 1c) . . . . . . . . . . . . . . .

2 Total number of individuals (including but not limited to those listed above) who received more than $100,000 of reportable compensation from the organization

Yes No

3 Did the organization list any former officer, director, or trustee, key employee, or highest compensatedemployee on line 1a? If “Yes,” complete Schedule J for such individual . . . . . . . . . . . . 3

4 For any individual listed on line 1a, is the sum of reportable compensation and other compensation from theorganization and related organizations greater than $150,000? If “Yes,” complete Schedule J for such individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

5 Did any person listed on line 1a receive or accrue compensation from any unrelated organization or individual for services rendered to the organization? If “Yes,” complete Schedule J for such person . . . . . . 5

Section B. Independent Contractors

1 Complete this table for your five highest compensated independent contractors that received more than $100,000 of compensation from the organization. Report compensation for the calendar year ending with or within the organization's tax year.

(A)

Name and business address(B)

Description of services(C)

Compensation

2 Total number of independent contractors (including but not limited to those listed above) who received more than $100,000 of compensation from the organization

Form 990 (2012)

0201202LB04A-18-24

Bookkeeping

18-32

Form 990 (2012) Page 9

Part VIII Statement of Revenue

Check if Schedule O contains a response to any question in this Part VIII. . . . . . . . . . . . . . . .

Co

ntr

ibu

tio

ns,

Gif

ts,

Gra

nts

an

d O

the

r S

imila

r A

mo

un

ts

(A) Total revenue

(B) Related or

exempt function revenue

(C) Unrelated business revenue

(D) Revenue

excluded from tax under sections

512, 513, or 514

1a Federated campaigns . . . 1a

b Membership dues . . . . 1b

c Fundraising events . . . . 1c

d Related organizations . . . 1d

e Government grants (contributions) 1e

f

All other contributions, gifts, grants, and similar amounts not included above 1f

g Noncash contributions included in lines 1a-1f: $ h Total. Add lines 1a–1f . . . . . . . . .

Pro

gra

m S

erv

ice

Re

ven

ue Business Code

2a

b

c

d

e

f All other program service revenue .g Total. Add lines 2a–2f . . . . . . . . .

Oth

er

Re

ve

nu

e

3

Investment income (including dividends, interest, and other similar amounts) . . . . . . .

4 Income from investment of tax-exempt bond proceeds 5 Royalties . . . . . . . . . . . . .

6a Gross rents . .

(i) Real (ii) Personal

b Less: rental expensesc Rental income or (loss)d Net rental income or (loss) . . . . . . .

7a

Gross amount from sales of assets other than inventory

(i) Securities (ii) Other

b

Less: cost or other basis and sales expenses .

c Gain or (loss) . .d Net gain or (loss) . . . . . . . . . .

8a

Gross income from fundraising events (not including $of contributions reported on line 1c). See Part IV, line 18 . . . . . a

b Less: direct expenses . . . . b

c Net income or (loss) from fundraising events . 9a

Gross income from gaming activities. See Part IV, line 19 . . . . . a

b Less: direct expenses . . . . b

c Net income or (loss) from gaming activities . . 10a

Gross sales of inventory, less returns and allowances . . . a

b Less: cost of goods sold . . . b

c Net income or (loss) from sales of inventory . . Miscellaneous Revenue Business Code

11a

b

c

d All other revenue . . . . .e Total. Add lines 11a–11d . . . . . . . .

12 Total revenue. See instructions. . . . . . Form 990 (2012)

0201202LB04A-18-24


18-33

Form 990 (2012) Page 10

Part IX Statement of Functional Expenses

Section 501(c)(3) and 501(c)(4) organizations must complete all columns. All other organizations must complete column (A).Check if Schedule O contains a response to any question in this Part IX . . . . . . . . . . . . . .

Do not include amounts reported on lines 6b, 7b, 8b, 9b, and 10b of Part VIII.

(A) Total expenses

(B) Program service

expenses

(C) Management and general expenses

(D) Fundraising expenses

1 Grants and other assistance to governments and organizations in the United States. See Part IV, line 21

2 Grants and other assistance to individuals in the United States. See Part IV, line 22 . . .

3

Grants and other assistance to governments, organizations, and individuals outside the United States. See Part IV, lines 15 and 16 . .

4 Benefits paid to or for members . . . .5 Compensation of current officers, directors,

trustees, and key employees . . . . .

6

Compensation not included above, to disqualified persons (as defined under section 4958(f)(1)) and persons described in section 4958(c)(3)(B) . .

7 Other salaries and wages . . . . . .8 Pension plan accruals and contributions (include

section 401(k) and 403(b) employer contributions)

9 Other employee benefits . . . . . . .10 Payroll taxes . . . . . . . . . . .11 Fees for services (non-employees):

a Management . . . . . . . . . .b Legal . . . . . . . . . . . . .c Accounting . . . . . . . . . . .d Lobbying . . . . . . . . . . . .e Professional fundraising services. See Part IV, line 17 f Investment management fees . . . . .

g Other. (If line 11g amount exceeds 10% of line 25, column (A) amount, list line 11g expenses on Schedule O.) . .

12 Advertising and promotion . . . . . .13 Office expenses . . . . . . . . .14 Information technology . . . . . . .15 Royalties . . . . . . . . . . . .16 Occupancy . . . . . . . . . . .17 Travel . . . . . . . . . . . . .18 Payments of travel or entertainment expenses

for any federal, state, or local public officials

19 Conferences, conventions, and meetings .20 Interest . . . . . . . . . . . .21 Payments to affiliates . . . . . . . .22 Depreciation, depletion, and amortization .23 Insurance . . . . . . . . . . . .

24

Other expenses. Itemize expenses not covered above (List miscellaneous expenses in line 24e. If line 24e amount exceeds 10% of line 25, column (A) amount, list line 24e expenses on Schedule O.)

a

b

c

d

e All other expenses 25 Total functional expenses. Add lines 1 through 24e 26

Joint costs. Complete this line only if the organization reported in column (B) joint costs from a combined educational campaign and fundraising solicitation. Check here if following SOP 98-2 (ASC 958-720) . . . .

Form 990 (2012)

0201202LB04A-18-24

Bookkeeping

18-34

Form 990 (2012) Page 11

Part X Balance Sheet

Check if Schedule O contains a response to any question in this Part X . . . . . . . . . . . . . .

Asse

tsL

iab

ilit

ies

Ne

t A

sse

ts o

r F

un

d B

ala

nc

es

(A)

Beginning of year(B)

End of year

1 Cash—non-interest-bearing . . . . . . . . . . . . . . 1

2 Savings and temporary cash investments . . . . . . . . . . 2

3 Pledges and grants receivable, net . . . . . . . . . . . . 3

4 Accounts receivable, net . . . . . . . . . . . . . . . 4

5 Loans and other receivables from current and former officers, directors, trustees, key employees, and highest compensated employees. Complete Part II of Schedule L . . . . . . . . . . . . . 5

6 Loans and other receivables from other disqualified persons (as defined under section 4958(f)(1)), persons described in section 4958(c)(3)(B), and contributing employers and sponsoring organizations of section 501(c)(9) voluntary employees' beneficiary organizations (see instructions). Complete Part II of Schedule L. . . . . . . . 6

7 Notes and loans receivable, net . . . . . . . . . . . . . 7

8 Inventories for sale or use . . . . . . . . . . . . . . . 8

9 Prepaid expenses and deferred charges . . . . . . . . . . 9

10a Land, buildings, and equipment: cost or other basis. Complete Part VI of Schedule D 10a

b Less: accumulated depreciation . . . . 10b 10c

11 Investments—publicly traded securities . . . . . . . . . . 11

12 Investments—other securities. See Part IV, line 11 . . . . . . . 12

13 Investments—program-related. See Part IV, line 11 . . . . . . . 13

14 Intangible assets . . . . . . . . . . . . . . . . . . 14

15 Other assets. See Part IV, line 11 . . . . . . . . . . . . . 15

16 Total assets. Add lines 1 through 15 (must equal line 34) . . . . . 16

17 Accounts payable and accrued expenses . . . . . . . . . . 17

18 Grants payable . . . . . . . . . . . . . . . . . . . 18

19 Deferred revenue . . . . . . . . . . . . . . . . . . 19

20 Tax-exempt bond liabilities . . . . . . . . . . . . . . . 20

21 Escrow or custodial account liability. Complete Part IV of Schedule D . 21

22 Loans and other payables to current and former officers, directors, trustees, key employees, highest compensated employees, and disqualified persons. Complete Part II of Schedule L . . . . . . 22

23 Secured mortgages and notes payable to unrelated third parties . . 23

24 Unsecured notes and loans payable to unrelated third parties . . . 24

25 Other liabilities (including federal income tax, payables to related third parties, and other liabilities not included on lines 17-24). Complete Part X of Schedule D . . . . . . . . . . . . . . . . . . . 25

26 Total liabilities. Add lines 17 through 25 . . . . . . . . . . 26

Organizations that follow SFAS 117 (ASC 958), check here and

complete lines 27 through 29, and lines 33 and 34.

27 Unrestricted net assets . . . . . . . . . . . . . . . . 27

28 Temporarily restricted net assets . . . . . . . . . . . . . 28

29 Permanently restricted net assets . . . . . . . . . . . . . 29

Organizations that do not follow SFAS 117 (ASC 958), check here and

complete lines 30 through 34.

30 Capital stock or trust principal, or current funds . . . . . . . . 30

31 Paid-in or capital surplus, or land, building, or equipment fund . . . 31

32 Retained earnings, endowment, accumulated income, or other funds . 32

33 Total net assets or fund balances . . . . . . . . . . . . . 33

34 Total liabilities and net assets/fund balances . . . . . . . . . 34

Form 990 (2012)

0201202LB04A-18-24


18-35

Form 990 (2012) Page 12

Part XI Reconciliation of Net Assets

Check if Schedule O contains a response to any question in this Part XI . . . . . . . . . . . . . .1 Total revenue (must equal Part VIII, column (A), line 12) . . . . . . . . . . . . . . 1

2 Total expenses (must equal Part IX, column (A), line 25) . . . . . . . . . . . . . 2

3 Revenue less expenses. Subtract line 2 from line 1 . . . . . . . . . . . . . . . 3

4 Net assets or fund balances at beginning of year (must equal Part X, line 33, column (A)) . . . 4

5 Net unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . 5

6 Donated services and use of facilities . . . . . . . . . . . . . . . . . . . 6

7 Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . 7

8 Prior period adjustments . . . . . . . . . . . . . . . . . . . . . . . . 8

9 Other changes in net assets or fund balances (explain in Schedule O) . . . . . . . . . 9

10 Net assets or fund balances at end of year. Combine lines 3 through 9 (must equal Part X, line33, column (B)) . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Part XII Financial Statements and Reporting

Check if Schedule O contains a response to any question in this Part XII . . . . . . . . . . . . . .Yes No

1 Accounting method used to prepare the Form 990: Cash Accrual OtherIf the organization changed its method of accounting from a prior year or checked “Other,” explain inSchedule O.

2a Were the organization’s financial statements compiled or reviewed by an independent accountant? . . . 2a

If “Yes,” check a box below to indicate whether the financial statements for the year were compiled or reviewed on a separate basis, consolidated basis, or both:

Separate basis Consolidated basis Both consolidated and separate basisb Were the organization’s financial statements audited by an independent accountant? . . . . . . . 2b

If “Yes,” check a box below to indicate whether the financial statements for the year were audited on a separate basis, consolidated basis, or both:

Separate basis Consolidated basis Both consolidated and separate basisc If “Yes” to line 2a or 2b, does the organization have a committee that assumes responsibility for oversight

of the audit, review, or compilation of its financial statements and selection of an independent accountant? 2c

If the organization changed either its oversight process or selection process during the tax year, explain inSchedule O.

3a As a result of a federal award, was the organization required to undergo an audit or audits as set forth inthe Single Audit Act and OMB Circular A-133? . . . . . . . . . . . . . . . . . . . . . 3a

b If “Yes,” did the organization undergo the required audit or audits? If the organization did not undergo therequired audit or audits, explain why in Schedule O and describe any steps taken to undergo such audits 3b

Form 990 (2012)

As you can see, the paperwork for a non-profit organization can be daunting! The form is important, however, because it is often the only source of financial information about a given non-profit. Government agencies use the form to prevent organizations from abusing the tax benefits that come from being non-profit. The form and its disclosures also serve to encourage the board of directors of non-profit organizations to adopt certain policies that are in the public interest. For example, the 990 encourages documentation and document retention procedures.

Now, let’s take a look at another Practice Exercise, and see how well you understand the material so far!

0201202LB04A-18-24

Bookkeeping

18-36

Step 15: Practice Exercise 18-3 Determine whether the following statements are True or False. Write your answers on scratch paper.

1. _____ Non-profit organizations must be approved by the IRS.

2. _____ Non-profit organizations are only religious groups.

3. _____ Non-profit organizations can obtain tax-exempt status if they meet government requirements.

4. _____ A bookkeeper might be called upon to complete a balance sheet for a non-profit organization.

5. _____ A bookkeeper will not be required to provide payroll services for a non-profit organization.

6. _____ The government requires non-profit organizations to provide receipts for donations of $200.00 or more.

7. _____ A bookkeeper may be asked to complete an income statement for a non-profit organization.

8. _____ Part I of Form 990 contains the name, address, EIN and exemption number of the non-profit organization.

9. _____ Part VII analyzes the non-profit’s income to determine if it falls within the government’s guidelines.

10. _____ Part III requires a statement of program services accomplishments.


Step 17: Lesson Summary Bookkeeping services are used in many facets of all kinds of businesses. If you operate a bookkeeping business out of your home, you probably will deal mostly with sole proprietorships and perhaps an occasional partnership. Corporations usually use certified accountants rather than bookkeepers to take care of the financial affairs of the business; however, as a bookkeeper, it is important that you understand some of the basic differences between sole proprietorships, partnerships and corporations.

Non-profit organizations must keep track of income and expenses just like a for-profit business. The non-profit organization must also file statements and a Form 990 with the federal government to maintain its exempt status. Bookkeeping can be provided for all of these non-profit organization bookkeeping needs.

Step 18: Quiz 18Once you’ve mastered the course content, locate the Quiz in your Assignment Pack. Read and follow the Quiz instructions carefully

Lesson 19Discounts, Reversing Entries

and Allowances


� Correctly explain purchase discounts from the point of view of accounts receivable and accounts payable.

� Journalize purchase discounts.

� Reverse bookkeeping entries.

� Provide allowances for uncollected accounts.

Step 2: Lesson PreviewYou have completed nearly all of the instruction in the U.S. Career Institute Bookkeeping Course! You have learned about each part of the accounting cycle and how to perform each of the procedures for each part. You are almost ready to complete the final project in this course, which will take you through all the bookkeeping concepts you have learned. The special project that you will use for your last lesson contains a few specific bookkeeping procedures that we will cover here. You’ll learn about purchase discounts, reversing entries and allowances. These three items will complete all the information you’ll need to complete the final project—and begin your career as a professional bookkeeper!

Step 3: Terms You Will Need to KnowHere are the bookkeeping terms you will learn about in this lesson:

● purchase discount

● reversing entries

● allowances

0201202LB04A-19-24

Bookkeeping

19-2

Step 4: Purchase DiscountsTo encourage customers to pay their bills more quickly, some businesses offer a discount to their charging customers. This practice is known as a purchase discount. A time period is set, and if the customer pays his or her bill before that time period is over, a percentage is deducted from the amount due. The percentage and time period is noted on the invoice as one number over another number—”terms 2/20,” for example. The “2” indicates the percent of discount, and the “20” indicates the number of days the discount is good for from the date of purchase. Another common notation is an “n.” If you see an “n” in a purchase discount note, the “n” stands for net or total due. For example, if you received an invoice with the note “terms n/30,” you would know you have 30 days to pay the net total shown on the bill. The “n” stands for “net” or total due, and “30” for the amount of days.

As a bookkeeper, you will encounter purchase discounts both in accounts receivable (from the company you work with or for) and accounts payable (from your company’s creditors). In other words, purchase discounts work both ways—your company can offer them to its credit customers, and your company can receive them from its creditors. Regardless of who gives and receives purchase discounts, these discounts need to be journalized.

Step 5: Journalizing Purchase DiscountsYou’ll need to journalize the purchase discount when the company you keep books for buys goods or services on account and receives a purchase discount from a creditor. These terms should appear in the purchases journal next to the entry so that when you pay the invoice, you will know what terms must be met for purchase discounts. To record the initial transaction, follow these steps:

1. Go to the purchases journal.2. Enter the date, the creditor’s name, the invoice number, the invoice date, the terms (2/20, n/30

or whatever) and the total amount of the transaction to the Purchases Dr. or Accounts Payable Cr. column.

A purchases journal might look like this:

Purchases Journal Page _____

Date Purchased FromInvoice Number

Inv Date Terms P/R

Purchases Dr Accounts

Payable Cr

0201202LB04A-19-24

Discounts, Reversing Entries and Allowances

19-3

As you can see, the purchases journal in the final project contains a column titled “Terms.” In the Terms column, record purchase discount amounts.

Regardless of what the terms offered by the creditor are, you need to be able to figure the correct discount and from there, make the correct payment and journal entry for the transaction. There is a procedure to follow to find these items out. That procedure is spelled out below:

1. Record the transaction in the cash payments journal.2. Determine if the payment being made falls within the guidelines of the terms set by the

invoice. The invoice will have to be looked up. Example: The terms on the invoice are 2/20, n/30. The date of the purchase was April 2nd. It is now April 14th. The terms say the discount is good for 20 days. The 2nd plus the 20 days puts the discount being good until the 22nd of April. To pay this off now would place us well within the bounds of the 20 days.

3. Now, determine the amount of discount due the customer—in this case, 2 percent of the total invoice.

a. Determine the total amount of the invoice. For our example, we’ll say $420.00.

b. Multiply $420.00 by 2 percent (.02).

$420.00 × .02 = $8.40

c. Subtract the discount from the total invoice amount.

$420.00 − $8.40 = $411.60

4. Make the check out for the amount with the discount subtracted out. In the example, the amount of the check would be $411.60.

5. These are the figures needed to now record the transaction.6. Go to the cash payments journal.7. Enter the date, the check number and who the check was made out to. Enter an accounts

payable debit for the whole amount in the accounts payable debit column (from our example, $420.00).

8. Enter the discount amount as a purchase discount credit (from our example, $8.40) and the difference between the two as a cash credit (from our example, $411.60).

0201202LB04A-19-24

Bookkeeping

19-4

In the cash payments journal, the transaction would look like this:

Cash Payments Journal

DateCheck

No. Payee P/R Acct Payable Dr

Other Accounts Debit Purchase Discount

Credit Cash CrAcct Title P/R Amt

XX-X XX Name of Business 4 2 0 00 8 40 4 1 1 60

As you can see, the steps spelled out above are relatively simple to record in the journal. The main things to remember with purchase discounts are the length of time allowed and the amount of the discount. Let’s try an example.

Step 6: Practice Exercise 19-1Figure the purchase discount and make the entry for the following invoice in the cash payments journal. You will find a blank journal form in your Assignment Pack.

Invoice #3434 from Jan’s Horsetraders lists an amount due of $500.00.

The purchase discount note is this: “2/20”.

Check number 41 was issued.

The invoice was received August 1 and is dated July 31, 20XX. The invoice was paid on August 7. What is the purchase discount, and how is it journalized?


0201202LB04A-19-24


19-5

Step 8: Handling Accounts Receivable Purchase DiscountsIf you go to work for or take on a client who sells wholesale items—items that are meant for resale by retailers—that company might offer purchase discounts. Let’s say, for example, the company you keep books for offers a 3/20 purchase discount to its charge customers. You need to note this on the invoice (if you prepare the invoices), and also in the journal entries you make. If you have a journal that contains a “terms” column, fill in the terms here. If not, make a note when you describe the transaction. For example, if Bob’s Hardware buys $50 on account, the journal entry would be:

“Accounts Rec./Bob’s Hardware—3/20”

Then, if Bob pays within the 20 days, you would know to give him a 3 percent discount on the invoice amount. To figure the correct purchase discount, follow these steps:

1. Look up the original invoice to ensure the payment falls within the time guidelines of the terms.2. If the payment falls within the guidelines, determine the discount by taking the total invoice

amount and multiplying it by the purchase discount term. (Remember, percentages are written as decimals like this: 3% = 0.03)

3. Subtract the discount from the total amount. If, as in Bob’s case, a 3% discount is taken from a $50 invoice, the new total is $50 − $1.50 = $48.50.

4. Compare the new total with the enclosed payment. If the two amounts match, then you are ready to record the entry. If they do not, you must check your math to determine who made the mistake. If the customer made the error, follow your company’s procedure for correcting the error. (Some companies call the customer; others send notes—there are many ways to correct errors.)

5. When you are ready to record the payment, enter it into the general journal this way. (We use Bob as an example.)


Date Description P/R Dr CrXX-X Sales Discount 3/20 1 50

Cash 4 8 50Acc. Receivable/Bob’s Hardware 5 0 00

Payment on account

A company that uses specialized journals would enter this in the Cash Receipts Journal.

0201202LB04A-19-24

Bookkeeping

19-6

Step 9: Reversing EntriesAt the end of an accounting period, many accounts are adjusted to reflect the moment. This helps the business by showing an accurate “snapshot” of its financial situation. However, the books need to be brought back to a usable state by reversing the adjustments. Reversing entries is a process in which some adjusting entries are reversed at the beginning of an accounting cycle to bring previously adjusted accounts back to where they were before adjustments. Reversing entries are generally used when revenue or expenses were accrued in the previous period and you no longer wish for the accrual to remain in the bookkeeping system.

The easiest way to understand reversing entries is to look at an example. Suppose your company will owe $3,000 for insurance, but the invoice has not yet arrived. When accruing the expense in January, you would make adjustments, including a debit to expenses for $3,000 and a credit to accrued expenses for $3,000.

When a new accounting period begins in February, you may wish to create a reversing entry to put things back to “normal.” This is done with a debit to accrued expenses for $3,000 and a credit to expenses for $3,000. This effectively reverses the adjustment you made in January.

Then the invoice arrives. You debit expenses for $3,000 and credit accounts payable $3,000.

What’s the net effect? The $3,000 supply expense appears in January reports (when you got the supplies) instead of February (which is when the invoice arrived). Reversing entries allowed you to accurately reflect when the supplies were obtained. Your financial reports were more accurate.

Let’s look at another example. Suppose that an adjusting entry was made for the payroll account. The business owed its workers $200 in salaries that had not yet been paid. Now it’s time to compile the financial statements, so it’s important to reflect that expense in those statements. You record this $200 as an adjustment on the worksheet. The amount is then entered in the general journal and posted.

When considering reversing entries, remember these three things:1. The amount of the reversing entry is equal to the amount of the adjusting entry.2. If a credit entry is made to an account, a debit entry of equal amount is then made to reverse

the adjusting entry.3. Typically, adjustments involving money that has yet to be received or paid are good

candidates for reversing entries.


Date Description P/R Dr CrXX-X Adjusting Entries

Salaries Expense 2 0 0 00Salaries Payable 2 0 0 00

0201202LB04A-19-24


19-7

After the accounting cycle is closed, this entry creates a liability, and needs to be reversed. An entry of Salary Expense credit $200 and Salaries Payable debit $200 is made.


Date Description P/R Dr CrXX-X Reversing Entries

Salaries Payable 2 0 0 00Salaries Expense 2 0 0 00

The reversing entries are always posted to the ledger just like all entries in the general journal.

Step 10: Practice Exercise 19-2Select the best single answer for the following items. Write your answers on scratch paper.

1. In “terms 3/22” the “3” indicates the _____.a. percentage of purchasesb. percentage of discountc. number of daysd. net due

2. In “terms 3/22” the “22” indicates the _____.a. percentage of purchasesb. percentage of discountc. number of daysd. net due

3. In “terms n/30” the “n” indicates the _____.a. percentage of purchasesb. percentage of discountc. number of daysd. net due

0201202LB04A-19-24

Bookkeeping

19-8

4. When you buy goods or services, the terms of the purchase discount are recorded in the _____ journal.a. cashb. purchasesc. salesd. cash payments

5. Accounts receivable purchase discounts are recorded in the _____ when a payment is received.a. cash receipts journalb. general journalc. cash receipts journal or general journal, depending on which journals your company uses

6. Reversing entries are completed at the _____ of the accounting cycle.a. endb. beginningc. beginning and the endd. midpoint

7. Reversing entries are generally used _____.a. for all adjusting entriesb. when you made a mistake in your booksc. when you no longer wish for the accrual to remain in the bookkeeping systemd. for all transactions over $10,000

8. Adjustments involving money that has yet to be _____ are good candidates for reversing entries.a. given or paidb. received or soldc. given or soldd. received or paid

9. Reverse this adjustment: interest expense debit, interest payable credit. _____a. Interest payable debit, interest expense creditb. Interest expense debit, interest payable creditc. Interest income debit, interest receivable creditd. Interest receivable debit, interest income credit


0201202LB04A-19-24


19-9

Step 12: Allowances for Uncollectible AccountsOften, delinquent accounts receivable can remain so for a long period of time before they are declared a bad debt expense. A company is required to make a good faith effort to collect on an account before it can be declared as a bad debt expense. For smaller amounts, this can mean sending an account to collections; for larger amounts it could mean a court action. The delay in reporting the expense can leave the assets overstated and the expenses understated. To maintain accurate financial records, larger companies will create an allowance for uncollectible accounts to allow for this delay.

This allowance is normally figured as a percentage of the company’s overall credit sales. The percent is determined from an average over several years, normally a fraction of a percent. Once the amount is determined, it is entered at the end of an accounting cycle as an adjustment to the worksheet. To accommodate this adjustment, an account called allowance for uncollectible accounts is added to the ledger. The adjustment is then made as a debit to bad debt expense and as a credit to allowance for uncollectible accounts.

Let’s look at an example. Rose’s Floral Shop has an estimated allowance of one half of one percent. Her credit sales for the year were $198,882.00. The first step in the process is to figure the allowance amount. Half of one percent is .5%. To multiply, we have to convert the percent to a decimal, .005. Now multiply .005 by $198,882.00. Our allowance amount for Rose’s Floral Shop is $994.41. This allowance is first recorded in the adjustment column of the worksheet, and then entered into the general journal. This is how the entry would look in the journal:


Date Description P/R Dr CrXX-X Adjusting Entries

Bad Debt Expense 9 9 4 41Allowance for Uncollectible Accts 9 9 4 41

At some point in the allowance method, accounts will be declared uncollectible and need to be written off. The process works a bit differently for an allowance method because the expense of the uncollectible account has already been recorded. To write off an account in the allowance method, enter a debit to allowance for uncollectible accounts, and a credit to accounts receivable.

0201202LB04A-19-24

Bookkeeping

19-10

Rose’s Floral Shop has determined that customer Bob Brown’s account is way past due. They have sent him to collections with still no results. His account in the amount of $289.22 has been determined to be uncollectible. The general journal entry for this transaction would look like this:


Date Description P/R Dr CrXX-X Allowance for Uncollectible Accts 2 8 9 22

A/R Bob Brown 2 8 9 22Account written-off

As with all transactions, these will need to be posted to their accompanying general ledger accounts.

Now that you’ve gained an understanding of discounts, reversing entries and allowances, you’ve completed the foundation for your career as a professional bookkeeper. Before we move on to the final project, let’s discuss how to get started with a new client.

Step 13: Getting Started as a Bookkeeper Your course materials include a Career Starter Guide. This wonderful resource is a thorough examination of how to find and contact a prospective employer. But you may have decided to open an at-home bookkeeping business. Let’s take a few moments to look at what you’ll need to begin providing bookkeeping to other companies.

As you obtain your first client, you might initially feel a little overwhelmed. You may wonder: How do I set up the books? What kind of information do I need to gather? Where do I start? Probably the first place to start is to determine a workspace. This can be a bedroom set aside as an office or a corner of a room. Be sure the space you have designated is used solely by you to perform bookkeeping for your business. Having a space that is used for many purposes could mean documents getting lost, damaged, or disorganized by other users.

Your office space should include a comfortable chair, plenty of desk space, a phone, a locking filing cabinet and general office supplies. If you plan on using a computer to complete your bookkeeping tasks, you will need a good computer, a printer and accounting software. If you plan to complete the books by hand, your general supplies will need to include journal pages, ledgers, accounting paper and statements.

There are no hard and fast rules to setting up your office. Place things where they are comfortable to you. You may find you will need to rearrange a few times as you work to make your office space efficient.

0201202LB04A-19-24


19-11

Make sure your workspace is organized and comfortable.

Now that you have your office space set up, how do you manage the task of setting up the books for your client? The first step in this process requires a conference with your client. Here are some questions you might ask at the initial meeting:

● What kind of a business do you run?

● Can you give me a basic description of the services and goods your business provides?

● How are you currently maintaining your books?

● How extensive of a service do you want me to perform for you?

● Do you have credit customers?

● Do you need me to manage accounts receivable customers for you?

● Do you need me to send out monthly statements to those customers?

● Do you need me to manage your accounts payable?

● Would you like me to generate your payroll?

● How often is your payroll generated?

● Would you like to be provided with financial statements?

● How often would you like them?

● Do you want me to manage your checkbook?

● Do you need me to reconcile your sales and cash collections?

● Would you like me to file your sales tax forms?

● Would you like me to file your federal tax forms?

● Do you have any other bookkeeping service needs that I can provide for you?

0201202LB04A-19-24

Bookkeeping

19-12

Asking these questions will give you a solid grasp about what kind of services you will need to provide to your client and will help you get organized. Once you know what will be expected of you, the next step in the process is to gather the information you will need to set up your services. The scope of the information you will need to gather will depend on the extent of the services you provide. For a full service, you will need the following from your client:

● A list of accounts receivable customers, including addresses, phone numbers, current account balances and the age of those balances.

● A list of creditors, including addresses, phone numbers, current account balances and the age of those balances.

● A copy of the business’ last balance sheet.

● A copy of the business’ last operating statement.

● Bank statements going back to the end of the last accounting cycle for all checking and savings accounts used by the business.

● Checkbooks and copies of the checkbook stubs going back to the end of the last accounting cycle.

● Sales and revenue information going back to the end of the last accounting cycle. This will probably be a stack of cash register summaries.

● Receipts of any items that were purchased with cash within the last accounting cycle.

● Odometer reading for any vehicles used in the business from the beginning of the year.

● A copy of all employees’ W-4 forms from the first of the year, even if they no longer work for the business.

● A current withholding table.

● A copy of the last Form 940 filed with the IRS.

● A copy of the federal tax forms filed for the prior year.

● A copy of the prior sales tax forms filed.

How organized your client is will determine how much of this information you will be able to gather. The more you have, the easier it will be for you to set up the books for your clients. You will use the accounts receivable and payable information to set up the subsidiary ledgers for each. You will use the balance sheet and operating statement to set up your general ledger accounts. The balance sheet provides a list of assets, liabilities and capital accounts. It also provides you with the beginning balances for these accounts. The operating statement will provide you with your revenue and expense accounts. Start all of these accounts with zero balances, as they should have been closed out at the end of the last accounting cycle. The W-4 forms will provide you with the information you need to initially set up the payroll.

0201202LB04A-19-24


19-13

After you have all of the accounts set up, the next step in the process is to enter all of the transactions from the end of the last accounting cycle up to the current date. Start by making sure the checkbook is balanced. Use the previous bank statements to accomplish this task. Once balanced, use the checkbook stubs as your paper trail, and start to enter the transactions up to the current date. Enter the cash receipts and the sales and revenue information to bring the books current. Complete a trial balance to ensure the initial information was entered correctly. Once your trial balance is completed, you have the books started, and now it is just a process of maintaining them.

Keep the copies of previously completed tax forms. They will be a good guide as you complete tax forms for your client for the current year.

As you can see, the process is just a matter of asking good questions, getting the appropriate information, and then doing all of the things you have learned in the course.

Step 14: Practice Exercise 19-3Match the following tasks with their purpose or questions with their answers. Mark your answers on scratch paper.

1. _____ Gather accounts receivable information a. good guide for completing the current tax forms

b. use this information to set up the accounts receivable subsidiary ledgers

c. use this information to bring the business’ transactions up to date

d. .005e. A/R Bob Brown creditf. use to balance the checkbookg. $44.42h. use to set up assets, liabilities and

capital accountsi. bad debt expense debitj. use this information to set up the

accounts payable subsidiary ledgers

2. _____ One half of one percent

3. _____ Bank statements

4. _____ Allowance for uncollectible accounts credit

5. _____ Balance sheet

6. _____ Gather accounts payable information

7. _____ Allowance for uncollectible accounts debit

8. _____ Gather previous tax forms

9. _____ .005 × 8,884.41

10. _____ Copies of check stubs


0201202LB04A-19-24

Bookkeeping

19-14

Step 16: Lesson SummaryCongratulations! This lesson completes your instruction in bookkeeping. You’ve learned about the accounting cycle. You’re able to perform the necessary tasks in each of the eight steps in the cycle. You’ve learned about payroll processing. You’ve been introduced to the basics of tax preparation for both personal and business taxes.

In this lesson, you learned about purchase discounts and how to account for them in business records. And, you discovered how to make your business “snapshot” ready using reversing entries.

But the real test of your knowledge is yet to come. You’re about to begin your final project. Can you take over a company’s books in a real-world simulation? Bright Ideas Light Center makes custom light fixtures for its customers. Over the course of the project, you’ll be the company’s bookkeeper!

Once you complete the final project, you will be ready to begin your career as a professional bookkeeper. Good luck!

Step 17: Quiz 19Once you’ve mastered the course content, locate this Quiz in your Assignment Pack. Read and follow the Quiz instructions carefully.

0201202LB04A-19-24


19-15

Just for FunTo refresh your memory and further prepare yourself for the final project, complete the following set of questions by filling in the blanks from the word bank below. Some words will be used more than once. Write your answers on scratch paperl

debit credit equipment

as a total supplies cash payments

subtract general current asset

inventory sales income summary

purchases cash cash receipts

accounts receivable cash receipts journal

1. If a transaction does not fit into one of the specialized journals, it is then journalized in the _____________________ journal.

2. To adjust for the beginning inventory an entry is made to the ___________________ account and the ____________ _________ account.

3. The cash account increases with a(n) _____________________ entry.

4. When buying supplies, they are recorded in the _____________________ account.

5. To find the amount to adjust the supplies, you _____________________ the current inventory of supplies from the account balance for the supplies.

6. A liability account increases with a(n) _____________________ entry.

7. When posting the Sales Credit column from the sales journal, the amounts are posted _____________________.

8. When posting a customer’s credit purchase, it is posted two places. Once to the ____________________ ledger and a second time to the ______________________ subsidiary ledger.

9. The sales account has a credit balance. A(n) _____________________ entry to the sales account is required to close it, along with a(n) _____________________ entry to the income summary account.

10. The company buys items for resale on account. This transaction is journalized in the _____________________ journal.

0201202LB04A-19-24

Bookkeeping

19-16

11. An expense account increases with a(n) _______________________ entry.

12. The sales account increases with a(n) ________________________ entry.

13. On the balance sheet, prepaid insurance is listed as a(n) ________________________ _________________________.

14. A customer buys an item on account. This transaction is journalized in the ________________________ journal.

15. The payment of the month’s payroll taxes is recorded in the ________________________ journal.

16. The cash account is decreased with a(n) ________________________ entry.

17. The day’s credit card sales are recorded in the ________________________ ___________________ ______________.

18. A company buys a computer and pays with a check. The transaction would be entered as a debit to the ________________________ account and a credit to the ________________________ account.

19. A customer’s payment on his account is recorded in the _____________________ _____________________ journal.

Once you’ve completed this activity, you may find the answers in the Answer Key at the back of this book.

Lesson 20Sole Proprietorship Business Project

Step 1: Lesson PreviewCongratulations! You have come a long way toward your goal of becoming a professional bookkeeper! You have learned about all the parts of the accounting cycle, including accounts receivable, accounts payable, the worksheet, handling purchase discounts, payroll processing and tax preparation. You are now ready to complete the final project. Enclosed in this instruction pack is a booklet entitled Bright Ideas Light Center. It contains all of the forms and information you will need to complete the final bookkeeping project.

Step 2: Completing the ProjectYou are well prepared to complete the enclosed accounting project. Each transaction is listed clearly and simply in the “List of Transactions.” Before you begin, take the time to look through the booklet to familiarize yourself with the layout of the project.

Use the following checklist to help you prepare:

● Review your last Mail-in Quiz to be sure you understand any mistakes you may have made.

● Review your lesson materials on specialized journals (Lesson 10). Bright Ideas Light Center uses specialized journals, so it might be helpful to refresh your memory on how they are used.

● Review your materials on payroll, Lesson 15.

● Look over the specialized journals in the Bright Ideas Light Center project to familiarize yourself with the columns and what information goes where. Briefly, keep the following in mind:● Sales Journal—Record any sales on account transactions here.

● Cash Payments Journal—Record any cash payments here.

● Cash Receipts Journal—Record any money received including cash or credit card sales, payments made to accounts and cash refunds made to the business.

● Purchases Journal—Record any purchases made on account by the business from a creditor.

● Review the information on charts of accounts receivable and payable from earlier lessons.

Once you have completed your general review of the bookkeeping and accounting concepts and procedures you have learned, you are ready to begin working on the final project.

0201202LB04A-20-24

Bookkeeping

20-2

REMEMBER: The project is open book. This means that you may use your lesson materials as a resource throughout the project. Keep in mind that this project is considered to be your final examination in the course; therefore, you will not be able to receive telephone assistance with specific procedures as you complete the project. You may call for assistance as you perform your review, however.

Remember, this business project is completely open book; use every resource you have to complete the Bright Ideas Light Center simulation. This is designed to be a fun way to see what you know. Imagine, as you work through the simulation, that you are actually a working accounting services professional. This is what you get to do each day. And, just like most other new skills, bookkeeping and accounting get easier with practice. Don’t worry if you have to refer often to certain sections of the course; that is normal and expected. As you gain more practice, bookkeeping and accounting concepts will stay fresh in your mind, and you won’t have to keep looking things up.

This course has given you the information you need to become an effective, entry-level accounting services professional. Please, feel free to use it again and again as you work in your new profession. Good luck and have fun with the final project. You have done all the practice—now it’s time to get in the game!

Step 3: The Final Project1. Follow the steps outlined in the Bright Ideas Light Center booklet carefully. Use the forms

included in the book to record the various transactions. You may use pencil. Print the transaction information neatly and carefully. Be sure all numbers are easy to read.

2. It will not be necessary to mail in the entire final project. Please submit the following in the large envelope provided:

● Final project cover sheet

● Journals

● Checkbook with bank reconciliation

● General ledgers

● Subsidiary ledgers

● Accounting stationary including schedules, worksheet, financial statements and post closing trial balance

3. Your final project will be evaluated by an instructor and returned to you. Because this project is extensive, please allow plenty of time for your instructor’s response.

0201202LB04A-20-24

Sole Proprietorship Business Project

20-3

4. Your project will be graded using the following guidelines:

-1 for each initial error-1 for 1-5 format issues-2 for more than 5 formatting issuesThis includes anything that is not a hard number - dates, headings, descriptions, P/R column entries, ruling, financial statement formats, etc.-5 Sales journal - if amounts are switched between the Accts. Rec. Dr. and Sales Cr.-5 maximum for incorrect account title entries in the Cash Payments Journal if the amount was then posted correctly. Deduct singularly for the initial error if the account title then lead to the entry not being posted correctly.-1 for each missing or incorrect entry in the General Journal. Count each entry as a set versus deducting one point for each part of the entry. -1 for each initial incorrect amount, total or balance in the checkbook. Consider any other error as format.-5 maximum for individual amounts posted to the ledger versus column totals. However, if the individual amounts are posted incorrectly, deduct one point per incorrectly posted individual amount.-1 point per set for the adjustments on the worksheet.

1-10 missed = 95%11 to 20 missed = 90%21 to 30 missed = 85%31 to 40 missed = 80%41 to 50 missed = 75%51 to 60 missed = 70%61 to 70 missed = 65%71 to 80 missed = 60%81 to 90 missed = 55%91 to 100 missed = 50%101 to 110 missed = 45%111 to 120 missed = 40%121 to 130 missed = 35%131 to 140 missed = 30%141 to 150 missed = 25%151 to 160 missed = 20%161 to 170 missed =15% 171 to 180 missed =10%181 to 190 missed = 5% More than 190 missed = 0%

0201202LB04A-20-24

Bookkeeping

20-4

Step 4 Bright Ideas Light Center

BackgroundAlice Peterson, the sole proprietor of Bright Ideas Light Center, established her business 10 years ago. Bright Ideas Light Center provides custom light fixtures for contractors and has recently grown into a large store that offers a wide variety of light fixtures, as well as installations. Ms. Peterson currently has 16 employees: an office manager, a warehouse manager, an accounting services professional, four electricians, five sales persons, two delivery persons and two stockroom persons.

Ms. Peterson recently hired you as a temporary accounting services professional. You will fill in while the accounting services professional is on maternity leave. Ms. Peterson has asked you to complete the books for December, 20XX. You will journalize each of the transactions that have occurred for the month. Ms. Peterson uses the following journals: sales, cash receipts, cash payments, purchases and the general journal. Additionally, you will issue checks, enter deposits and maintain the checkbook. At the end of the month, Ms. Peterson will ask you to complete a worksheet, a schedule of accounts receivable and payable and the end-of-the-month financial statements. You should also know that Ms. Peterson contracts with an outside company to generate the company’s payroll. However, you will receive a payroll summary on the 15th and the 30th.

List of TransactionsEnter each of the following transactions into the appropriate journal that follows the list of transactions. (See journals section beginning on page 39.) Make sure you do not duplicate your entries. (Note: Transactions entered into any of the specialized journals are not also entered into the general journal. Enter each transaction once only.) When making your entries, be sure to use specific account titles. You may refer to the Chart of Accounts (provided with company information at the end of this segment) to assist you. Follow the instructions carefully; they will tell you when it’s time to post and what needs to be posted. Remember, specialized journal columns only post the total at month-end.

DECEMBER 1, 20XX Trans. 1 Cash register summary

Cash sales merchandise $1,822.41

Sales tax 91.12

Received on account Monique Gonzales 200.00

Total cash 2,113.53

Sales on account Robert Max

Invoice #14892 $326.82

Sales tax 16.34

Total sale 343.16

0201202LB04A-20-24


20-5

Enter the cash sales and the received on account into the cash receipts journal; enter each on its own line. Enter the sale on account into the sales journal. Be sure that Dr = Cr for each transaction entered. The total cash was deposited into the bank account at the close of the day. Make the appropriate adjustments to the checkbook. You will need to follow this same procedure for every cash register summary.

Trans. 2 Issued check 281 in the amount of $2,800.53 to First Steamboat Bank for the monthly mortgage payment for the business. $2,000.00 was applied to the principal, and $800.53 was applied to interest. (Be sure to list the principal separate from the interest. Use the Interest Expense account to record the interest.) An example of a compound entry can be found in Lesson 15, Step 12.

Trans. 3 Issued check 282 in the amount of $568.42 to Public Service to pay for November utilities.

Trans. 4 Issued check 283 in the amount of $5,085.00 to Electrifying Bulb Company to pay for November invoice number 1282.

DECEMBER 2, 20XXTrans. 5 Cash register summary


Sales tax 147.13

Received on account Schmidt Contracting 1,193.93

Total cash 4,283.67

Sales on account Julie Adams

Invoice #14893 $142.50

Sales tax 7.13

Total sale 149.63Trans. 6 Issued check 284 in the amount of $352.50 to Office Co. for

office supplies invoice 282. (Remember, supplies are an asset when purchased.)

Trans. 7 Issued check 285 to Webmasters, Inc. in the amount of $350.52 for maintenance of website. This is an advertising expense.

0201202LB04A-20-24

Bookkeeping

20-6



Sales tax 144.62

Received on account 0.00

Total cash 3,036.93

Sales on account Rachel Simpson

Invoice #14894 $21.93

Sales tax 1.10

Total sale 23.03

Trans. 9 Issued check 286 to Hospital Texaco for repairs to delivery truck in the amount of $289.89, invoice 652. All expenses related to deliveries will be recorded as Delivery Expense.

Trans. 10 Purchased $2,852.00 in resale items from Light House Supply and placed them on our account. Terms 2/15, n/30. Purchase order A75587 was issued.



Sales tax 111.70

Received on account Rosebud Designers 1,000.00

Total cash 3,345.72

Sales on account Rosebud Designers

Invoice #14895 $120.00

Sales tax 6.00

Total sale 126.00Trans. 12 Issued check 287 to the Steamboat Gazette for the amount of

$128.98 for an advertisement in Sunday’s newspaper.

Trans. 13 Issued check 288 to Edison’s, a light bulb supplier for resale items purchased in November, purchase order 28999. The amount of the check was $1,971.75, which includes a 2% discount. The total invoice was $2,011.99.

0201202LB04A-20-24


20-7



Sales tax 154.12


Total cash 3,236.56

Sales on account Ed Miller

Invoice #14896 $592.63

Sales tax 29.63

Total sale 622.26

Trans. 15 Issued check 289 to Mail Ex in the amount of $120.00 for freight on specialty bulbs delivered to the store.

Trans. 16 Issued check 290 to Hospital Texaco for gas purchased for delivery trucks in the amount of $389.95.



Sales tax 159.46


Total cash 3,348.68


Invoice #14897 $576.76

Sales tax 28.84

Total sale 605.60

Sales on account Schmidt Contractors

Invoice #14898 $128.99

Sales tax 6.45

Total sale 135.44

Trans. 18 Purchased $2,150.03 in resale items on account from Starry Night; terms 1/15, n/30. Purchase order 95687 was issued.

Trans. 19 A defective lamp was returned by a customer Jan Smith. Check number 291 was issued in the amount of $152.25. This included $145.00 for the sale price, and $7.25 for the sales tax.

0201202LB04A-20-24

Bookkeeping

20-8

End-of-the-Week Procedures Give yourself a pat on the back! You’ve already completed the first week of transactions. Now, complete the following end-of-the-week procedures:

1. Total all the columns in all of the specialized journals. Enter the totals beneath the last entry in the journal. Add the debits and the credits (cross-foot), ensuring that they balance. If you find an error, take time to make a correction. (Do not post these column totals at this point. Wait until the end of the month.)

2. Without posting anything to the cash account, determine its current account balance in the ledger. Add the totals from the cash receipts journal to the current account balance, and subtract the footing from the cash payments journal. Check this balance against your checkbook at the end of the week. They should match. If they do not match, you have an error. Take a few moments to find your error and make the correction.

3. Alice Peterson likes to have up-to-date information on her customers’ accounts. Post all accounts receivable transactions into the subsidiary ledger. It is not necessary to post to the general ledger at this time. You will post this amount as a column total at the end of the month.

4. Post all accounts payable transactions into the subsidiary ledger. It is not necessary to post to the general ledger at this time. You will post this amount as a column total at the end of the month.

5. Post all of the entries entered into the other accounts columns from the cash receipts journal and the cash payments journal.

6. Post any entries that may have been made to the general journal.7. Answer the following audit check questions:

a. What are Bright Ideas’ total sales for the week?b. What are Bright Ideas’ total purchases for the week?c. What is Robert Max’s account balance?

8. Check your audit check answers at the end of this book segment.

0201202LB04A-20-24


20-9



Sales tax 121.33


Total cash 2,547.85

Sales on account Monique Gonzales

Invoice #14899 $89.99

Sales tax 4.50

Total sale 94.49

Trans. 21 Issued check 292 in the amount of $4,856.76 to First Steamboat Bank. A federal deposit was made for this payroll period. Remember that Bright Ideas separates FICA into Social Security Tax Payable and Medicare Tax Payable. An example of this transaction can be found in Lesson 15. The deposit breaks down as follows:

Social Security withholdings $993.79

Medicare withholdings 232.42

Federal income tax withholdings 2,404.34

Employer’s contribution to Social Security 993.79

Employer’s contribution to Medicare 232.42



Sales tax 164.12

Received on account $0.00

Total cash 3,446.61

Sales on account Schmidt Contracting

Invoice #14900 $1,899.04

Sales tax 94.95

Total sale 1,993.99

Trans. 23 Issued check 293 to Q-cell in the amount of $56.99 for November’s use of the cell phone.

Trans. 24 Issued check 294 to Steamboat Bell in the amount of $189.99 for November’s local phone service.

0201202LB04A-20-24

Bookkeeping

20-10



Sales tax 172.24

Received on account Monique Gonzales 280.42

Total cash 3,897.55


Invoice #14901 $42.45

Sales tax 2.12

Total sale 44.57

Trans. 26 Issued check 295 in the amount of 1,008.42 to Gecko Insurance Company for six months coverage on the delivery trucks. Premiums are a prepaid asset.

Trans. 27 Issued check 296 to First Steamboat Bank for the amount of $282.42 for the deposit of the state income tax withholdings.



Sales tax 119.64

Received on account Robert Max 499.84

Total cash 3,012.36


Invoice #14902 $82.99

Sales tax 4.15

Total sale 87.14

Trans. 29 Issued check 297 to Hospital Texaco in the amount of $254.55 for delivery truck gas.

Trans. 30 Issued check 298 to Clearly Clean’s Window Washing Service for the amount of $32.99. This is considered maintenance.

0201202LB04A-20-24


20-11



Sales tax 174.97


Total cash 3,674.41


Invoice #14903 $242.82

Sales tax 12.14

Total sale 254.96

Trans. 32 Issued check 299 to Light House Supply for resale items purchased in December, purchase order A75587. The amount of the check was $2,794.96, which includes a 2% discount. The total invoice was $2,852.00.

Trans. 33 Issued check 300 to Starry Night for resale items purchased in December, purchase order 95687. The amount of the check was $2,128.53, which includes a 1% discount. The total invoice was $2,150.03.



Sales tax 142.12


Total cash 2,984.56

Sales on account None

Trans. 35 Purchased $3,842.00 in resale items from Light House Supply, terms 2/20, n/30. Purchase order B76584 was issued.

Trans. 36 Issued check 301 to First Steamboat Bank in the amount of $852.59 for a note on the delivery trucks. $800.00 was applied to principal and 52.59 to interest.

0201202LB04A-20-24

Bookkeeping

20-12

End-of-the-Week ProceduresNow you have made it through the second week. You have accomplished a lot! Please complete the following end-of-the-week procedures.

1. Foot all the columns in all of the specialized journals. Start with the previous footing and add the current weeks entries. You will want to keep a cumulative balance versus a balance for each week. Cross foot for accuracy, and correct any errors you may have.

2. Without posting anything to the cash account, determine its current account balance. Add the footing from the cash receipts journal to the current account balance, and subtract the footing from the cash payments journal. Check this balance against your checkbook. They should match. If they do not match, you have an error. Take some time to figure out your error and make the correction.

3. Post all accounts receivable transactions to the subsidiary ledgers.4. Post all accounts payable transactions to the subsidiary ledgers.5. Post all of the entries entered into the other accounts columns from the cash receipts journal

and the cash payments journal.6. Post any entries that may have been made to the general journal.7. Answer the following audit check questions:

a. Check number 295 issued to Gecko Insurance Company was posted to which account?b. What was the purchase discount for Starry Night, purchase order 95687?c. What are the total credit sales for the month thus far?

8. Check your audit check answersat the end of this book segment.



Sales tax 161.07


Total cash $3,382.49


Invoice #14904 $192.47

Sales tax 9.62

Total sale 202.09

0201202LB04A-20-24


20-13

Trans. 38 Use the following payroll summary produced by Paid-Rite to make the payroll entries for Bright Ideas Light Center.

Paid-RitePayroll Summary

Company: Bright Ideas Light CenterPayroll period ending: December 15, 20XX

Gross Social Medicare Federal State NetEarnings Security Tax Inc. Tax Inc. Tax Pay15,888.49 985.09 230.38 2,383.27 476.65 11,813.10

1. Enter the expense and liabilities generated by this payroll period in the general journal. Record the net pay to salaries payable. Refer to lesson 15 if you need assistance.

2. Make an entry in the general journal to record the employer’s contribution to Social Security and to Medicare. Keep in mind, the employer contributes an amount equal to the employee’s contribution.

3. Issue check 302 for the total of the net pay to the Bright Ideas Light Center’s payroll account. Make an entry in the Other Accounts column to the salaries payable account in the cash payments journal.



Sales tax 91.22


Total cash 1,915.64


Trans. 40 Issue check 303 in the amount of $56.23 to a customer, Fran Jones, for a defective light fixture that was returned. The original sale was $53.55, and the tax was $2.68.

Trans. 41 Issue check 304 in the amount of $80.87 to Office Co. for supplies to be used in the store.

0201202LB04A-20-24

Bookkeeping

20-14


Cash sales merchandise $842.44

Sales tax 42.12

Received on account Julie Adams 289.99

Total cash 1,174.55


Invoice #14905 $102.07

Sales tax 5.10

Total sale 107.17

Trans. 43 Issue check 305 to Hospital Texaco for gas purchased for delivery trucks in the amount of $482.65.

Trans. 44 Issue check 306 to the Colorado Department of Revenue in the amount of $1,423.82 for sales tax collected for the month of November 20XX.



Sales tax 82.12


Total cash 1,724.55


Invoice #14906 $82.37

Sales tax 4.12

Total sale 86.49

Trans. 46 Purchased $5,892.50 in resale items from Light House Supply, terms 2/28, n/30. Purchase order C75657 was issued.

Trans. 47 Issued check 307 to Light House Supply for resale items purchased in December purchase order B76584. The amount of the check was $3,765.16, which includes a 2% discount. The total invoice was $3,842.00.

0201202LB04A-20-24


20-15



Sales tax 64.15


Total cash 1,347.14


Invoice #14907 $802.37

Sales tax 40.12

Total sale 842.49

Trans. 49 Purchased $5,092.00 in resale items from Edison’s, terms n/30. Purchase order 87127 was issued.

Trans. 50 An investment made by the business matures. Record the principal of $5,000.00, and the interest of $521.22 in the cash receipts journal. Enter the total amount as a cash debit, and make a note of the deposit in the checkbook. (Remember to record the principal separate from the interest. Record the interest as Interest Income.)



Sales tax 74.75


Total cash 1,569.75


Invoice #14908 $82.47

Sales tax 4.12

Total sale 86.59

Trans. 52 Customer Monique Gonzales returns light bulbs she was unable to use. Alice credits Monique’s account for $94.49—the total sale. The original sale included $4.50 in sales tax and $89.99 for the bulbs.

0201202LB04A-20-24

Bookkeeping

20-16

End-of-the-Week ProceduresNow you have made it through the third week. You are doing great! You only have one more week. Take a few moments to complete the following end-of-the-week procedures.

1. Foot all the columns in all of the specialized journals. Add the previous footing to your current balances. Cross foot for accuracy, and correct any errors you may have.

2. Without posting anything to the cash account, determine its current account balance. Check this balance against your checkbook. They should match. If they do not match, you have an error. Take a few moments to find the error and make the correction.

3. Post all accounts receivable transactions to the subsidiary ledgers.4. Post all accounts payable transactions to the subsidiary ledgers.5. Post all of the entries entered into the other accounts columns from the cash receipts journal

and the cash payments journal.6. Post any entries that may have been made to the general journal.7. Answer the following audit check questions:

a. What was the net pay for the payroll period ending December 15, 20XX?b. What is the current balance of the sales tax payable account (only include amounts that

have already posted to the ledger)?c. In transaction 50, what three accounts were involved with the recording of this transaction?



Cash sales merchandise $495.85

Sales tax 24.79

Received on account Ed Miller 452.99

Total cash 973.63


Invoice #14909 $42.47

Sales tax 2.12

Total sale 44.59

Trans. 54 The bank statement has arrived. Record the service charges in the cash payments journal and the interest in the cash receipts journal. Complete a bank reconciliation for Bright Ideas Light Center as of the date the statement is received. See page 74. You can assume that all of the November deposits and checks have cleared. Refer to Lesson14 for the steps to reconcile an account. Also, make the appropriate adjustments to the checkbook.

0201202LB04A-20-24


20-17

First Steamboat BankStatement from November 15, 20XX to December 15, 20XX

Beginning Balance $18,525.88

Plus 27 Deposits 84,116.12

Minus 45 Withdrawals 73,434.80

Ending Balance 29,207.20

DepositsDate Amount Description Date Amount Description

11-16 $3,448.82 Commercial deposit 12-1 2,113.53 Commercial deposit

11-18 2,894.65 Commercial deposit 12-2 4,283.67 Commercial deposit












Other deposits12-15 $25.94 Interest

0201202LB04A-20-24

Bookkeeping

20-18

ChecksDate Amount Check Number Date Amount Check Number

11-15 $11,917.53 256 11-30 22.80 279

11-16 532.50 259* 11-30 3,665.61 280

11-17 668.42 257 12-2 2,800.53 281

11-17 4,085.00 258 12-2 568.42 282

11-17 50.50 260 12-4 128.98 287*

11-18 1,571.75 263* 12-4 5,085.00 283

11-18 120.00 264* 12-4 352.50 284

11-19 289.42 261 12-5 289.89 286+

11-19 130.22 262 12-5 1,971.75 288

11-19 352.92 265 12-7 120.00 289

11-20 82.92 266 12-7 389.95 290

11-21 1,208.43 270* 12-8 4,856.76 292+

11-21 5,003.42 267 12-8 56.99 293

11-22 56.99 268 12-11 282.42 296*

11-22 203.42 269 12-11 189.99 294

11-23 302.56 271 12-12 1,008.42 295

11-23 256.55 272 12-12 254.55 297

11-23 64.82 276 12-12 2,794.96 299+

11-24 2,840.24 273 12-13 2,128.53 300

11-24 2,242.62 274 12-15 11,813.10 302+

11-25 852.59 275

11-28 380.87 277

11-29 662.40 278

+ Denotes break in sequence * Denotes break in order

Service charge summary12-15 $752.56 Credit card processing fee

12-15 25.00 Monthly bank service charge

0201202LB04A-20-24


20-19



Sales tax $164.76

Received on account Rachel Simpson $236.42



Trans. 56 Issued check 308 to Light House Supply for resale items purchased earlier in the month, purchase order C75657. The amount of the check was $5,774.65, which includes a 2% discount. The total invoice was $5,892.50.

Trans. 57 Issued check 309 to Clearly Clean’s Window Washing Service for the amount of $32.99.



Sales tax 128.13


Total cash 2,690.65


Invoice #14910 $142.40

Sales tax 7.12

Total sale 149.52

Trans. 59 Alice Peterson returned some defective light fixtures to Light House Supply. She was issued credit memorandum 952 in the amount of $1,282.42. Refer to Lesson 8 for an example of a purchase return on accounts.

0201202LB04A-20-24

Bookkeeping

20-20

Trans. 60 Issued check 310 in the amount of $4,814.21 to First Steamboat Bank. A federal deposit was made for this payroll period. The deposit breaks down as follows:

Social Security withholdings $985.09

Medicare withholdings 230.38

Federal Income tax withholdings 2,383.27

Employer’s contribution to Social Security 985.09

Employer’s contribution to Medicare 230.38



Sales tax 193.08


Total cash 4,054.58


Invoice #14911 $382.49

Sales tax 19.12

Total sale 401.61

Trans. 62 Ms. Peterson reviewed the accounts receivable accounts and has determined Sandy Shores’ account as uncollectible. Bright Ideas does not use an allowance method, so the account will be written off directly. Sandy Shores’ account currently has a balance of $425.99. (Hint: Refer to Lesson 7.)


0201202LB04A-20-24


20-21



Sales tax 206.50


Total cash 4,336.49


Invoice #14912 $89.99

Sales tax 4.50

Total sale 94.49

Trans. 65 Issued check 312 to Computer World for $1,282.56 for a new computer for the office. (Remember to record this transaction as equipment.)



Sales tax 144.90


Total cash 3042.90


Trans. 67 Issued check 313 to Alice Peterson in the amount of $10,000.00 as a draw from the business.

0201202LB04A-20-24

Bookkeeping

20-22



Sales tax 56.42




Invoice #14913 $142.53

Sales tax 7.13

Total sale 149.66

Trans. 69 Issue check 314 to Office World for the amount of $129.99 for office supplies.




Sales tax 119.44


Total cash 2,508.15


0201202LB04A-20-24


20-23

Trans. 72 Use the following payroll summary produced by Paid-Rite to make the payroll entries for Bright Ideas Light Center.

Paid-RitePayroll Summary

Company: Bright Ideas Light CenterPayroll period ending: December 31, 20XX

Gross Social Medicare Federal State NetEarnings Security Tax Inc. Tax Inc. Tax Pay17,022.59 1,055.40 246.83 2,553.39 510.68 12,656.29

1. Enter the expense and liabilities generated by this payroll period in the general journal. Record the net pay to salaries payable. Refer to Lesson 15 if you need assistance.

2. Make an entry in the general journal to record the employer’s contribution to Social Security and to Medicare.

3. Issue check 316 for the total of the net pay to the Bright Ideas Light Center’s payroll account. Make an entry in the Other Accounts column to the salaries payable account in the cash payments journal.

Trans. 73 The petty cash box for Bright Ideas must maintain a balance of $200.00. When you check the box you see there is only $77.58 in the box along with a receipt for store supplies purchased. Issue check 317 to reimburse the petty cash fund in the amount of $122.42. (Remember to use the Cash Payments Journal. Make a debit entry to the Other Accounts Column and a credit to the Cash Column.) Hint: See Lesson 18 for examples.

Trans. 74 Issue check 318 to the Steamboat Gazette for the amount of $128.98 for an advertisement in Sunday’s newspaper.

Trans. 75 Issue check 319 to Steamboat Sanitation Services for the amount of $156.52 for trash removal.

Trans. 76 Issue check 320 to Dewy, Chetum, and Howe for the amount of $650.00 for legal services provided to the business.

Congratulations! You have completed the last of the transactions.

Complete the following end-of-the-week procedures. For simplicity, include the last two days of this month in the fourth week.

0201202LB04A-20-24

Bookkeeping

20-24

End-of-the-Week Procedures1. Foot all the columns in all of the specialized journals. Add the previous footing to your

current balances. Cross foot for accuracy, and correct any errors you may have.2. Without posting anything to the cash account, determine its current account balance. Check

this balance against your checkbook. They should match. If they do not match, you have an error. Take some time to find your error and make the correction.

3. Post all accounts receivable transactions.4. Post all accounts payable transactions.5. Post all of the entries entered into the Other Accounts columns from the cash payments

journal and the cash receipts journal.6. Post any entries that may have been made to the general journal.7. Answer the following audit check questions:

a. What accounts were used to write-off Sandy Shores’ account?b. What is the current balance for the delivery expense account?c. What account was used to record the credit card processing fee?


End-of-the-Month Procedures 1. Rule the totals from the last footing process.2. Post the column totals for all of the specialized journals to the appropriate general

ledger accounts. Indicate the column has been posted by placing the account number under the column.

3. Verify that all of the individual postings have been made from all of the journals.4. Figure an account balance for each general ledger account. Lesson 6 is a good review of

this procedure.5. Complete a schedule of accounts receivable. Compare the total with the accounts receivable

general ledger account balance. They should match. If they do not match, you have an error. Be sure to find your error and correct it. You can find an example in Lesson 7.

6. Complete a schedule of accounts payable. Compare the total with the accounts payable general ledger account balance. They should match. If they do not match, you have an error and time should be taken to make a correction.

0201202LB04A-20-24


20-25

7. Start the worksheet by completing columns one and two, the Unadjusted Trial Balance columns. List all of the accounts, including any accounts that may not have a balance. Use your chart of accounts as a guide. Transfer the account balances to the worksheet. Add the Debit and Credit columns. They should have a balance of $1,537,699.42. If they do not, find the error and make the correction.

If you have an error, here are some things to take a look at:1. Did everything get journalized?2. Are the columns in the specialized journals totaled correctly?3. Did everything get posted?4. Are the account balances figured correctly?5. Were the account balances transferred to the worksheet correctly?6. Were the columns of the worksheet added correctly?

End-of-the-Year Procedures1. Record the following adjustments to complete columns three and four of the worksheet, the

Adjustment columns. Label each adjustment accordingly. Refer to Lesson 12 if you need assistance with this step.a - b. Make the following adjustment to the inventory to record the change to this account

over the last accounting cycle. The beginning inventory was $77,800.42, and the ending inventory is $78,223.92.

c. In the last accounting cycle, $2,330.65 of the prepaid insurance has expired. Make an adjustment to record the expense incurred in the used coverage.

d. An inventory of the office supplies on hand shows a current value of $1,077.23. Make an adjustment to record the expense of the used supplies.

e. An inventory of the store supplies on hand shows a current value of $272.32. Make an adjustment to record the expense of the used supplies.

f. An assessment of the building, store fixtures and equipment, and delivery equipment shows the following amounts of depreciation for the last accounting cycle.

Building $6,422.00Store fixtures and equipment 778.00Delivery equipment 2,332.00

Make an adjustment to record the expense of the depreciation to these accounts.g. Record an adjustment for the interest payable on a balloon note due at the end of the year.

The note of $5,000.00 at a rate of 9% was taken out at the first of the year to finance a remodeling project. Six months of interest has accrued. Make an adjustment to record the interest expense.

h. Record an adjustment for the accrued FUTA taxes, an amount of $4,822.00. Record the adjustment to payroll taxes expense and payroll taxes payable.

0201202LB04A-20-24

Bookkeeping

20-26

2. Add the Adjustments column. The debits and credit should equal. If they do not, take time to make corrections before you continue.

3. Carry over the new balances to columns five and six, the Adjusted Trial Balance columns.4. Carry over the revenues, expenses and income summary accounts to columns seven and

eight, the Income Statement columns.5. Carry over the assets, liabilities and capital accounts to columns nine and 10, the Balance

Sheet columns.6. Journalize and post the adjusting entries.7. Prepare an income statement for Bright Ideas Light Center. Use the income statement from

the previous year as a guide. (See Previous Year’s Statements in the following section.)8. Prepare a statement of owner’s equity for Bright Ideas Light Center. Use the statement of

owner’s equity from the previous year as a guide. (See Previous Year’s Statements in the following section.)

9. Prepare a balance sheet for Bright Ideas Light Center. Use the balance sheet from the previous year as a guide. (See Previous Year’s Statements in the following section.)

10. Using your worksheet as a guide, close the revenue and other temporary accounts with a credit balance—with the exception of the income summary account. Make these entries in the general journal. You may refer to Lesson 13 if you need assistance with this procedure.

11. Close the temporary accounts with debit balances, with the exception of the income summary account.

12. Post the first two closing entries.13. Figure the new balance in the Income Summary Ledger after the adjusting entries and

first two closing entries have posted. Using this new balance, make an entry in the general journal to close the income summary account.

14. In the general journal, make an entry to close the drawing account.15. Post the remaining two closing entries.16. Figure the new balances for any ledgers that had adjusting entries posted to them. Using

these balances, prepare a post-closing trial balance sheet. You should include all accounts that have a balance after closing entries post.

17. On January 1, make a reversing entry in the general journal for the adjustment made to interest payable and to payroll taxes payable adjustments g and h. Review this entry in Lesson 22.

18. Post the reversing entries.

Congratulations!You have completed the Project! Assemble your project in order. You do not need to include the transactions. Complete the cover sheet and include it with your project. Please do not place the project in a folder, binder or page protectors. You may submit your project in the large envelope provided.

0201202LB04A-20-24


20-27

Chart of AccountsAssets101 Cash105 Petty Cash110 Short-term Investment115 Interest Receivable120 Accounts Receivable125 Office Supplies130 Store Supplies135 Prepaid Insurance140 Inventory145 Land150 Building155 Accumulative Depreciation Building160 Store Fixtures and Equipment165 Accumulative Depreciation Store Fixtures and Equipment170 Delivery Equipment175 Accumulative Depreciation Delivery Equipment

Liabilities201 Notes Payable205 Accounts Payable210 Salaries Payable215 Social Security Tax Payable220 Medicare Tax Payable225 Federal Income Tax Payable230 State Income Tax Payable235 Payroll Taxes Payable240 Sales Tax Payable245 Interest Payable250 Mortgage Payable

Owner’s Equity301 Alice Peterson, Equity305 Alice Peterson, Drawing310 Income Summary

0201202LB04A-20-24

Bookkeeping

20-28

Revenue401 Sales405 Sales Returns and Allowances410 Interest Income

Expenses501 Purchases505 Purchase Returns and Allowances510 Purchase Discount601 Freight In605 Salaries Expense608 Payroll Tax Expense610 Telephone Expense615 Utilities Expense620 Office Supply Expense625 Store Supply Expense630 Delivery Expense635 Advertising Expense640 Building Maintenance Expense645 Insurance Expense650 Bad Debt Expense655 Accounting and Legal Expense660 Bank Service Charge Expense665 Depreciation Expense670 Trash Removal Expense675 Interest Expense

CustomersAdams, JulieGonzales, MoniqueMax, RobertMiller, EdRosebud DesignsSchmidt ContractingShores, SandySimpson, Rachel

0201202LB04A-20-24


20-29

CreditorsEdison’s ElectricElectrifying Bulb Co.Light House SupplyStarry Night

Audit Check AnswersWeek 11. What are Bright Ideas’ total sales for the week? $18,072.64

2. What are Bright Ideas’ total purchases for the week? $5,002.03

3. What is Robert Max’s account balance? $843.00

Week 21. Check number 295 issued to Gecko Insurance company was posted to which account?

Prepaid Insurance

2. What was the purchase discount for Starry Night, purchase order 95687? $21.50

3. What are the total credit sales for the month thus far? $4,266.92

Week 31. What was the net pay for the payroll period ending December 15, 20XX? $11,813.10

2. What is the current balance of the sales tax payable account? $14.43 Dr

3. In transaction 50 what three accounts were involved with the recording of this transaction? Cash, Short-Term Investment, Interest Income

Week 41. What accounts were used to write-off Sandy Shores’ account? Accounts

Receivable, Sandy Shores, Bad Debts Expense.

2. What is the current balance for the delivery expense account? $21,891.48

3. What account was used to record the credit card processing fee? Bank Service Charge Expense

0201202LB04A-20-24

Bookkeeping

20-30

Previous Year’s StatementsBright Ideas Light Center

Income StatementYear Ending December 31, 20XX

Operating Revenue Sales $809,082.16 Less Sales Returns 9,682.40 Net Sales $799,399.76Cost of Goods Sold Beginning Inventory $ 82,592.45 Purchases $444,822.42 Less: Purchase Returns and Allowances 8,523.55 Less: Purchase discounts 2,482.46 Net Purchases $433,816.41 Total Merchandise Available for Sale $516,408.86 Less: Ending Inventory 77,800.42 Cost of Goods Sold 438,608.44Gross Profit on Sales $360,791.32Operating Expenses Freight In $300.00 Salaries Expense 180,950.60 Payroll Taxes Expense 46,029.00 Telephone Expense 2,963.76 Utilities Expense 6,821.04 Office Supplies Expense 2,000.65 Store Supplies Expense 482.00 Delivery Expense 3,120.52 Advertising Expense 3,095.52 Building Maintenance Expense 1,791.76 Insurance Expense 3,016.84 Bad Debt Expense 489.44 Accounting and Legal Expense 300.00 Bank Service Charge Expense 8,000.00 Depreciation Expense 10,482.00 Trash Removal Expense 730.72Total Operating Expenses $270,573.85Net Income from Operations $ 90,217.47Other Income Interest Income $ 1,382.42 Other Expenses Interest Expense 11,237.44Net Nonoperating Expense $ 9,855.02Net Income for the Year $ 80,362.45

0201202LB04A-20-24


20-31

Bright Ideas Light CenterStatement of Owner’s Equity

Year Ending December 31, 20XX

Alice Peterson Equity Ending January 1, 20XX $269,246.92Net Income for Year $80,362.45Less Withdrawals for the Year 65,000.00Increase in Capital 15,362.45Alice Peterson Equity Ending December 31, 20XX $284,609.37

0201202LB04A-20-24

Bookkeeping

20-32

Bright Ideas Light CenterBalance Sheet

December 31, 20XXAssets Current Assets Cash $32,783.26 Petty Cash 200.00 Short-term Investments 5,000.00 Accounts Receivable 4,823.61 Office Supplies 600.00 Store Supplies 42.00 Prepaid Insurance 8,000.00 Inventory 77,800.00Total Current Assets $129,248.87 Fixed Assets Land $200,000.00 Building $200,000.00 Less: Accumulated Depreciation 102,000.00 98,000.00 Store Fixtures and Equipment $50,000.00 Less: Accumulated Depreciation 20,000.00 30,000.00 Delivery Equipment $60,000.00 Less: Accumulated Depreciation 30,000.00 30,000.00Total Fixed Assets $358,000.00Total Assets $487,248.87

Liabilities and Capital Current Liabilities Notes Payable $32,892.44 Accounts Payable 3,482.50 Salaries Payable 0.00 Social Security Tax Payable 842.92 Medicare Tax Payable 202.86 Federal Income Tax Payable 2,389.47 State Income Tax Payable 253.92 Payroll Tax Payable 4,448.23 Sales Tax Payable 1,820.00 Interest Payable 225.00Total Current Liabilities $46,557.34 Long-term Liabilities Mortgage Payable 156,082.16Total Liabilities $202,639.50Owner’s Equity Alice Peterson Equity 284,609.37Total Liabilities and Owner’s Equity $487,248.87

Answer Key

Lesson 17

Practice Exercise 17-11. Which of the following is classifi ed as a cash sale? d. Both a and c

2. The total of all cash, checks and credit card slips in the cash register is called a. cash on hand.

3. When your daily cash on hand is less than the total receipts, you have a situation of b. cash short.

4. a. Total sales is cash sales and sales made on account added together.

5. Why are sales made on account the last items on the daily cash summary? b. These sales do not affect cash on hand.

0201202LB04A-AK-24

Accounting Services

AK-2

Daily Cash and Sales SummaryJoan’s Gems

December 22, 20XXCash Receipts

1. Cash Sales $3255.65 2. Collections on Account 288.00 3. Minus Refunds 155.00 TOTAL RECEIPTS $3388.65

Cash on Hand 4. Cash in Register $3299.00 5. Coins in Register 54.97 6. Checks in Register 75.68 7. Credit Card Receipts in Register 215.00 TOTAL CASH FROM REGISTER $3644.65

8. Petty Cash/Change Fund $500.00 9. Less Petty Cash Slips 245.0010. Total Petty Cash/Change Fund $255.00 TOTAL CASH on HAND $3389.65

If Total Cash on Hand is greater than Total Receipts,11. Then enter the difference as CASH OVER: $1.00

If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $-0-

TOTAL SALES13. Cash Sales $3255.6514. Sales made On Account Total 565.9815. TOTAL SALES $3821.63

Form Prepared By: ________________________________

0201202LB04A-AK-24

Pack 4 Answer Key

AK-3

Lesson 18

Practice Exercise 18-1Part 1

1. When a partnership is formed, all partners become b. co-owners of the business.

2. a. Percentage interest refers literally to how much of the company a partner owns.

3. The concept allowing each partner to enter into binding contracts for the firm is known as b. mutual agents.

4. The length of a partnership agreement d. both a and b.

5. When a partnership is formed, the accounting services professional must create a(n) a. capital account for each partner.

6. To figure the ratio of percent interest, you must first determine the c. greatest common factor.

7. The a. percentage method of figuring the division of income or loss takes the total net income or loss and multiplies it by the percentage of the company each partner owns.

Part 2Iris’ Flower Bin

Distribution of Net Income StatementMonth ending Dec. 31, 20XX

Iris Hirmins 55% of Net Income $4,125.00John Yoder 35% of Net Income. 2,625.00Bev Yoder 10% of Net Income 750.00

Net Income $7,500.00

0201202LB04A-AK-24

Accounting Services

AK-4

Practice Exercise 18-21. There are b. 8 steps in completing a Capital Statement for a partnership.

2. The first step in completing a capital statement for a partnership is to a. determine the beginning balance.

3. The difference in a balance sheet for a partnership lies in the d. capital.

4. To close the income summary, you should have the b. distribution of net income statement handy.

5. When closing the drawing account for a partnership, a. both drawing account(s) should be closed.

6. a. Common stock is likely to have voting rights for board of director elections.

7. Corporations sometimes reinvest their profits by using b. retained earnings to buy new assets.

Practice Exercise 18-31. T Non-profit organizations must be approved by the IRS.

2. F Non-profit organizations are only religious groups.

3. T Non-profit organizations can obtain tax exempt status if they meet government requirements.

4. T An accounting services professional might be called upon to complete a balance sheet for a non-profit organization.

5. F An accounting services professional will not be required to provide payroll services for a non-profit organization.

6. F The government requires non-profit organizations to provide receipts for donations of $200.00 or more.

7. T An accounting services professional may be asked to complete an income statement for a non-profit organization.

8. F Part I of Form 990 contains the name, address, EIN and exemption number of the non-profit organization.

9. F Part VII analyzes the non-profit’s income to determine if it falls within the government’s guidelines.

10. T Part III requires a statement of program services accomplishments.

0201202LB04A-AK-24

Pack 4 Answer Key

AK-5

Lesson 19

Practice Exercise 19-1

Total due (before discount): $500.00

Subtract the 2% discount: - 10.00

Total paid: $490.00

Cash Payments Journal

DateCheck

No. Payee P/R Acct Payable Dr

Other Accounts Debit Purchase Discount

Credit Cash CrAcct Title P/R Amt

8-7 41 Jan’s Horsetraders 5 0 0 00 1 0 00 4 9 0 00

0201202LB04A-AK-24

Accounting Services

AK-6

Practice Exercise 19-21. In “terms 3/22” the “3” indicates the b. percentage of discount.

2. In “terms 3/22” the “22” indicates the c. number of days.

3. In “terms n/30” the “n” indicates the d. net due.

4. When you buy goods or services, the purchase discount is recorded in the b. purchases journal.

5. Accounts receivable purchase discounts are recorded in the c. cash receipts journal or general journal, depending on which journals your company uses when a payment is received.

6. Reversing entries are completed at the b. beginning of the accounting cycle.

7. Reversing entries are generally used c. when you no longer wish for the accrual to remain in the accounting system.

8. Adjustments involving money that has yet to be d. received or paid are good candidates for reversing entries.

9. Reverse this adjustment: interest expense debit, interest payable credit. a. Interest payable debit, interest expense credit

0201202LB04A-AK-24

Pack 4 Answer Key

AK-7

Practice Exercise 19-31. Gather accounts receivable information b. use this information to set

up the accounts receivable subsidiary ledgers

2. One half of one percent d. .005

3. Bank statements f. use to balance the checkbook

4. Allowance for uncollectible accounts credit i. bad debts expense debit

5. Balance sheet h. use to set up assets, liabilities and capital accounts

6. Gather accounts payable information j. use this information to set up the accounts payable ledgers

7. Allowance for uncollectible accounts debit e. A/R Bob Brown credit

8. Gather previous tax forms a. good guide for completing the current tax forms

9. .005 × 8,884.41 g. $44.42

10. Copies of check stubs c. use this information to bring the business’ transactions up to date

0201202LB04A-AK-24

Accounting Services

AK-8

Lesson 19 Just for Fun1. If a transaction does not fit into one of the specialized journals, it is then journalized in the

general journal.

2. To adjust for the beginning inventory an entry is made to the inventory account and the income summary account.

3. The cash account increases with a debit entry.

4. When buying supplies, they are recorded in the supplies account.

5. To find the amount to adjust the supplies, you subtract the current inventory of supplies from the account balance for the supplies.

6. A liability account increases with a credit entry.

7. When posting the Sales Credit column from the sales journal, the amounts are posted as a total.

8. When posting a customer’s credit purchase, it is posted two places. Once to the general ledger and a second time to the accounts receivable subsidiary ledger.

9. The sales account has a credit balance. A debit entry to the sales account is required to close it, along with a credit entry to the income summary account.

10. The company buys items for resale on account. This transaction is journalized in the purchases journal.

11. An expense account increases with a debit entry.

12. The sales account increases with a credit entry.

13. On the balance sheet, prepaid insurance is listed as a current asset.

14. A customer buys an item on account. This transaction is journalized in the sales journal.

15. The payment of the month’s payroll taxes is recorded in the cash payments journal.

16. The cash account is decreased with a credit entry.

17. The day’s credit card sales are recorded in the cash receipts journal.

18. A company buys a computer and pays with a check. The transaction would be entered as a debit to the equipment account and a credit to the cash account.

19. A customer’s payment on his account is recorded in the cash receipts journal.

0201202LB04A-24 (Pack 4) - U.S. Career Institute

Documents

Transcript of 0201202LB04A-24 (Pack 4) - U.S. Career Institute