Problem Set B

LO 7.2On June 30, Isner Inc.’s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $550, but the accounts receivable subsidiary ledger shows total account balances of $850. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?

LO 7.4Piedmont Inc. has the following transactions for the month of July.

1. Record the transactions for Piedmont Inc. in the proper special journal, and post them to the subsidiary ledger and general ledger account.
2. Record the same transactions using QuickBooks, and print the special journals and subsidiary and general ledger. Your solution done manually should match your solution using QuickBooks.

LO 7.4Use the journals and ledgers that follow. Total and rule (draw a line under the column of numbers) the journals. Post the transactions to the subsidiary ledger and (using T-accounts) to the general ledger accounts. Then prepare a schedule of Accounts Payable.

LO 7.4Comprehensive Problem: Manual Accounting Information System versus QuickBooks

The following problem is a comprehensive problem requiring you to complete all of the steps in the accounting cycle, first manually and then by entering the same transactions and performing the same steps using QuickBooks. This will demonstrate the important point that a manual accounting information system (AIS) and a computerized AIS both allow the user to perform the same steps in the accounting cycle, but they are done differently.

In a manual system, every step must be performed by the user. In contrast to this, in a computerized system, for each transaction, the user determines the type of transaction it is and enters it in the appropriate data entry screen. The computer then automatically places the transactions in transaction files (the equivalent of journals in a manual system). The user then instructs the system to post the transaction to the subsidiary ledger and at the end of the month to the general ledger. The computer can do the posting automatically.

Other steps done automatically by the computer are preparing a trial balance, closing entries, and generating financial statements. The user would have to provide the computer with information about adjusting entries at the end of the period. Some adjusting entries can be set up to be done automatically every month, but not all. When we say the computer can do a specific step “automatically,” this presumes that a programmer wrote the programs (i.e., detailed step-by-step instructions in a computer language) that tell the computer how to do the task. The computer can then follow those instructions and do it “automatically” without human intervention.

Problem

Assume there is a small shoe store in your neighborhood with a single owner. The owner started the business on December 1, 2018, and sells two types of shoes: a comfortable sneaker that is something athletes would purchase, and a comfortable dress shoe that looks dressy but has the comfort of a sneaker. The name of the business is The Shoe Horn. Complete tasks A and B that follow, using the detailed instructions for each. Following is a list of all transactions that occurred during December 2018.

1. Enter all of the transactions and complete all of the steps in the accounting cycle assuming a manual system. Follow the steps to be performed using a manual system.
2. Enter the transactions into QuickBooks, complete all of the steps in the accounting cycle, and generate the same reports (journals trial balances, ledgers, financial statements). Follow the steps to be performed using a manual system. Follow the steps to be performed using QuickBooks.

Steps to be performed using a manual system

1. For each of the transactions listed for the month of December 2018, identify the journal to which the entry should be recorded. Your possible choices are as follows: general journal (GJ), cash receipts journal (CR), cash disbursements journal (CD), sales journal (SJ), or purchases journal (PJ). Templates for the journals and ledgers have been provided.
2. Enter each transaction in the appropriate journal using the format provided.
   
3. Open up Accounts Receivable subsidiary ledger accounts for customers and Accounts Payable subsidiary ledger accounts for vendors using the format provided. Post each entry to the appropriate subsidiary ledger on the date the transaction occurred.
   
4. Total the four special journals, and post from all of them to the general ledger on the last day of December. You should open ledger accounts for the following accounts:
   • Cash
   • Accounts Receivable
   • Merchandise Inventory
   • Prepaid Insurance
   • Prepaid Rent
   • Office Supplies
   • Accounts Payable
   • Purchases Discounts
   • Utilities Expense Payable
   • Jack Simmons, Capital
   • Sales
   • Sales Returns and Allowances
   • Sales Discounts
   • Cost of Goods Sold
   • Rent Expense
   • Advertising Expense
   • Telephone Expense
   • Utilities Expense
   • Office Supplies Expense
   • Insurance Expense
5. Compute balances for each general ledger account and for each Accounts Receivable and Accounts Payable subsidiary ledger account.
6. Prepare a trial balance.
7. Prepare an accounts receivable schedule and an accounts payable schedule.
8. Prepare adjusting journal entries based on the following information given, record the entries in the appropriate journal, and post the entries.
   • There were $100 worth of office supplies remaining at the end of December.
   • Make an adjusting entry relative to insurance.
   • There was an additional bill received in the mail for utilities expense for the month of December in the amount of $100 that is due by January 10, 2019. Jack Simmons intends to pay it in January.
9. Prepare an adjusted trial balance
10. Prepare closing journal entries, record them in the general journal, and post them.
    
11. Prepare an Income statement, Statement of Owner’s Equity, and Balance Sheet.

Steps to be performed using QuickBooks. You can access a trial version of QuickBooks (https://quickbooks.intuit.com/pricing/) to work through this problem.

1. Set up a new company called The Shoe Horn using easy step interview.
2. You will be adding a bank account, customizing preferences, adding customers, adding vendors, adding products, and customizing the chart of accounts. You will not need to enter opening adjustments since you are entering transactions for a new company, so there are no opening balances. QuickBooks should automatically create a chart of accounts, but you can customize it, and you will need to enter information for a customer list, vendor list, and (inventory) items list.
3. Use “QB transactions” to enter each of the following transactions for the month of December 2018. You can use Onscreen Journal to enter transactions into the general journal, and Onscreen Forms to enter transactions that will end up in the special journals. Identify the type of transaction it is: a sale, a purchase, a receipt of cash, or a payment by check. The categories QuickBooks uses are banking and credit card, customers and sales, vendors and expenses, employees and payroll (not needed in this problem), and other. Note: there is no need to identify the journal as in a manual system or to enter a journal entry, because in an AIS like QuickBooks, you enter the transaction information, and behind the scenes, QuickBooks creates a journal entry that gets added to a transaction file (the equivalent of a journal). After the transactions for the month have been entered, you can print out each of the five journals.
4. Enter the following transactions using the appropriate data entry screens based on the type of transaction it is, as identified in step 3.

   a.	Dec. 1	Jack Simmons, the owner contributed a $500,000 check from his personal account, which he deposited into an account opened in the name of the business, to start the business.
   b.	Dec. 1	He rented space that had previously been used by a shoe store and wrote check no. 100 for $9,000 for the first six month’s rent.
   c.	Dec. 2	He paid for installation and phone usage $300 (check no. 101)
   d.	Dec. 2	He paid for advertising in the local paper $150 (check no. 102). The ads will all run in December.
   e.	Dec. 2	He purchased $500 of office supplies (check no. 103)
   f.	Dec. 3	He paid $300 for insurance for three months (December 2018, January and February 2019 using check no, 104).
   g.	Dec. 4	He purchased 800 pairs of sneakers at $40 a pair– on account from Nike (using purchase order no. 301). Payment terms were 2/10, net 30. Assume the shoe store uses the perpetual inventory system.
   h.	Dec. 5	He purchased 500 pairs of dress shoes from Footwear Corp. on account for $20 a pair (using purchase order no. 302). Payment terms were 2/10, net 30
   i.	Dec. 10	He made a sale on account of 20 pairs of sneakers at $100 a pair, to a local University – Highland University (sales invoice number 2000) for their basketball team. Payment terms were 2/10 net 30.
   j.	Dec. 11	He made a sale on account of 2 pairs of dress shoes at $50 a pair (sales invoice no. 2001) to a local charity, U.S. Veterans, that intended to raffle them off at one of their events.
   k.	Dec. 12	He made a sale on account to The Jenson Group of 300 pairs of dress shoes at $50 a pair, to use as part of an employee uniform. Payment terms were 2/10 net 30.
   l.	Dec. 14	He made a cash sale for 2 sneakers at $120 each and 1 pair of shoes for $60.
   m.	Dec. 14	He paid the amount owed to Footwear Corp (check no 105)
   n.	Dec. 17	Highland University returned 2 pairs of sneakers they had previously purchased on account.
   o.	Dec. 18	He received a check from Highland University in full payment of their balance.
   p.	Dec. 20	He made a cash sale to Charles Wilson of three pairs of sneakers at $120 each and 1 pair of dress shoes at $60.
   q.	Dec. 20	He made a partial payment to Nike for $20,000 (check number 106)
   r.	Dec. 23	Received a $400 utility bill which will be paid in January.
   s.	Dec. 27	Received a check from The Jenson Group in the amount of $9,000.
   t.	Dec. 28	He paid $2,000 of his balance to Nike (check number 107)

5. Generate and print a trial balance. Use QB reports to print this and other reports.
6. Prepare and enter adjusting entries based on the following information given, and print them.
   • There were $100 worth of office supplies remaining at the end of December.
   • Make an adjusting entry relative to insurance
   • There was an additional bill received in the mail for utilities expense for the month of December in the amount of $100 that is due by January 10, 2019. Jack Simmons intends to pay it in January.
7. Generate and print an adjusted trial balance.
8. QuickBooks will automatically prepare closing journal entries.
9. Print the financial statements: the Income Statement (same as Profit and Loss Statement) and the Balance Sheet.
10. Print all of the five journals. After the transactions for the month have been entered, you can print out each of the five journals (general journal, cash receipts journal, cash disbursements journal, sales journal, purchases journal).
11. Print the general ledger and the accounts receivable and accounts payable subsidiary ledgers.
12. Compare the items you printed from QuickBooks to what you have manually prepared. The content should be identical, although the format may be slightly different. Note: while the results are the same, the QuickBooks software did many of the steps for you automatically.