No. 33 May 18of invoice of the 5th. Give E. Westen Tea & Spice Co. a check for $800 to apply on account No. 34 May 18- A telegraph order has been sent to West, Stone & Co. for certain merchandise which is needed immediately. Pay the charge of 50¢ for the telegram in currency, and make proper entry. No. 35 May 20- Fill the order of E. Mason & Co. of Milford, Ohio; terms, 30 days net. No. 36 May 20- Pay Allen & Parker's bill by check. As this is an item of expense incurred in connection with the real estate, debit Real Estate Expense. No. 37 May 20― Received note from Dickson & Young, to apply on account. No. 39 May 21 - Telegraph order from James H. Vincent; bill the goods Net Cash. The goods are sent by express collect. No. 40 May 22 sale and for the check No. 41 May 23 Fill Rice & Pond's order; terms, on account. Make entries for the received on account. Invoice of West, Stone & Co. for goods ordered on the 18th. No. 42 May 23 Invoice of Charles K. Fox. No. 43 May 23 - Cash sale to G. H. Thomas of a sample lot of goods. As this sale is not to a regular customer, make the entry directly in the cash book, crediting Sales. No. 44 May 23 SIXTH REPORT. No. 45 May 24 - The express company remits for the goods shipped to J. H. Vincent on the 21st by express money order, less 25¢, their charge for collection. Vincent should be credited for the full amount, $10, and General Expense debited on the credit side of the cash book for the collection charges. No. 46 May 24-A telegraph order has been sent to L. Hennes & Co. for certain merchandise which is needed immediately. Pay the charge for the telegram, 35¢ in currency. No. 47 May 24 - Fill this order from A. A. Knowles & Co., at the usual terms. No. 48 May 25 - Deposit the checks and money order on hand, and $100 in currency. No. 49 May 25 Send E. Westen Tea & Spice Co. check for $400 to apply on account. No. 50 May 26 Invoice of L. Hennes & Co. ordered on the 24th. Fill the telegraphic order from E. Mason & Co. at usual terms. Received check from A. A. Knowles & Co. in payment of note due No. 51 May 26 - to-day with interest. No. 53 May 26- Pay the invoice of Charles K. Fox of the 23d by check less discount. No. 54 May 26 - Fill the order from S. E. Kingsley, a new customer. Usual terms. No. 55 May 27 - Received check for $600 from A. A. Knowles & Co. to apply on bill of the 24th. The terms of sale were 2/10, n/30, and as the term of discount has not yet expired, they ask to be allowed 2% discount on as much of the bill as this check will pay, they being unable to pay the entire bill at this time. Making allowance for the discount of 2%, 98¢ will cancel $1.00 of the original bill; hence $600 will cancel such a part of the original bill as is found by dividing $600 by 986. A. A. Knowles & Co. should be credited for the quotient so found, in the Accounts Receivable column. The amount of the check should be entered in the Net Receipts column, and the discount, the difference between the two items, in the Discount on Sales column. No. 56 May 28 - Fill order from E. Mason & Co.; usual terms. Invoice of merchandise received from Charles K. Fox. Received check from S. E. Kingsley for the trial shipment of the 26th No. 59 May 29 Invoice received from West, Stone & Co. No. 60 May 29 - Send a check for $500 to Shields Bros. to apply on account of invoice of the 6th inst. No. 61 May 30-Pay bill of the City Carting Company by check, charging Freight and Cartage. No. 62 May 31 - Note received from A. W. McKey with interest to apply on his account. No. 63 May 31 - Deposit all checks and currency on hand. No. 64 May 31 - Pay invoice of West, Stone & Co. of the 22d less discount. No. 65 May 31 - Mr. Adams has withdrawn on memorandum during the month for his personal use, merchandise to the amount of $30. No. 66 May 31 - Draw a check in favor of Pay Roll for $200 covering expenses of clerks for the month, charging Selling Expenses; also draw a check for your own salary for the month, charging General Expense. Make an entry in the journal debiting General Expense and crediting H. F. Adams Personal account for $200, the monthly salary which Mr. Adams allows himself, against which he draws for personal and family expenses. No. 67 May 31 Pay the following expense bills for the month of May by check: No. 68 May 31 - Adjusting Entries. The current entries have now all been made, but before closing the books for the month, certain adjusting entries need to be made in order to state correctly all items of expense for May. (a) Insurance. The insurance taken out May 14 runs for one year and hence can be considered as an item of expense only as it expires. The monthly charge for insurance on the building is $10, and on the stock, $6.67, based upon annual premiums of $120 and $80 respectively. Make an entry in the journal debiting Real Estate Expense for $10, Selling Expenses for $6.67, and crediting Insurance Prepaid with the insurance expense applicable to May, making proper explanation. (While only a little more than half a month's insurance has expired, for convenience the amount charged off is the regular monthly charge.) (b) Depreciation. It is estimated that the furniture and fixtures have depreciated 10%. To show this depreciation as an item of expense or loss applicable to May, make an entry in the journal debiting General Expense and crediting Furniture and Fixtures with 10% of the cost, making proper explanation. (c) Interest Prepaid on Notes Payable. On May 5 when $5000 was borrowed from the bank our note was discounted for that amount; in other words, the bank deducted the interest on the loan for the entire time and credited our account with the proceeds. The interest, therefore, is prepaid on the note to September 5, the date of maturity. On May 31, the date of closing, the interest is prepaid for 97 days, and the interest for this time should, therefore, be set up as an asset. To do this, an entry should be made in the journal debiting Interest Prepaid on Notes Payable and crediting Interest on Notes Payable. In this way the Interest on Notes Payable accounts shows the interest applicable to the 26 days in May during which the note ran. No. 69 May 31 - Monthly bank statement. (No entry at this time). No. 70 SEVENTH REPORT - At this time, unless they have been called for earlier, pass in with your report all outgoing papers, including the contents of your files for Vouchers for Others, Cash Paid Out, and Notes Payable. CLOSING THE BOOKS Now that the transactions for May have all been recorded in their proper books, the next work is the closing of the books of original entry, posting from those books to the ledger, taking a trial balance, preparing financial statements, and closing the ledger. This work is all of the greatest importance and should be performed with attention to all details and with a clear understanding of each step. To aid the student, the following procedure is suggested. 1 Balance the cash book. Be sure to show the footings of the special columns properly and to have all rulings as they should be. Study the model, pages 82, 83. In closing, the discount of $102.50 on the $5000 note should be shown as a debit to Interest on Notes Payable. 2 Close purchases and sales journals in accordance with former instructions. 3 Submit books for inspection and approval before posting. 4 Open the accounts named below in your ledger in the order given, leaving space as follows allow one-half page for all accounts, except as otherwise noted. The order of arrangement of accounts given is the one most generally followed in practice. Assets come first, followed by the liabilities, capital accounts, expenses and loss accounts, and accounts with profit or income. Cash Notes Receivable Accounts with customers (alphabetically arranged) After opening all accounts with May customers, leave three pages blank for additional accounts with customers in June. The June work is a continuation of the May work. Real Estate Furniture and Fixtures Insurance Prepaid Interest Prepaid on Notes Payable Notes Payable Accounts with creditors (alphabetically arranged) Leave three blank pages after the accounts with May creditors for accounts with additional creditors in June. Henry F. Adams, Capital Henry F. Adams, Personal Leave a page blank after the two accounts with Mr. Adams. Purchases Freight and Cartage General Expense (one page) Selling Expense Real Estate Expense Interest on Notes Payable Discounts on Sales Sales Interest on Notes Receivable Discounts on Purchases Three pages left blank Profit and Loss at top of page After having opened the accounts as instructed above, index the ledger carefully on the two pages set aside for that purpose. Instructions as to how to index the ledger will be given you by the teacher. 5 Post from all books of original entry. In posting, use care in paging, and place to the left of each folio the initial of the book from which the posting came, thus: Journal, J; Cash book, C; Purchases Journal, P; Sales Journal, S. 6 Take a trial balance on separate paper and submit it for inspection. 7 Prepare Profit and Loss Statement for the month of May. (As with the trial balance, the work included under 7, 8, and 9 should be done on separate journal paper first, submitted for inspection, and then copied into the blank book.) The inventory of goods in stock taken at cost price amounts to $3372.55. In preparing this statement the general form of statement used in other exercises should be followed. The gross profit on sales would be found in exactly the same way. To this would be added the profit from other sources, i.e., Interest on Notes Receivable and Discounts on Purchases, giving Total Profit, from which would be deducted the accounts showing an expense or a loss, thus arriving at Net Profit. Show rate of profit on sales; on cost of sales; on investment. 8 Prepare balance sheet. The assets should be listed in the order in which they appear in the trial balance, the inventory of merchandise following Accounts Receivable; the same with the liabilities; and total liabilities followed by Net Worth. The Net Worth should be as follows: 9 Make closing entries. Close the net profit for the month into Adams's Personal account, after which the balance of the Personal account should be closed into H. F. Adams's Capital account, by an entry debiting H. F. Adams Personal and crediting H. F. Adams Capital. After the closing entries have been approved, they should be copied into the journal, beginning at the top of the page immediately following the current entries for May, and then posted to the ledger. 10 Rule and balance the ledger accounts and submit the ledger for inspection. 11 You may now look up voucher No. 69, which is your last incoming voucher for May. This is the statement rendered to Mr. Adams by his bank for the month. The column headed "Deposits" shows date and amount of each deposit made during the month, together with the proceeds of notes discounted and credited to his account. The column headed Checks Paid shows the amounts and dates of payment of all checks drawn by Mr. Adams during the month and paid by the bank. The column headed Balance shows each new balance to the credit of Mr. Adams's account. The last amount in this column shows the balance in bank at the time of rendering the statement. Your instructor will hand you at this time the checks which you drew against Mr. Adams's account during the month, with the exception of four checks which, according to the statement you have received, are outstanding; that is, they have not been deposited or cashed by the payees. The checks returned to you should agree with those listed in the Checks Paid column. Ascertain the outstanding checks and prepare a statement reconciling this balance with the balance on the stub of your check book. (See page 68 for form of statement required.) If your statement agrees with the balance as shown by your check book, copy it on the reverse side of your check book stub. Attach your canceled checks to the bank statement, fold it, and file in your Voucher File. In connection with the form of bank statement, you should review pages 66, 67, and 68 of the text, in which other methods of rendering statements are discussed. REVIEW QUESTIONS- May Set 1 Suggest different methods of recording purchases. 2 Describe the method of handling purchases through the purchases journal. Are purchases of furniture and fixtures, office supplies, coal, etc., recorded in the Purchases Book? Why? 3 When there is a choice of payment, which date should be recorded in the "When Due " column? Why? 4 Explain why the purchases journal is a form of journal. 5 How are postings made from the purchases journal? 6 Describe the modern practice in handling sales, giving the advantages over the old method. 7 In what way are the purchases journal and sales journal similar? Do they contain detailed records, or are they abstracts? cise? 8 Why is the sales journal a form of journal? How are postings made from it? 9 What disadvantages are there in the simple form of cash book used in the April exer 10 How may these disadvantages be overcome? 11 Explain how the special columns may be used for transactions other than those with discounts on purchases and sales. Illustrate. 12 Give as many advantages obtained from the use of special columns as possible. Are there any disadvantages? 13 Is Insurance Prepaid account an asset or an expense? 14 Define a bill of lading. 15 What is a "straight " bill of lading? An "order" bill of lading? Which is negotiable? 16 What is the purpose of adjusting entries? 17 Give the functions of Real Estate account? 18. To what account should repairs to real estate be charged? Explain. 19 To what account should the cost of repainting a building be charged. Why? 20 If real estate lots are bought and held for investment, what account should be charged with taxes and carrying charges? 21 A merchant occupies for store purposes the first floor of a three story building, paying $100 a month rent. The second and third floors are divided up into ten offices each, those on the second floor renting for $12.50 per month and those on the third floor for $10 per month. He has an opportunity to buy the building for $30,000. Would it be a profitable investment in view of the following facts: the local tax rate is $18 per $1000; his capital is worth 5%; it is estimated that painting, repairs, etc., will average $200 a year; insurance is $210 a year? |