..of Duane & Eva's Old Kentucky Home PageDuane Bristow (duane@kyphilom.com)
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A Training program in Accounting
Joe's Old Shoe Shop
You are Joe.
You decide to go into the Shoe Sales and repair business.
You open a bank account and put $5,000 of your own money in the bank.
You borrow $10,000 from the bank at 10% interest for a term of three years.
You rent a storefront at $400 per month including utilities.
You buy a shoe repair machine for $7,000.
You hire a cobbler named Sam Jones to repair shoes for you.
You will pay Sam every two weeks:
$100 salary
+ $2.00 per hour worked
+ 50% of revenue he generates from shoe repairs.
Sam will work from 25 to 55 hours per week.
You hire a saleslady named Martha Smith
You pay Martha $6.00 per hour
Martha works from 35 to 45 hours per week.
You pay Martha weekly.
You withhold $40.00 per week from Martha's pay for
health insurance.
Martha wants you to take an extra $5.00 per week from
her pay for additional federal withholding.
You buy 500 pairs of shoes at $50.00 per pair.
Your supplier, Acme Shoes, gives you credit to be paid
by paying $1,000 pre month in addition to shoes purchased
that month.
You price the shoes at $75.00 per pair.
Your telephone requires a $150.00 deposit for installation.
Your telephone bill runs from $40 to $100 per month.
You sell from 40 to 60 pairs of shoes per week and add sales tax to
the sale amount.
Sam brings in $100 to $200 per week in shoe repair charges.
You maintain your inventory weekly, add the cost to your accounts payable
and pay your supplier, Acme Shoes, once a month.
You must make monthly payments on your bank debt.
You pay your sales tax and payroll withholdings monthly.
A Training program in Accounting
Joe's Old Shoe Shop
Page -2-
First we go to the utilities menu
4. Utilities?
6 Access GL chart of accounts?
1 Print Chart of Accounts?
The Chart of Accounts is reproduced below:
JOE'S OLD SHOE SHOP:GUEST - T Chart of Accounts 10-23-1999 18:43:36
ASSETS: +
BA 103.00 Bank Account AC
R 110.00 Accounts Receivable AR
INVT 120.00 Inventory Value AI
ADJ 190.00 Adjustments AX
LIABILITIES: -
P 210.00 Accounts Payable LP
FED W/H 232.00 Federal payroll W/H tax LW
State WH 233.00 State payroll W/H tax LW
FICA WH 234.00 FICA tax W/H LW
MC WH 235.00 Medicare tax W/H LW
D1 241.00 Payroll Deduction 1 LW
D2 242.00 Payroll deduction 2 LW
D3 243.00 Payroll deduction 3 LW
D4 244.00 Payroll deduction 4 LW
D5 245.00 Payroll deduction 5 LW
D6 246.00 Payroll deduction 6 LW
FUTA lib 248.00 FUTA liability LW
SUTA lib 249.00 State unemployment tax liab. LW
EQUITY: -
CE 280.00 Current Earnings OP
PE 282.00 Previous Earnings OR
CAPITAL 284.00 Capital investment OC
REVENUES: -
CC 310.00 Carrying Charge RC
SALES 320.00 Inventory Sales RS
EXPENSES: +
COST 420.00 Cost of Sales EC
PAYROLL 430.00 Payroll EP
FICA EMP 433.00 Employer's Share of FICA ET
FUTA exp 434.00 Federal Unemployment Tax ET
SUTA exp 438.00 State Unemployment Tax ET
A Training program in Accounting
Joe's Old Shoe Shop
Page -3-
Now we have to decide how we will set up our chart of accounts.
The $5,000 of our own money we put in the bank will be a debit (+)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a credit (-) to the owner's equity Capital investment account:
CAPITAL 284.00 Capital investment OC Owner's Capital
The $10,000 borrowed from the bank will be a a debit (+)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a credit (-) to the Liability Bank Note 1 account:
NOTE1 220.00 Bank Note 1 LN Note Liability
(Since the NOTE1 account doesn't yet exist in the chart of accounts,
we will have to create it with:
4. Utilities?
6 Access GL chart of accounts?
2 Add New Account? )
Storefront monthly rent will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the Rent Account
RENT 450.00 Store Rent EO Operating Expense
(This account too must be created.)
The $7,000 shoe repair machine will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the Equipment Asset Account
EQUIP 130.00 Equipment AE Equipment Assets
(This account too must be created.)
Sam's payroll expenses will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the cobbler payroll account
PAYROLL1 430.10 Payroll - 1 cobbler EP Payroll Expense
(This account too must be created.)
Martha's payroll expenses will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the sales payroll account
PAYROLL2 430.20 Payroll - 2 sales EP Payroll Expense
(This account too must be created.)
We handle payroll this way so that we can get separate totals
for our sales expenses as opposed to our shoe repair expenses.
Shoes purchased will be a debit (+) $50 per pair
to the asset inventory account:
INVT 120.00 Inventory Value AI Inventory Assets
(Edit this account to add Q to flags to keep track of Quantity on hand.)
and a credit (-) to the accounts payable account.
P 210.00 Accounts Payable LP Payable Liabilities
Be sure to set up a vendor account for Acme Shoes because both Accounts
Payable and Accounts Receivable transactions require a vendor.
Shoes sold will be a credit (-) $50 per pair
to the asset inventory account:
INVT 120.00 Inventory Value AI Inventory Assets
and a debit (+) to the cost of sales account.
COST 420.00 Cost of Sales EC Cost Expenses
Shoes sold will also be a debit (+) $75 per pair
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a credit (-) to the sales account
SALES 320.00 Inventory Sales RS Sales Revenue
(Edit this account to add Q to flags to keep track of Quantity sold.)
Sales tax collected will also be a debit (+)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a credit (-) to the Sales tax Liability account:
ST 250.00 Sales Tax Liability LT
(This account too must be created.)
The $150.00 deposit for installation of your telephone will be
a credit (-) to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the Asset Deposits Account
DEPOSITS 150.00 Utility Deposits AX Other Assets
(This account too must be created.)
Your monthly Phone bill will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the phone expense account
PHONE 460.00 Phone EO Operating Expense
(This account too must be created.)
Shoe repair charges collected will be a debit (+)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a credit (-) to the sales cobbler account
COBBLER 330.00 Cobbler Sales RS Sales Revenue
(This account too must be created.)
We may also decide to set up a profit center # 1 for shoe sales
and a profit center # 2 for shoe services (cobbler).
4. Utilities?
14 Name profit centers?
Your monthly payment to your shoe supplier will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to accounts payable
P 210.00 Accounts Payable LP Payable Liabilities
Your monthly payment on your bank debt will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to notes liabilities
NOTE1 220.00 Bank Note 1 LN Note Liability
and a debit (+) to interest expenses
INTEREST 470.00 Interest payments EI Interest Expenses
(This account too must be created.)
See the amortization schedule for payment amounts.
Your monthly payment on your sales tax liability will be a credit (-)
to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the Sales tax Liability account:
ST 250.00 Sales Tax Liability LT
Your monthly payment on your payroll withholding tax liability
will be a credit (-) to the asset bank account:
BA 103.00 Bank Account AC Cash Asset
and a debit (+) to the w/h tax Liability accounts:
FED W/H 232.00 Federal payroll W/H tax LW
State WH 233.00 State payroll W/H tax LW
FICA WH 234.00 FICA tax W/H LW
MC WH 235.00 Medicare tax W/H LW
D1 241.00 Payroll Deduction 1 LW
D2 242.00 Payroll deduction 2 LW
D3 243.00 Payroll deduction 3 LW
D4 244.00 Payroll deduction 4 LW
D5 245.00 Payroll deduction 5 LW
D6 246.00 Payroll deduction 6 LW
Then we go to the utilities menu again
4. Utilities?
6 Access GL chart of accounts?
1 Print Chart of Accounts?
Be sure to set up employee files for Sam and Martha and set up
vendor files for Acme, the bank, the phone company, etc.
Now we are ready to begin accounting posting transactions
and generating financial reports.
The general procedure is:
1. Post transactions and pay employees
for each transaction post:
the date.
the type which is a GL account, usually a bank
account or other asset account.
the check or invoice number.
the amount of money involved signed plus or
minus to indicate its effect on the
"type" account.
the offsetting GL account which will be affected
in the way opposite to the "type" account.
if a vendor is involved identify the vendor.
(vendors are required for AP and AR.)
if necessary enter profit center, quantity,
number or sales tax status.
input remarks for this transaction.
if the transaction is AP or AR and it is needed
then input the due date.
See Posting hints
2. Review trial balance to check account totals
3. When totals are correct and transactions are posted
properly in the temporary file then post them to the
main accounts.
4. Print reports as needed but particularly at the end
of the month. (see below)
5. End the accounting period and start over.
2. Reports?
1 General Ledger?
1 Balance Sheet? (see Figure 2-1-1)
2 P&L Report? (see Figure 2-1-2)
3 Audit Trails
1 Bank Account Checks (see Figure 2-1-3-1)
2 Bank Acct Ck detail
3 Payroll Cks. detail
4 Payroll Date/Emp.
5 Payroll Date/Acct.
6 Payroll Acct/Emp.
7 Payroll Acct/Date
8 Payroll Emp./Date
9 Payroll Emp./Acct
10 General Ledger
2 Payroll?
1 Employee Payroll Report?
2 General Payroll Report?
3 Vendor?
1 Vendor Report? (see Figure 2-3-1)
2 Bill Vendors? (see Figure 2-3-2)
3 Vendor List? (see Figure 2-3-3)
4 Aged Accounts Report (see Figure 2-3-4)
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Last revised November 26, 1999.
URL: http://www.kyphilom.com/www/acct4.html
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Duane Bristow (duane@kyphilom.com)
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