IBSS Week 3 Bookkeeping Lab/Assignment Value: 1 mark Due: At end of class or as allowed by instructor Purpose: To implement a simple set

t of accounting records using an example of accounting software At the end of the lab, the student should be able to: 1. 2. 3. 4. Download and/or install the GnuBooks software Start the software and open a previously saved accounts file Properly enter a series of accounting transactions Given a set of proper entries, use the software to produce a Trial Balance, a Balance Statement and a Statement of Profit and Loss

Before Starting 1. Review the document on Common Transactions 2. Make sure you understand the basics of a. Which accounts are involved in a transaction b. Where the money moves from (credit) c. Where the money moves to (debit) Scenario Mr. N. E. Mann has started a business and wants you to set up the bookkeeping using GnuCash. The following transactions happen during January (student should use current month). The student is to enter the transactions properly and produce a Balance Sheet, and a Statement of Profit or Loss. The accounting for Cost of Goods Sold will reflect Periodic Inventory accounting (i.e. the COGS will be calculated at the end of the month and posted against the end of month value of Inventory.) Please note: The transaction entries will have dates in January. When you do the exercise, change the month to the current month. The scenario is taken from a book written in 1962 (Blackstone, 1973), so the amounts in the transactions may not reflect todays dollar amounts.

Steps (Please read the steps carefully!) 1. Download and install the software from http://gnucash.org/download.phtml 2. Download the N E Mann Startup file from SLATE. You should create a special folder for your GnuCash files, because a number of files will be created in the course of using the tool. 3. Open the file by double-clicking the icon in the file folder. Immediately save a copy as N E Mann Books <yourname> where yourname is just that your name. Use this file for the exercise.

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4. You will see a pre-made set of accounts:

5. The first transaction is to show that to start the business, the owner deposits $12,000 of his own money in the bank. In this case, the money is considered to come from the owners Capital Account and going to Cash. The date for this is Jan. 1. a. The amount being increased is Cash, so open the Cash account by double-clicking on the account name b. Enter the date as Jan 1. c. Enter Start-up Cash in the Description Field d. Move to the Transfer field. Pick N. E. Mann, Capital using the drop-down list e. Move to the Increase field and enter the amount 12,000 f. So far, things should look like (with the list shown):

g. Press the Enter icon to save the transaction h. Close the transaction window

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6. Your accounts should now be updated with the transaction:

7. Next, a series of transactions are needed in order to get the business set up: Jan 2 Withdrew cash from the bank and paid it out for the following: Store Equipment, $2.600; Inventory, $2,800; Office Supplies, $30; Store rent for the month, $750 Notice that in all of these, we are spending money (Cash) a. The first transaction is to buy Store Equipment for $2,600. Once again, the money is flowing from Cash (credit to Cash) to an Expense (Debit to Store Equipment) i. Open the Store Equipment account (where the money is going) ii. Enter the date: Jan 2 iii. Enter the reason for the transaction in the Memo column iv. Set the Transfer account to Cash (where the money is coming from) v. Enter the amount, $2,600 (entered as 2600). Since we are increasing the amount of the Store Equipment, this goes in the Increasing column vi. Ensure you have everything right, then click the ENTER button or key. vii. Your entry window should look something like this:

viii. Close the Transaction view.

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b. Next we will pay $2800 to buy some inventory (goods for sale). Once again, the money is coming from cash (CR to Cash), and going to increase our Inventory account (DR to Inventory) i. Open the Inventory account ii. Enter the date as Jan 2 iii. Enter the reason for the transaction iv. Choose Cash as the Transfer Account (thats where the money is coming from) v. Enter the amount of 2800 in the Increase column (once again we are decreasing cash and increasing the amount of assets vi. Enter the transaction (Enter button or key), and close the transaction view. c. Next, we are paying $30 for office supplies. The first two transactions were to increase our Store Equipment and Inventory assets. Office Supplies is an Expense account. However, we are still increasing the amount of our expenses (DR to Office Supplies) and decreasing the amount of our cash (CR to Cash). i. Open the Office Supplies account ii. Enter the date (Jan 2) and reason iii. Once again the Transfer account is Cash. iv. Enter the amount of $30 in the Expense column v. Enter the transaction and close the view d. Finally, we are paying $750 for renting the place for the store. Once again, Rent is an expense that we are increasing (DR), and Cash is the asset we are decreasing (CR) i. Open the Rent account ii. Enter the date and reason iii. The money comes from Cash, so that is the Transfer account. iv. Enter the amount, 750, into the Expense column v. Accept the transaction and close the Transaction view 8. If you have completed the steps properly so far, the Accounts window should look like:

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9. Now, enter the following transactions. Remember: a. You need to: i. Select the account where the money is going ii. Put in the date and reason for the transaction in the Date and Memo columns respectively iii. Select the account where the money is coming from as the Transfer account iv. Pick the amount column that matches the transaction, and put in the proper amount v. Enter the transaction. b. Jan 5 - Bought inventory costing $4,500 on credit, to be paid in 10 days i. The account is Inventory ii. The transfer account is Cash iii. The amount goes in the Increase column c. Jan 8 - Paid $450 to place advertisements in newspapers i. The account is Advertising ii. The transfer account is Cash iii. The amount goes in the Expense column d. Jan 10 - Sold goods for $2,100 cash, and for $4,300 to be paid for by customers in 30 days. Two separate amounts are moving from Sales (the source of the money) to Cash and to Accounts Receivable. Therefore there are two transactions. Note to those with experience: do not be concerned for issues of Inventory and Cost of Goods Sold; that is handled at the end. i. Sales are the opposite of Expenses as money is coming into the business from a sale. However, the Sale is the focal point, so we open Sales. The money coming in from a sale adds to our Cash or Receivables assets. ii. For the cash sale, the money is transferred to Cash, and is posted to the Income column in Sales. iii. For the credit sale, the transfer account is Accounts Receivable, and the amount is, once again, posted in the Income column in Sales e. Jan 15 - Paid $4,500 for the inventory previously purchased on credit i. Here, we are paying what we owe, not for an expense. ii. Use the Accounts Payable account iii. We are paying with cash, so the transfer account is Cash iv. We are reducing the amount we owe, so the amount paid goes in the Decrease column f. Jan 17 - Paid the telephone bill, $15 i. Account is Telephone ii. Transfer account is Cash iii. Amount goes into the Expense column g. Jan 19 - Sold inventory for $1,800 cash i. Another cash sale ii. Account is Sales Page 5

iii. Transfer account is Cash iv. Amount goes to Income column h. Jan 23 - Bought inventory for $2,400, to be paid next month i. Another credit sale ii. Account is Sales iii. Transfer account is Accounts Payable iv. Amount goes in the Income column i. Jan 25 - Received $2,800 from customer who previously bought goods on credit. (This is a partial payment of the total amount owing) i. This is a payment from a customer of an amount they owe the company ii. The account is Accounts Receivable iii. The transfer account is Cash iv. The amount goes in the Decrease column because we are decreasing the amount owed j. Jan 26 - Sold inventory for $1,200 to a customer who will pay next month. i. This is another sale on credit ii. The account is Sales iii. The transfer Account is Accounts Receivable iv. The amount goes into the Income column 10. On Jan 31, Mr. Mann wants to reconcile his Inventory with Cost of Goods Sold (COGS) to make his report of Profit and Loss correct. He has checked his current inventory, and finds that his unsold inventory has a cost value (what he paid for it) of $3,200. If we subtract that from the total of Inventory, we get the value called Cost of Goods Sold, the expense of the inventory that has been sold. This is an Expense type account. a. Calculate the Cost of Goods Sold = Inventory Total at end of month inventory value at end of month. ($9,700 - $3,200 = $6,500) b. Enter a transaction for Jan 31 that moves $6,500 from Inventory to COGS i. The account is Cost of Goods Sold ii. The transfer is from Inventory iii. The amount goes into the Expense column.

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11. Your final Accounts page should look like this:

Reports It is customary to produce reports showing the financial state of the business. These include: Trial Balance a report produced periodically that will show whether all the debits match all the credits, and therefore whether all the accounts are in proper balance Balance Sheet A report, typically produced at the end of the financial cycle, but useful at any time, showing what the business is worth. This is organized in line with the Accounting equation: Assets = Liabilities + Equity Profit and Loss Statement A report that summarizes the operations of the business, showing whether the business has made a profit or taken a loss over the reporting period.

Steps 1. Create a Word document. a. Name the file Accounting Statements b. Give the document an appropriate title (e.g. N. E. Mann Financial Statements) c. Add your name at the top of the page. WARNING: If you are using someone elses computer to do your work, you MUST make note of this, and you must clearly show that you did the assignment by yourself and did not copy it from the other person. d. Skip one line and set the spacing to No Spacing 2. Produce the Trial Balance a. Open the Trial Balance report using the Reports->Income & Expense->Trial Balance menu Page 7

b. If no accounts show up, use the Accounts tab in the Options tool to select all the accounts. c. First, ensure that the totals on the bottom line are the same. This means the accounts are in balance, and you can continue. If the totals are not the same, close the report, and go back to the Accounts to find out where the problem is occurring. d. Highlight all the lines in the report and copy them as plain text to the document. e. Close the Trial Balance Report 3. Produce the Balance Sheet a. Open the Balance Sheet report using the Reports->Assets & Liabilities->Balance Sheet menu. b. Once again, if no accounts show up, use the Options tool to select all the accounts c. When the report shows up properly, copy and paste the report contents to the Word document. 4. Produce the Profit & Loss Statement a. Open the report using the Reports->Income &Expense->Profit & Loss menu. b. Ensure the report is showing the correct accounts. c. Copy and paste the text of the report to the Word document 5. Go over the document and make any changes you think are needed to make it more presentable to a client. The Word document is your assignment deliverable. Submit it to your professor in whatever manner they normally specify.

Bibliography
Blackstone, M. D. (1973). Accounting: A Self-Instruction Guide to Procedures and Theory. New York, NY: Macmillan Publishing.

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