Intuit Certified Bookkeeping Professional Teacher Workbook Domain 1 Lesson 2 PDF

Domain 1 Lesson 2 13 | Domain 1 Lesson 2: Transaction Journal and General Ledger Intuit Certified Bookkeeping Professional Project Workbook, First Edition Fill-in-the-Blanks Instructions: While watching Domain 1 Lesson 2, fill in the missing words according to the information presented by the in...

Domain 1 Lesson 2 13 | Domain 1 Lesson 2: Transaction Journal and General Ledger Intuit Certified Bookkeeping Professional Project Workbook, First Edition Fill-in-the-Blanks Instructions: While watching Domain 1 Lesson 2, fill in the missing words according to the information presented by the instructor. [References are found in the brackets.] 1. A bookkeeper finalizes all statements and ensures they are accurate before presenting them to owners and investors. [Accounting Cycle] 2. Accruals occur when revenue or expenses are recorded at the time of the transaction rather than when the payment is made. [Adjusting Process] 3. Deferrals occur when a company pays or receives payments but cannot report the amount on the current income statement. [Adjusting Process] 4. An increase in expenses decreases equity, while an increase in revenue increases equity. [Posting Adjustment Journal Entries] 5. The reliability assumption requires companies only to record accounting transactions that can be verified through bank statements, invoices, billing statements, or receipts. [Accounting and Reporting Assumptions] 6. Fees earned on investments are passive money recorded as revenue. [Transactions as Revenues or Expenses] 7. Businesses with revenue over 25 million dollars are required to use accrual accounting. [Accrual vs. Cash- Basis Accounting] 14 | Domain 1 Lesson 2: Fill-in-the-Blanks Intuit Certified Bookkeeping Professional Project Workbook, First Edition Accounting Cycle Project Details Project file The accounting cycle is a series of steps taken by accountants and bookkeepers N/A over a preset period to record a business’s financial transactions and track its Estimated completion time financial health. This course has identified the process in eight steps; however, 5 minutes these steps are subjective, and the names may vary slightly between professionals. Video reference Domain 1 Step one is Transactions. It is the process of analyzing a business dealing and Topic: Accounting Cycle Concepts determining how it affects the company. Subtopic: Accounting Cycle Step two is Journal Entries and puts transactions into a transaction journal in Objectives covered 1 Accounting Basics order by date. 1.3 Describe the fundamental Step three is General Ledger Post, copying transaction journal entries into the concepts of the accounting cycle 1.3.1 Demonstrate an appropriate accounts in the general ledger. understanding of the accounting Step four is Trial Balance bringing all transactions of the established period into cycle focus and exposing possible errors. The accounting equation must balance Notes for the teacher assets against liabilities plus owner’s equity. Please explain to students the accounting cycle can be subjective, and Step five is Worksheet, where errors discovered in the trial balance are identified the parts may have different titles. This and rectified. section aims to provide an overview of the cycle in general. Step six is Adjusting Entries, where changes that occur naturally during business but do not trigger a paper trail are recorded. These items include accruals, deferrals, and depreciation. Step seven is Financial Statements and should be prepared in a specific order: income statement, owner’s equity statement, balance sheet, and statement of cash flows. Step eight is Closing; it totals the books for the period in question and locks them, preventing future edits. Purpose Upon completing this project, you will be better equipped to label the parts of the accounting cycle. Steps for Completion 1. Pencil Pros has come to the end of its fiscal year. The statements have been sent to Carla for review. What step is Sally, the bookkeeper, going to perform next? a. Step eight: Closing 2. Carla hands Sally a stack of receipts and bills pulled from the mail. What step is Sally going to perform first? a. Step one: Transactions 3. Sally is reviewing the Trial Balance and sees a mistake. What step does she need to take to correct the error? a. Step five: Worksheet 4. Pencil Pros’ accountant has asked Sally to enter the depreciation of the company’s long-term assets. What step allows her to complete the request? a. Step six: Adjusting Entries 15 | Domain 1 Lesson 2: Accounting Cycle Intuit Certified Bookkeeping Professional Project Workbook, First Edition Adjusting Process Project Details Project file Three main adjustments are made during the adjusting entries step of the N/A accounting cycle: accruals, deferrals, and non-cash expenses. Estimated completion time Accruals occur before payments are made or received. 5 minutes Deferrals occur after payments are made or received. Video reference Domain 1 Non-cash expense adjustments are used to adjust depreciation and prior Topic: Accounting Cycle Concepts accounting cycle errors. These adjustments are generally only made at an Subtopic: Adjusting Process; accountant’s request. Posting Adjustment Journal Entries Objectives covered Purpose 1 Accounting Basics 1.3 Describe the fundamental Upon completing this project, you will better understand the differences concepts of the accounting cycle between accruals and deferrals. 1.3.2 Summarize the adjusting process Steps for Completion 1.3.3 Describe the entries related to the adjusting process 1. Pencil Pros’ fiscal year ends on August 31st. Pay periods end on the 5th 1.3.4 Explain the impact of posting and 20th of each month. What type of adjustment will Sally make to adjusting journal entries on net keep the wage expense in the period it was earned? income, the balance sheet, and equity a. Accrual Notes for the teacher 2. Pencil Pros has an annual subscription to “Number 2’s for You” If time permits, go through several examples of accruals and deferrals, magazine. The subscription renews and must be paid in advance every emphasizing that the timing of the August 15th. What type of adjustment will Sally make to keep the payment is the deciding factor between subscription expense in the period the magazines are received? the two. a. Deferral 16 | Domain 1 Lesson 2: Adjusting Process Intuit Certified Bookkeeping Professional Project Workbook, First Edition Accounting and Reporting Project Details Project file Assumptions N/A Estimated completion time Accounting assumptions have been established by the Financial Accounting 5 minutes Standards Board (FASB). The assumptions encourage consistent, reliable, and Video reference objective information, and the following are the most critical six. Domain 1 Topic: Accounting Principles Reliability requires companies to only record transactions that can be verified. Subtopic: Accounting and Reporting Assumptions Consistency requires that the same method of accounting is used for every period. Objectives covered 1 Accounting Basics Time Period requires that the accounting period remain consistent over time. 1.4 Summarize accounting principles 1.4.1 Explain the key assumptions Going Concern requires that businesses intend to stay in business. of financial accounting, reporting, and measurement-triggering Economic Entity requires separation between personal and business records. transaction events Money Measurement requires that transactions are recorded in monetary terms. Notes for the teacher If time permits, discuss what accounting Purpose would look like without the standards. Emphasize the ability to compare year Upon completing this project, you will better understand the accounting to year or company to company. assumptions used by businesses. Steps for Completion 1. The Pencil Pros team is debating switching from the cash basis method of accounting to the accrual method. What assumption should be considered when making this decision? a. Consistency 2. Carla accidentally included a receipt for dinner with her husband in the paperwork she turned in to Sally. What assumption will Sally explain when returning the receipt to Carla? a. Economic Entity 3. Carla tells Sally that she appreciates her returning the receipt. She explains the mix-up must have occurred because she has misplaced a receipt for dinner with a client and asks Sally to record the expense of $43.00 without the receipt. What assumption will Sally use to help Carla understand why she cannot enter the $43.00 transaction? a. Reliability 17 | Domain 1 Lesson 2: Accounting and Reporting Assumptions Intuit Certified Bookkeeping Professional Project Workbook, First Edition Transactions as Revenues or Project Details Project file Expenses N/A Estimated completion time Revenues consist of income earned through the sale of goods and services. 5-10 minutes Expenses are costs associated with day-to-day business. Video reference Domain 1 Purpose Topic: Accounting Principles Subtopic: Transactions as Upon completing this project, you will better understand how revenues and Revenues or Expenses expenses are recorded. Objectives covered Steps for Completion 1 Accounting Basics 1.4 Summarize accounting principles 1. Carla used cash to buy a package of 400 pencils for $40 and pay an 1.4.2 Determine whether to record electricity bill of $160 while running errands. She returned to the store transactions as revenue or expense to find they had cash sales of $300 worth of goods and finished a Notes for the teacher project worth $45 for a client on account. What were the total expenses Discuss the importance of clarity and revenues in this scenario? regarding terms in accounting. Revenue is not the same as an asset, and a a. Expenses: $200 liability is not the same as an expense. b. Revenues: $345 2. Which of the following accounts increased and which decreased? Show the amount. a. Cash increased $100 b. Accounts Receivable increased $45 c. Sales Revenue increased $345 d. Utility Expense increased $160 18 | Domain 1 Lesson 2: Transactions as Revenues or Expenses Intuit Certified Bookkeeping Professional Project Workbook, First Edition Accrual vs. Cash-Basis Project Details Project file Accounting N/A Estimated completion time Accrual accounting records revenue and expenses as they occur regardless of 5 minutes when payments are made. Cash-basis accounting records revenue and expenses Video reference only at the time of payment. Domain 1 Topic: Accounting Principles Purpose Subtopic: Accrual vs. Cash-Basis Accounting Upon completing this project, you will have a clearer picture of the differences between accrual and cash-basis accounting. Objectives covered 1 Accounting Basics Steps for Completion 1.4 Summarize accounting principles 1.4.3 Compare and contrast 1. Pencil Pros has an annual income of $35,000. Are they required to use accrual accounting and cash-basis accrual accounting? Why? accounting a. No, only companies with revenue over Notes for the teacher Ask students to determine the type of $25 million must use accrual-based accounting accounting most likely used by various 2. Name a disadvantage of each accounting method. businesses—for example, McDonald’s versus a corner deli owned by Mr. a. Accrual Cash flow is not depicted accurately McDonald. McDonald’s must use accrual accounting, while the deli might b. Cash Predicting income and expenses is harder do better using cash-basis accounting. 19 | Domain 1 Lesson 2: Accrual vs. Cash-Basis Accounting Intuit Certified Bookkeeping Professional Project Workbook, First Edition Notes Receivable and Project Details Project file Uncollectable N/A Estimated completion time Notes receivable are long-term receivables created when payment is not 5 minutes expected within a year. This type of financial agreement includes a promissory Video reference note that states the amount borrowed and the expected payment date. Domain 2 Amounts paid within the year are current assets and amounts expected beyond Topic: Assets and Sales Transactions the year are long-term assets. Subtopic: Notes Receivable and Uncollectable Uncollectible accounts are receivables a company no longer expects to collect. Accounts become uncollectible for various reasons, including fraud, bankruptcy, Objectives covered 2 Accounting for Assets and Sales and losing track of the debtor. Companies use a write-off account to prevent Transactions paying taxes on revenue not received. 2.1 Summarize assets and sales transactions Purpose 2.1.5 Identify other notes receivable and uncollectible Upon completing this project, you will better understand the purpose of accounts promissory notes and what causes uncollectible accounts. Notes for the teacher Steps for Completion If time permits, discuss types of businesses that use notes receivable 1. Franky decided to sell an old company van to his cousin Vinny. Vinny accounts, such as buy-here-pay-here does not have the $12,000 the van is worth, so Franky agrees to auto dealers, mortgage lenders, and banks. discount the price to $10,000 and take payments. Tera is asked to prepare paperwork to make sure they both understand the agreement. What will Tera prepare? a. Promissory note 2. Now that the parties have agreed to the terms, Tera needs to record the transaction to keep track of the payments. What type of account will Tera create? a. Notes receivable asset account 3. Vinny loves his new van and faithfully makes payments until he decides to live in it while roaming the countryside. Franky has not heard from Vinny in more than six months; he tells Tera they probably won’t be paid the rest of what Vinnie owes. Where will Tera record the write-off of the van? a. Uncollectible accounts 25 | Domain 2 Lesson 1: Notes Receivable and Uncollectable Intuit Certified Bookkeeping Professional Project Workbook, First Edition Merchandise Inventory Project Details Project file Goods stocked by companies with the intent to sell are merchandise inventory. N/A Companies that provide services do not stock as much inventory as companies Estimated completion time that offer goods. 8 minutes Purpose Video reference Domain 2 Upon completing this project, you will be able to identify more merchandise Topic: Importance of Merchandise inventory. Inventory Subtopic: Merchandise Inventory Steps for Completion Objectives covered 1. Franky’s Fritters sells fritters, coffee, fountain drinks, and that van he 2 Accounting for Assets and Sales sold his cousin Vinny. The storeroom in the back is used for inventory Transactions 2.2 Describe the importance of and other items needed to operate the business. Review the items merchandise inventory below. Are they inventory? Label them yes for inventory or no for non- 2.2.1 Identify and define inventory. merchandise inventory a. Vinny’s Van: No Notes for the teacher If time permits, offer a list of everyday b. Frozen fritters: Yes items and a list of various businesses, then have students decide if the items c. Toilet paper: No are inventory for each company. For example, pencils are inventory in an d. Large coffee cups: Yes office supply store but not in a car dealership. e. Coffee: Yes f. Small cup lids: Yes g. Pencils: No h. Printer paper: No 26 | Domain 2 Lesson 1: Merchandise Inventory Intuit Certified Bookkeeping Professional Project Workbook, First Edition Inventory Valuation Methods Project Details Project file Inventory valuation methods can dramatically affect assets and owner’s equity. N/A Reports like balance sheets are changed when valuation methods differ. The Estimated completion time consistency assumption created by the Financial Accounting Standards Board 20-25 minutes (FASB) is essential for this reason. There are four widely accepted methods of valuation: specific identification, FIFO, LIFO, and WAC. Video reference Domain 2 Specific identification is used for large inventory such as cars or refrigerators. Topic: Importance of Merchandise Inventory items are tracked from the moment they are received until they are Inventory sold. Subtopic: Inventory Valuation Methods First-in, first-out (FIFO) is the method of selling the first item you purchased Objectives covered before selling the second. This method is suitable for tracking perishable 2 Accounting for Assets and Sales inventory but is often used for other items. Transactions 2.2 Describe the importance of Last-in, first-out (LIFO) is the method of selling the last thing you purchased merchandise inventory before selling the first. This method is rarely used since it can result in losses. 2.2.2 Apply inventory valuation methods Weighted Average Cost (WAC) is the method of averaging the purchase prices paid through the year. This method is used for items that are not easy to tell Notes for the teacher apart but can be used for other types of inventories as well. If time permits, ask students to name local businesses and guess the Purpose inventory method they might use. Ask students to explain their reasoning. Upon completing this project, you will better understand the importance of Students may need a calculator and scratch paper for this project. inventory valuation methods. Steps for Completion 1. Franky’s Fritters needs to choose an inventory valuation method now that it is no longer being operated out of Franky’s garage. He bought 2,500 fritters for $5,000 when he opened the storefront in March. He has replenished his stock monthly with 500 fritters. In April, they cost $750, but in May, they were $1,500. When he added the delivery van in June, he spent $5,000 and received 4,000 more fritters. Tera completed a physical inventory this morning, and there are currently 2,750 fritters in the freezer. Tera wants to show Franky the differences between the valuation methods to help him decide. What is the value of the 2,750 fritters in inventory? (Round fritter prices to the penny and totals to the nearest dollar.) a. FIFO: $3,438 b. LIFO: $5,375 c. WAC: $4,482 2. What was the value of the 4,750 fritters sold? (Round to the nearest dollar.) a. FIFO: $8,813 b. LIFO: $6,875 c. WAC: $7,768 27 | Domain 2 Lesson 1: Inventory Valuation Methods Intuit Certified Bookkeeping Professional Project Workbook, First Edition Adjust Inventory Balances Project Details Project file Inventory balances are adjusted after a physical inventory is completed, usually N/A coinciding with the end of an accounting period or fiscal year. Inventory loss, or Estimated completion time shrinkage, happens for various reasons. Inventory values are not adjusted for 5 minutes appreciation or depreciation; one of the inventory valuation methods must be used consistently for tax purposes and reporting consistency. Video reference Domain 2 Purpose Topic: Importance of Merchandise Inventory Upon completing this project, you will better understand when adjusting Subtopic: Adjust Inventory inventory is appropriate. Balances Objectives covered Steps for Completion 2 Accounting for Assets and Sales Franky’s Fritters has 2750 fritters valued at $3,438 using the FIFO Transactions 1. 2.2 Describe the importance of valuation method. Franky was watching the news this morning and merchandise inventory discovered a fritter shortage has caused the value to skyrocket from 2.2.3 Describe when and how to $1.25 per unit to $3.75 per unit. Suddenly his inventory is much more adjust inventory balance valuable. He rushes to the office to tell Tera. Can Tera adjust the value Notes for the teacher of the inventory in the books? Why or why not? If time permits, offer a reminder of the valuation methods discussed in the a. No. The inventory valuation is based on Inventory Valuation Methods project. the purchase price, not the market price Though short answers may vary, concepts should be clear. 2. Franky arrived at the store to discover that a freezer had failed during the night and thawed half of the frozen fritters. Can Tera adjust the value of the inventory in the books? Why or why not? a. Yes, after a count is completed. Loss due to spoilage reduces inventory 3. During the count Tera requested before adjusting for the spoiled fritters, they discovered 750 fritters thawed when the freezer failed, but they were also short another 158 fritters. A review of the receipts shows they were not sold, and an examination of the invoices shows they were received. Can Tera adjust the value of the inventory in the books? Why or why not? a. Yes, the inventory is gone. Shrinkage for any reason can adjust inventory 28 | Domain 2 Lesson 1: Adjust Inventory Balances Intuit Certified Bookkeeping Professional Project Workbook, First Edition