Accounting Tutorial: Starting an Accounting system

Accounting Tutorial: Starting an Accounting System Chapter 1

This chapter is about how to start an accounting system. All companies, even the smallest need good records. Each company must submit an income tax return, just like individuals. Even non-profit organizations need an accounting system. The purpose of this tutorial is to help Virtual Enterprise students learn the basics of accounting. You will need to produce a number of accounting records in order to obtain a business loan. Due to the nature of how VE companies operate, the accounting department must be familiar with a number of accounting records: balance sheet, income statement, payroll, cash flow analysis and break even analysis. All of these forms are the accounting department's responsibility in producing the business plan. To make your job a little easier, we will create these forms using Bromley's Formal Wear and Tuxedo Rentals. The company is divided into two divisions: Tuxedo Rentals, a service business and a formal wear division for the bride and bridesmaids, which is a merchandising business with inventory. After you have decided on what type of business your VE company will be, classify it as to a service or merchandising business. A service business supplies a service to customers. A merchandisng business has a physical product that it sells and carries an inventory of these items. Many of the forms are the same for both types of businesses, but there are some differences in the financial statements. The first thing that we are going to do is create a chart of accounts. I have done this for you in the scroll boxes below. Remember that we are looking at two different companies: The service business is called Bromley's Tuxedo Rentals. The merchandising business is Bromley's Formal Wear. The service business chart of accounts is the scroll box to the left, the merchandising business is on the right. On your worksheet, write out the chart of accounts that you will be using. This chart of accounts is what you will be using for your own VE company as well. with the exception of the name of the company. There are five sections in the chart of accounts for a service business and six for the merchandising business.. The first section is entitled "Assets". These items have a monetary value. For example, furniture and fixtures, office supplies and office equipment have a certain cash value. The second section is called "Liabilities" these are amounts of money owed to others. A note payable is an amount owed to an individual or a bank for money that your VE company has borrowed. Accounts payable are amounts of money owed to suppliers of merchandise to your company. There are a whole set of liabilities related to your payroll also. "Stockholders Equity" is the next section. There are two accounts here: common stock and retained earnings. Common stock is the amount of money invested by shareholders in the company and retained earnings is the amount of net income earned in the accounting period. The next section is called "Revenue". Here is where you record your sales for services or merchandise. The merchandising business has a section called cost of merchandise. This is where the purchases of merchandise for reasale are kept. The next section is the "Expense" section. This is where you will keep track of all the monies needed to create your sales. As you can see there are many of them. Each one should describe the kind of expenditure. Each section of the chart of the accounts is associated with a number. Assets are in the first section, liabilities in the second section, stockholders equity in the third, revenue in the fourth, purchases in the fifth and expenses in the sixth. Each account in each section is given a number. The first account in the assets is called number 1. Therefore, the account number for cash is 11. The first number one tells us that it is an asset account. The second number 1 tells us that it is the first account in this series. The account number for example, of the third expense account would be 53, etc. If your have lots of accounts use 100 for assets, 200 for liabilities, 300 for stockholders's equity, 400 for revenue and 500 for purchaes and 600 for expenses. Both Bromley companies have lots of expenses, so we would use the format of 100's, 200's etc. The account number for the first expense would be 610, 611 for the second, etc. In the merchandising chart of accounts for the formal wear company, there is one special expense called, "Purchases". This account is used to record merchandise bought from suppliers which is later then sold to your customers. Now it is time for you to prepare a chart of accounts for your own company. Use the form provided to create your chart of accounts. You may have additional accounts that are particular to your business. Make sure that you put them in the proper categories. Make sure you answer the questions at the bottom of the screen and record your answers on the form. If you have any special assets or expenses that pertain only to your company, please include them in your chart of accounts. Remember, make sure you use the correct format :chart for service or merchandisng business.

Bromley's Tuxedo Rentals Chart of Accounts ASSETS (1) Cash Accounts Receivable Furniture and Fixtures Accumulated Depreciations Furniture Office Supplies Other Assets Office Equipment Accumulated Depreciation Office Equipment Prepaid Insurance LIABILITIES (2) Notes Payable Accounts Payable Workers' Comp Payable Federal Income Tax Payable FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Sales Tax Payable SDI Tax Payable STOCKHOLDERS' EQUITY (3) Common Stock Retained Earnings REVENUE (4) Sales Sales Returns and Allowances Other Income EXPENSES(5) Salary Expense Rent Expense Repairs Expense Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Miscellaneous Expense Payroll Taxes Expense Legal and Accounting Expense Utilities Expense Bad Debts Expense Interest Expense Delivery Expense Bromley's Formal Wear Chart of Accounts ASSETS (1) Cash Accounts Receivable Furniture and Fixtures Accumulated Depreciations Furniture Office Supplies Other Assets Office Equipment Accumulated Depreciation Office Equipment Prepaid Insurance Merchandise Inventory LIABILITIES (2) Notes Payable Accounts Payable Workers' Comp Payable Federal Income Tax Payable FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Sales Tax Payable SDI Tax Payable STOCKHOLDERS' EQUITY (3) Common Stock Retained Earnings REVENUE (4) Sales Sales Returns and Allowances Other Income COST OF MERCHANDISE (5) Purchases Purchase Returns and Allowances EXPENSES (6) Salary Expense Rent Expense Repairs Expense Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Miscellaneous Expense Payroll Taxes Expense Legal and Accounting Expense Utilities Expense Bad Debts Expense Interest Expense Delivery Expense

1. The type of accounts that have monetary value are called?
Assets Liabilities Stockholders Equity
2. What is the section in the chart of accounts where we record investments by owners?
Liabilities Expenses Stockholders Equity

3. Advertising, salaries, repairs are in which section of a chart of accounts ?
Asset Expenses Revenue
4. What is the account called that is used to record items bought from a supplier meant for resale ?
Purchases Merchandise Inv. Advertising

	This chapter is about how to start an accounting system. All companies, even the smallest need good records. Each company must submit an income tax return, just like individuals. Even non-profit organizations need an accounting system. The purpose of this tutorial is to help Virtual Enterprise students learn the basics of accounting. You will need to produce a number of accounting records in order to obtain a business loan. Due to the nature of how VE companies operate, the accounting department must be familiar with a number of accounting records: balance sheet, income statement, payroll, cash flow analysis and break even analysis. All of these forms are the accounting department's responsibility in producing the business plan. To make your job a little easier, we will create these forms using Bromley's Formal Wear and Tuxedo Rentals. The company is divided into two divisions: Tuxedo Rentals, a service business and a formal wear division for the bride and bridesmaids, which is a merchandising business with inventory. After you have decided on what type of business your VE company will be, classify it as to a service or merchandising business. A service business supplies a service to customers. A merchandisng business has a physical product that it sells and carries an inventory of these items. Many of the forms are the same for both types of businesses, but there are some differences in the financial statements. The first thing that we are going to do is create a chart of accounts. I have done this for you in the scroll boxes below. Remember that we are looking at two different companies: The service business is called Bromley's Tuxedo Rentals. The merchandising business is Bromley's Formal Wear. The service business chart of accounts is the scroll box to the left, the merchandising business is on the right. On your worksheet, write out the chart of accounts that you will be using. This chart of accounts is what you will be using for your own VE company as well. with the exception of the name of the company. There are five sections in the chart of accounts for a service business and six for the merchandising business.. The first section is entitled "Assets". These items have a monetary value. For example, furniture and fixtures, office supplies and office equipment have a certain cash value. The second section is called "Liabilities" these are amounts of money owed to others. A note payable is an amount owed to an individual or a bank for money that your VE company has borrowed. Accounts payable are amounts of money owed to suppliers of merchandise to your company. There are a whole set of liabilities related to your payroll also. "Stockholders Equity" is the next section. There are two accounts here: common stock and retained earnings. Common stock is the amount of money invested by shareholders in the company and retained earnings is the amount of net income earned in the accounting period. The next section is called "Revenue". Here is where you record your sales for services or merchandise. The merchandising business has a section called cost of merchandise. This is where the purchases of merchandise for reasale are kept. The next section is the "Expense" section. This is where you will keep track of all the monies needed to create your sales. As you can see there are many of them. Each one should describe the kind of expenditure. Each section of the chart of the accounts is associated with a number. Assets are in the first section, liabilities in the second section, stockholders equity in the third, revenue in the fourth, purchases in the fifth and expenses in the sixth. Each account in each section is given a number. The first account in the assets is called number 1. Therefore, the account number for cash is 11. The first number one tells us that it is an asset account. The second number 1 tells us that it is the first account in this series. The account number for example, of the third expense account would be 53, etc. If your have lots of accounts use 100 for assets, 200 for liabilities, 300 for stockholders's equity, 400 for revenue and 500 for purchaes and 600 for expenses. Both Bromley companies have lots of expenses, so we would use the format of 100's, 200's etc. The account number for the first expense would be 610, 611 for the second, etc. In the merchandising chart of accounts for the formal wear company, there is one special expense called, "Purchases". This account is used to record merchandise bought from suppliers which is later then sold to your customers. Now it is time for you to prepare a chart of accounts for your own company. Use the form provided to create your chart of accounts. You may have additional accounts that are particular to your business. Make sure that you put them in the proper categories. Make sure you answer the questions at the bottom of the screen and record your answers on the form. If you have any special assets or expenses that pertain only to your company, please include them in your chart of accounts. Remember, make sure you use the correct format :chart for service or merchandisng business.
Bromley's Tuxedo Rentals Chart of Accounts ASSETS (1) Cash Accounts Receivable Furniture and Fixtures Accumulated Depreciations Furniture Office Supplies Other Assets Office Equipment Accumulated Depreciation Office Equipment Prepaid Insurance LIABILITIES (2) Notes Payable Accounts Payable Workers' Comp Payable Federal Income Tax Payable FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Sales Tax Payable SDI Tax Payable STOCKHOLDERS' EQUITY (3) Common Stock Retained Earnings REVENUE (4) Sales Sales Returns and Allowances Other Income EXPENSES(5) Salary Expense Rent Expense Repairs Expense Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Miscellaneous Expense Payroll Taxes Expense Legal and Accounting Expense Utilities Expense Bad Debts Expense Interest Expense Delivery Expense	Bromley's Formal Wear Chart of Accounts ASSETS (1) Cash Accounts Receivable Furniture and Fixtures Accumulated Depreciations Furniture Office Supplies Other Assets Office Equipment Accumulated Depreciation Office Equipment Prepaid Insurance Merchandise Inventory LIABILITIES (2) Notes Payable Accounts Payable Workers' Comp Payable Federal Income Tax Payable FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Sales Tax Payable SDI Tax Payable STOCKHOLDERS' EQUITY (3) Common Stock Retained Earnings REVENUE (4) Sales Sales Returns and Allowances Other Income COST OF MERCHANDISE (5) Purchases Purchase Returns and Allowances EXPENSES (6) Salary Expense Rent Expense Repairs Expense Advertising Expense Supplies Expense Depreciation Expense Insurance Expense Miscellaneous Expense Payroll Taxes Expense Legal and Accounting Expense Utilities Expense Bad Debts Expense Interest Expense Delivery Expense
1. The type of accounts that have monetary value are called? Assets Liabilities Stockholders Equity	2. What is the section in the chart of accounts where we record investments by owners? Liabilities Expenses Stockholders Equity
3. Advertising, salaries, repairs are in which section of a chart of accounts ? Asset Expenses Revenue	4. What is the account called that is used to record items bought from a supplier meant for resale ? Purchases Merchandise Inv. Advertising