One of the measures of success for any business is profitability. Managers and business owners must be able to assess the profitability of a company using information about its financial transactions: This is done through accounting. By working through the accounting cycle, you will understand how to organize transactions in a way that communicates the financial position of a company. This information is critical for external stakeholders who may be interested in working for or investing in the business. This process also helps you understand the level of attention to detail that is required in a successful business venture.
The final project for this course consists of two major parts: an accounting workbook (Final Project I) and a professional relevance essay (Final Project II). In the accounting workbook, you will use provided information to record journal entries that document financial transactions in a business. To do this, you will follow the business transactions for a three-month period, starting from the first step of the accounting cycle through the reporting process. These transactions include the initial setup of the business, sales, and purchases, payments made to vendors, payments made to store employees, and debt management. In the second part of the final project, you will create a well-crafted essay in which you draw connections between your accounting exercises and their practical applications for furthering your own professional practice.
The project is divided into two milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three and Five. The final products will be submitted in Modules Seven and Eight.
In this assignment, you will demonstrate your mastery of the following course outcomes:
1.Record financial data that accurately captures business transactions according to accepted accounting principles
2.Apply the accrual basis of accounting to correctly create adjusting entries in the preparation of financial statements
3.Create financial statements by properly employing prescribed methods in accordance with generally accepted accounting principles
Your dog, Peyton, has severe allergies and cannot have the usual store-bought dog treats. You have been making homemade treats for him that are all-natural and hypoallergenic. Over the past year, you have been making and selling these treats out of your home, and you have been quite successful. You now have an opportunity to open your own dog treat bakery. You have decided on a corporate form of business and have named your company “Peyton Approved.”
Step One: July Journal Entries
Use accepted accounting principles to follow and record your business transactions for a three-month period from the first step of the accounting cycle through the reporting process. Enter your transactions in the workbook provided. Your completed workbook will consist of journal entries for each transaction, and postings of transactions to account ledgers. You will develop a trial balance from ledger balances and adjust revenue and expense accounts, as necessary, to ensure that revenues and expenses are reported in the appropriate period under the accrual accounting method. The adjusted trial balance will be used to prepare the income statement, the statement of owner’s equity, the balance sheet, and the statement of cash flows. After the preparation of the financial statements, closing entries will be entered to transfer earnings to equity and prepare temporary accounts for the new accounting period.
You will find the provided data for your workbook in the appendix at the end of this document. The data have been separated from the prompt so that you can more easily view the full scope of the project. Links have been provided to help you locate the information you need for each step. Specifically, you must address the critical elements listed below. Most of the critical elements align with a particular course outcome (shown in brackets).
I. Record financial data that accurately captures business transactions according to accepted accounting principles:
A. Step One: Complete the “July Journal Entries” tab in your workbook using the Step One data in the appendix.
B. Step Two: Complete the “August Journal Entries” tab in your workbook using the Step Two data in the appendix.
C. Step Three: Complete the “September Journal Entries” tab in your workbook using the Step Three data and updated scenario information in the appendix. Note that there was an additional line of products added this month, so you must first complete the “Inventory Valuation” tab in your workbook and copy the journal entries from the inventory evaluation page into your journal for this month to ensure the impact of merchandising is reflected in your reporting.
D. Step Four: Transfer posted entries to T accounts.
II. Apply the accrual basis of accounting to correctly create adjusting entries in the preparation of financial statements:
A. Step Five: Prepare the unadjusted trial balance. Note that you should use the T account balances completed in Step Four to prepare the unadjusted trial balance portion of the “Trial Balance” tab in your workbook.
B. Step Six: Complete the “Adjusting Entries” tab in your workbook using the Step Six data in the appendix. Note that you should take the adjusting entries from this worksheet and enter them into the “Trial Balance” tab in your workbook.
C. Step Seven: Apply adjusting entries to create the adjusted trial balance. Note that the adjusting entries from Step Six will apply to affected accounts in the unadjusted trial balance to arrive at the adjusted trial balance.
III. Create financial statements by properly employing prescribed methods in accordance with generally accepted accounting principles:
A. Step Eight: Prepare the financial statements. Note that you must use your adjusted trial balance to prepare the income statement, statement of owner’s equity, and balance sheet. You must complete these statements in this order, as there are interdependencies among them.
B. Step Nine: Complete the “Closing Entries” tab in your workbook by closing all temporary income statement amounts to create closing entries.
C. Step Ten: Prepare the “Post Closing Trial Balance” tab for the next accounting period.
D. Step Eleven: Prepare the reversing entries in the “Reversing Entries” tab of your workbook.