Module 1 Assignment Part 2 - Leeds School of Business



Assignment Learning Objectives:

Primary Learning Objectives:

o Review the concepts of the beginning financial accounting course

o Review the accounting cycle

o Work with a manual accounting information system

o Begin using a computerized accounting information system

Secondary Learning Objective:

o Begin work with the SAP ERP system

INTRODUCTION:

This is part 2 of the assignment that continues where part 1 left off. There are additional journal entries that you need to make, adjusting journal entries for month end and closing entries. You will again show the impact of the transactions on t-accounts and create a trial balance. For the last part of the assignment you will explore how your journal entries might be created in an automated system by entering your “manual” journal entries into the SAP/R3 system. In a true ERP or integrated accounting system, these transactions would flow through to the general ledger via other functions within the system. For example, sales transactions would be created in a sales order module. When the sale is processed by someone outside of the accounting department, the appropriate journal entries would be automatically created in the general ledger by our accounting system. However, it is also possible to post transactions directly to the general ledger as we have done in our manual system and as we will do in this assignment. We will then use the SAP system to produce a set of financial statements (balance sheet and income statement).

DETAILED REQUIREMENTS:

Refer to Cottonwood’s company information and chart of accounts from the first assignment and the following transactions and additional detail to complete steps 1 and 2. If you had any errors in your t-accounts, and trial balances from part 1 of the assignment, you will want to make appropriate corrections before starting part 2.

1. Correct all of the errors in part 1 of the assignment.

2. Using the journals, t-accounts, and trial balances you developed in assignment 1, record Cottonwood’s daily transactions for the last half of the month (January 16 – 31, 2007) if appropriate, (some transactions may not involve journal entries), as general journal entries into Excel. Also, post these journal entries into t-accounts and then calculate account balances using cell formulas in Excel. Again, enter the t-account balances into your Excel document and then transfer the balances into the trial balance. Use your linked worksheets to expedite the process and minimize data entry errors.

3. The next step is to record the adjusting entries into the general journal and then post them into the t-accounts and trial balance.

4. Record closing entries in your trial balance as if this were a year-end close.

5. Now use the SAP ERP system to make all above entries using the general ledger system in SAP. This should be done in a series of steps:

• Examine the A321 chart of accounts.

• Record beginning account balances in the SAP general ledger. This should be done as one composite journal entry (the first journal entry). Use January 1, 2007 as the journal entry date for the beginning account balances.

• Record the daily transactions for the first half of January in the SAP general ledger (do each journal entry as a separate entry, not as one giant composite entry, be sure use appropriate dates).

• Display the trial balance (you should compare this to your manual entries).

• Repeat the previous two steps for the journal entries for the second half of January.

• Record the adjusting entries.

• Simulate closing the books as of January 31, 2007 using the SAP utility. (Do not enter closing entries into the general ledger. These entries would be done automatically through the SAP month-end closing function.)

Instructions for using the SAP ERP system start on page 7 of this document.

When submitting the assignment you must also submit the graded part 1 of this assignment that was returned to you. This will be used to verify that you made all of the corrections.

Use the following transaction information to complete steps 1 and 2:

DESCRIPTION OF EVENTS OCCURRING January 16 –31, 2007

Date Description of Event

|27 |January 16, 2007 |BCC (see January 11 & 12) sent payment of $6,000 to Cottonwood via electronic funds transfer, (EFT). |

| | |Cottonwood’s warehouse picked and packed BCC’s order and shipped it to Bozeman via CWX. Freight costs of |

| | |$430 were paid by Cottonwood at the time of shipment. |

|28 | |Cottonwood paid $21,000 to employees for wages earned during the first half of January. |

|29 | |The industrial shelving was delivered and installed in Cottonwood’s warehouse (see January 11th). The |

| | |vendor’s invoice, which matched Cottonwood’s purchase order, was hand-delivered to accounts payable. |

| | |Cottonwood paid the shipping of $320. The vendor’s contractor completed installation that day. |

|30 | |Cottonwood paid UPS for the shipment to Del Norte County Rodeo on January 9th. |

|31 |January 17, 2007 |Cottonwood received customer checks totaling $9,980 for payment on outstanding accounts. |

|32 | |The owners of Cottonwood were talking to the owner of the warehouses that they lease. They are good friends.|

| | |The conversation centered around wise investment of the excess cash that Cottonwood presently has. The |

| | |owner of the warehouses stated that he wishes to diversify his investments, especially with the flat real |

| | |estate market. He suggested that Cottonwood purchase the warehouses. He said that he would give Cottonwood|

| | |a good deal. Cottonwood decided to buy only one of the warehouses and continue to lease the other one. The|

| | |price is to be $360,000 with a down payment of 20%. The original owner will carry a mortgage for the |

| | |remainder with an interest rate of 7.5%. Title is to transfer on March 15, 2007. Today Cottonwood sent |

| | |earnest money of $10,000 to the owner of the warehouse. |

|33 |January 18, 2007 |Cottonwood placed a purchase order with the Buckaroo Outfitters for $52,000 in resale merchandise. Payment |

| | |terms to Buckaroo are net 30. |

|34 |January 19, 2007 |The Red Bluff Rodeo called in an order for $4,800 in event merchandise. The order information was given to |

| | |the warehouse, where the merchandise was picked and set on the delivery dock for RB Rodeo to pick up. Cost |

| | |of the merchandise was $2,496. Terms of the sale were cash on delivery, (COD). |

| | |Later in the day, Red Bluff Rodeo picked up and paid for their order, (including sales tax). |

|35 |January 22, 2007 |Cottonwood received payment from Dust Bowl Rodeo for their order from January 8th. |

|36 | |The FFA Rodeo in LaJunta Colorado (January 4th) returned $4,000 in event merchandise as excess merchandise. |

| | |The merchandise was inspected and restocked. FFA is given a credit to their account for the returned |

| | |merchandise. The credit is for the $4,000 minus a 10% restocking fee. The cost of the goods is $2,085. |

| | |FFA LaJunta paid the return shipping of $62. |

|37 | |Cottonwood applied for credit with a new supplier, Howdy Partner U.S.A. A credit application was faxed to |

| | |HP’s headquarters in San Antonio, TX. Cottonwood is anticipating an order with HP for $12,000 in resale |

| | |merchandise. |

|38 |January 23, 2007 |Cottonwood’s bank notified them that an EFT in the amount of $102,240 from Alamo Conference Center had been |

| | |deposited into their account. |

|39 | |Cottonwood received their order from Buckaroo Outfitters from January 18th. Buckaroo Outfitters paid the |

| | |shipping charge of $105. The inventory was counted and placed on the shelves. Proof of receipt and the |

| | |vendor’s invoice was sent to accounting. |

|40 |January 24, 2007 |The Boise Stampede called in an order for $98,726 in merchandise. $57,224 is for resale merchandise and |

| | |$41,502 is for event merchandise. The cost of the resale merchandise is $36,623 and the cost of the event |

| | |merchandise is $21,580. Boise Stampede has not yet established credit with Cottonwood. They are told that |

| | |they must either supply the needed information to establish credit or pay cash before the goods can be |

| | |delivered. |

|41 |January 25, 2007 |Cottonwood placed a purchase order with Rocking-5R Ranch Supplies for $38,000 in events merchandise. |

| | |Cottonwood’s payment terms are 2% 10 net 30. |

|42 | |Cottonwood received a check from BCC (see January 12th) for $15,000. |

|43 |January 29, 2007 |Cottonwood has made arrangements with their two primary suppliers, Rodeo Outfitters and Lazy J for them to |

| | |drop ship orders in the future. That means that the orders will be placed with the supplier and shipped |

| | |directly from them. This reduces Cottonwood’s inventory carrying cost by reducing the need for inventory |

| | |and frees up some cash for other purposes. The primary concern about this arrangement was that Cottonwood |

| | |prides itself on almost always shipping the goods the same day as the order. Both suppliers have assured |

| | |Cottonwood that they can also do same day shipment. |

|44 |January 31, 2007 |Cottonwood paid rent of $5,000 for the coming month’s lease of the warehouses. |

|45 | |Cottonwood pays sales tax once a year in January for the preceding 12 months. They do not make any sales tax|

| | |deposits during the year. Cottonwood paid sales tax of $4,178 for 2006 sales taxes collected. |

|46 | |Cottonwood purchased their warehouse and office equipment on December 1, 2004 for $162,000. At the time |

| | |they signed a seven-year note payable from the bank for $90,000. Over the seven years, payments of $1,589, |

| | |which includes both principle and interest, are to be made at the end of each month. The annual interest |

| | |rate on the loan is 12% calculated on the outstanding balance. The calculation of interest is based on each |

| | |month having 30 days. Cottonwood transferred funds in the amount of $1,589 from their checking account to |

| | |pay the loan amount due. (Hint: It is probably best to create an amortization schedule to handle this |

| | |entry.) |

|47 | |Cottonwood paid the full amount due on the industrial shelving (see January 11th & 16th). |

|48 | |The employees submitted their time statements for January 16th through 31st. The calculated payroll is |

| | |$21,600. |

|49 | |The owners and managers of Cottonwood choose a vendor from several responses to the RFP sent out in early |

| | |December to supply them with their new shrink-wrap equipment. The supplier will make some minor adjustments |

| | |to their standard equipment to meet Cottonwood’s needs. Cottonwood owners sign the contract, which specifies|

| | |a total equipment cost of $239,000 including customization, installation, initial training, and a two-year |

| | |warranty. Delivery and installation is tentatively scheduled for May 1, 2007. A down-payment of $59,750 is |

| | |due February 28th. |

After you develop the journal entries for the above transactions, you should post the entries to t-accounts and calculate the account balances, (using cell formulas in Excel). Don’t forget to include transactions from part 1 of the assignment (the first half of the month), in calculating your balances. Using these account balances and additional adjustment information below, record adjusting journal entries. Note: It is possible that not all adjusting entries are given in the following list.

Adjustment information as of January 31, 2007 not already given in the original transaction(s):

1. Rodeo supply sales is a relatively new industry, so bad debt average has not yet been established for the industry. Based on prior experience, Cottonwood estimates that approximately 1/2% of the net credit sales (gross credit sales minus returns of credit sales) for the month will become bad debt. Cottonwood writes off bad debts as they occur and recognizes bad debt expense based on anticipated bad debts as an adjusting entry each month.

2. As a control measure, physical inventories are taken on a periodic basis alternating between the resale merchandise inventory and the event merchandise inventory. Physical inventory of the event merchandise inventory was taken at the end of January. It was determined that the cost of the event merchandise on hand was $144,860.

3. Cottonwood counted the supplies on hand after the close of business on the last day of the month and determined the cost of the unused supplies to be $450.

4. Warehouse and office equipment was placed in service on January 1, 2005 and is expected to last 15 years and has no salvage value. The industrial shelving is expected to have a life of 10 years and a salvage value of $5,000. Cottonwood depreciates fixed assets on a straight-line basis and those assets acquired in the first half of the month for the entire month, while fixed assets placed in service during the last half of the month are not depreciated until the second month. Depreciation is rounded to the nearest dollar and assets are depreciated on a monthly basis (i.e. number of days in the month is not of consequence).

5. On February 2, Cottonwood received a $2,251 bill from PG&E for utilities consumed during January and the January AT&T bill in the amount of $412.

6. Liability insurance for the 2007 fiscal year was paid at the end of November 2006. Liability insurance is assumed to be utilized uniformly monthly over the one-year policy period.

7. 500 product catalogs were sent out in the month of January.

Following are the instructions for entering the accounting data into the SAP system:

Your instructor will tell you the SAP server (instance) and the client you will be using.

Your login is USER-XX (where the XX is your assigned number – this number will be supplied to you by your instructor).

Your initial password is “SAP4US” (note that these are capital letters). You will be asked to change the password when you first log on. Change it and be sure to remember this new password. That will be the password you will use on your subsequent logons for this assignment and other SAP assignments.

Your company code is 80XX (where the XX is your assigned number). Do not use any company code other than the one assigned to you.

If you are unfamiliar with SAP, there are remedial videos that you can watch that show you how to navigate around in the system.

The first thing that you should do is to examine the chart of accounts. You will find that this is the same as the chart of accounts that was presented in part 1 of the assignment.

To Look at the Chart of Accounts

Accounting à Financial accounting à General ledger ( Information system ( General ledger reports ( Master Data ( Chart of Accounts ( Chart of Accounts

• Chart of accounts A321

• [pic] Execute

The next step is to enter the beginning balances and the transactional journal entries. In SAP this is called general ledger accounting because as you enter the journal entries into the system they are immediately posted to the general ledger accounts.

To enter transactions in General Ledger

Accounting à Financial accounting à General ledger à Document entry à Enter G/L Account Document

On GL account posting screen enter:

Doc. Date = the transaction date

Posting date = same as doc. date (this may generate a warning, just ignore it)

Currency = USD (defaulted)

Note: Make sure the company code is your assigned company code.

Don’t Forget to Enter Your Beginning Balances!

1st Line:

G/L account = the account number for posting (debit) the transaction

D/C = Debit

Amount in Doc. Currency = the amount of the transaction

2nd Line:

G/L account = the account number for posting (credit) the transaction

D/C = Credit

Doc. Currency amount = the amount of the transaction

… and so on for compound journal entries

Click on Enter [pic] (white check mark on green circle at top left)

Ignore any message by clicking on Enter.

Look at the total debits and total credit fields. Debits should be equal to credits and a green light should be lit.

Click on Simulate [pic] button.

This is the accounting transaction which you are posting in your company for period 1.

(January is period 1 for our company)

SAVE [pic] the document icon. Do Not Park your document by mistake.

Write down the document numbers as you enter each transaction.

If you parked your documents by mistake, then here is the procedure you use to release these documents:

Accounting ( Financial Accounting ( General Ledger ( Document ( Parked Documents ( Post/Delete (FBV0)

Enter Company code: 80XX

Fiscal Year: 2007

Click on Document list on the application tool bar

On the “List of parked documents”, enter the above information

Execute.

A list of parked documents will appear.

Select all the documents by Edit ( Select all on the menu bar

Click on Create Batch input session button on the application tool bar

A log will be displayed.

Go and Save.

When you click on save, the documents will be posted.

As you make the entries into the system, you should check to be sure that they were entered correctly. I would suggest that you first enter the beginning balances and then check them by viewing the journal entries using one of the two reports below. If an entry states that it is parked, that means you made a mistake and must unpark the document (see above for the unparking procedure). After you check the correctness of the beginning entries, then you can enter the journal entries for the first half of the month (part 1) and compare the results to your first half trial balance in Excel. If the results don’t match, then resolve the issue before proceeding to post the second half journal entries and the adjusting entries. Remember that you cannot correct erroneous entries in SAP. You have to reverse the entry and then enter the correct entry. After each posting compare your results to the trial balance in Excel.

Viewing Journal Entries

If you wish to view the journal entries that you have made, following are three different ways in which you can display the entries:

1. Document Journal

Information System ( General Report Selection ( Financial Accounting ( General Ledger Reports ( Document ( General ( Compact Document Journal ( Compact Document Journal

Enter:

▪ Company code 80XX

▪ Fiscal Year 2007

▪ [pic] Execute

2. Drill down to the source document

Accounting ( Financial Accounting ( General Ledger ( Account ( Display/change line items

Enter:

▪ Company code 80XX

▪ Select All items

▪ [pic] Execute

A list of clear and open accounting documents is displayed

Select any box

Click on Display document (glasses) icon on the application tool bar to display line items

Click on Call up Document overview (mountain-like) button to display the source document.

3. Document Journal

Information System ( General Report Selection ( Financial Accounting ( General Ledger Reports ( Document ( General ( Line Item Journal ( Line Item Journal

Enter:

▪ Company code 80XX

▪ Fiscal Year 2007

▪ [pic] Execute

To Look at the Balance Sheet and Profit and Loss Statement

Accounting à Financial accounting à General ledger ( Information system ( General ledger reports ( Balance sheet/ profit and loss statement/cash flow ( General ( Actual/actual comparison ( Balance sheet/profit and loss statement

• Chart of accounts A321

• Company code 80XX (your assigned code)

• Financial statement version A321 Language EN

• Reporting year 2007

• Reporting periods 1 to 16

• Comparison year 2006

• Comparison periods 1 to 16

[pic] Execute.

You may even want to print your financial statements if you have access to a printer for SAP.

We will simulate year-end close by doing the following.

Simulating the Closing of the Profit and Loss accounts

For a manual accounting system at the end of an accounting period, it is necessary to make a journal entry that zeroes out the nominal accounts and eventually closes them to the retained earnings account. However, in a computerized system the system can essentially do this by the push of a button. In this section you will simulate this process. In SAP the closing is done by executing the following transaction:

Accounting à Financial accounting à General ledger ( Periodic Processing ( Closing ( Carry Forward ( Balance Carryforward (New)

▪ Ledger 0L

▪ Company code 80XX

▪ Carry forward fiscal Year 2008

▪ Test Run Select

▪ Output list of results Select

▪ [pic] Execute.

Click on the Balance sheet accounts and Retained earnings accounts.

If the run is successful, print out the screens for both the balance sheet and the retained earnings. Do not do the actual closing.

End of Assignment[pic]

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Accounting Information Systems

Module 1 – Assignment: Part 2

Financial Accounting Review Practice Set

Last revised 12/27/2007

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