ACC 220 Lecture Notes - Lecture 3: Accounts Payable, Sales Order, Fixed Asset

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orangegnat648

7 Dec 2018

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Document Summary

Most common financial transactions are economic exchanges with external parties. Also include internal events such as depreciation and application of overhead costs. 3 cycles exist in all types of businesses. Acquisition of materials, property, and labor in exchange for cash. The expenditure transaction has two parts: physical component acquisition of goods and labor, financial component - payment. Purchases / accounts payable (ap) system: processes acquisition of inventory, may place order with vendor, when goods received, increases inventory and establishes accounts. Cash disbursements system payable to be paid at later date: authorizes payment, disburses funds to vendor, records transaction by reducing the cash and accounts payable accounts. Payroll system: collects labor hours for each employee, calculates the wages to be paid, disburses paychecks to employees. Payroll is complex most companies use a separate payroll system. Fixed asset system: processes acquisition, depreciation, and disposal of fixed assets. Companies may use a separate fixed asset system.

Related Questions

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

tanmouse0

Optima Company is a high-technology organization that produces amass-storage system. The design of Optimaâs system is unique andrepresents a breakthrough in the

industry. The units Optima produces combine positive features ofboth compact and

hard disks. The company is completing its fifth year ofoperations and is preparing to

build its master budget for the coming year (2010). The budgetwill detail each quarterâs

activity and the activity for the year in total. The masterbudget will be based on the

following information:

a. Fourth-quarter sales for 2009 are 55,000 units.

b. Unit sales by quarter (for 2010) are projected asfollows:

First quarter 65,000

Second quarter 70,000

Third quarter 75,000

Fourth quarter 90,000

The selling price is $400 per unit. All sales are credit sales.Optima collects 85 percent of all sales within the quarter in whichthey are realized; the other 15 percent is

collected in the following quarter. There are no bad debts.

c. There is no beginning inventory of finished goods. Optima isplanning the following ending finished goods inventories for eachquarter:

First quarter 13,000 units

Second quarter 15,000 units

Third quarter 20,000 units

Fourth quarter 10,000 units

d. Each mass-storage unit uses five hours of direct labor andthree units of direct materials. Laborers are paid $10 per hour,and one unit of direct materials costs $80.

e. There are 65,700 units of direct materials in beginninginventory as of January 1,

2010. At the end of each quarter, Optima plans to have 30percent of the direct

materials needed for next quarterâs unit sales. Optima will endthe year with the

same level of direct materials found in this yearâs beginninginventory.

f. Optima buys direct materials on account. Half of thepurchases are paid for in the

quarter of acquisition, and the remaining half are paid for inthe following quarter.

Wages and salaries are paid on the 15th and 30th of eachmonth.

g. Fixed overhead totals $1 million each quarter. Of this total,$350,000 represents

depreciation. All other fixed expenses are paid for in cash inthe quarter incurred.

The fixed overhead rate is computed by dividing the yearâs totalfixed overhead by

the yearâs expected actual units produced.

h. Variable overhead is budgeted at $6 per direct labor hour.All variable overhead

expenses are paid for in the quarter incurred.

i. Fixed selling and administrative expenses total $250,000 perquarter, including

$50,000 depreciation.

j. Variable selling and administrative expenses are budgeted at$10 per unit sold. All

selling and administrative expenses are paid for in the quarterincurred.

k. The balance sheet as of December 31, 2009, is as follows:

Assets

Cash $ 250,000

Direct materials inventory 5,256,000

Accounts receivable 3,300,000

Plant and equipment 33,500,000

Total assets $42,306,000

Liabilities and Stockholdersâ Equity

Accounts payable $ 7,248,000*

Capital stock 27,000,000

Retained earnings 8,058,000

Total liabilities and stockholdersâ equity $42,306,000

*For purchase of direct materials only.

l. Optima will pay quarterly dividends of $300,000. At the endof the fourth quarter,

$2 million of equipment will be purchased.

Required:

Prepare a master budget for Optima Company for each quarter of2010 and for the year

in total. The following component budgets must be included:

-Direct labor budget

-Overhead budget

-Selling and administrative expenses budget

-Ending finished goods inventorybudget

-Cost of goods sold budget (Assume that there is no change inwork-in-process

inventories.)

-Cash budget

-Pro forma income statement (using absorption costing)

-Pro forma balance sheet

bluepanda857

Optima Company is a high-technology organisation that produces amass-storage system. The design of Optimaâs system is unique andrepresents a breakthrough in the industry. The units Optimaproduces combine positive features of both compact and hard disks.The company is completing its fifth year of operations and ispreparing to build its master budget for the coming year (2017).The budget will detail each quarterâs activity and the activity forthe year in total. The master budget will be based on the followinginformation:
a Fourth-quarter sales for 2016 are 65 000 units.
b Unit sales by quarter (for 2017) are projected as follows:
First quarter 75 000
Second quarter 80 000
Third quarter 85 000
Fourth quarter 95 000
The selling price is $500 per unit. All sales are credit sales.Optima collects 85% of all sales within the quarter in which theyare realised; the other 15% is collected in the following quarter.There are no bad debts.
c There is no beginning inventory of finished goods. Optima isplanning the following ending finished goods inventories for eachquarter:
First quarter 13 000 units
Second quarter 15 000 units
Third quarter 20 000 units
Fourth quarter 10 000 units

d Each mass-storage unit uses five hours of direct labour andthree units of direct materials. Workers are paid $25 per hour, andone unit of direct materials costs $80.

e There are 65 700 units of direct materials in beginninginventory as at 1 January 2017. At the end of each quarter, Optimaplans to have 30% of the direct materials needed for next quarterâsunit sales. Optima will end the year with the same amount of directmaterials found in this yearâs beginning inventory.

f Optima buys direct materials on account. Half of the purchasesare paid for in the quarter of acquisition and the remaining halfare paid for in the following quarter. Wages and salaries are paidon the 15th and 30th of each month.

g Fixed overhead totals $1 million each quarter. Of this total,$350 000 represents depreciation. All other fixed expenses are paidfor in cash in the quarter incurred. The fixed overhead rate iscomputed by dividing the yearâs total fixed overhead by the yearâsbudgeted production in units.
HVariable overhead is budgeted at $6 per direct labour hour. Allvariable overhead expenses are paid for in the quarterincurred.
i Fixed selling and administrative expenses total $250 000 perquarter, including $50 000 depreciation.
j Variable selling and administrative expenses are budgeted at $10per unit sold. All selling and administrative expenses are paid forin the quarter incurred.
k The balance sheet as at 31 December 2017 is as follows:

ASSETS

Cash

$ 250 000

Direct materials inventory

5 256 000

Accounts receivable

3 300 000

Plant and equipment, net

33 500 000

Total assets

$42 306 000

LIABILITIES AND SHAREHOLDERSâ EQUITY

Accounts payable

$ 7248000*

Capital share

27 000 000

Retained earnings

8 058 000

Total liabilities and shareholdersâ equity

$42 306 000

* For purchase of direct materials only.

l Optima will pay quarterly dividends of $300 000. At the end ofthe fourth quarter, $2 million of equipment will be purchased.

REQUIRED:

Prepare a master budget for Optima Company for each quarter of2017 and for the year in total. The following component budgetsmust be included:

1 Sales budget
2 Production budget
3 Direct materials purchases budget
4 Direct labour budget
5 Overhead budget
6 Selling and administrative expenses budget
7 Ending finished goods inventory budget
8 Cost of goods sold budget (Note: Assume that there is no changein work in process inventories.)
9 Cash budget
10 Pro forma income statement (using absorption costing) (Note:Ignore income taxes.)
11 Pro forma balance sheet (Note: Ignore income taxes.)

amberbadger529

ACC 220 Lecture Notes - Lecture 3: Accounts Payable, Sales Order, Fixed Asset

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