Acc 529 Fundamentals of Financial Statements Simulations

Fundamentals of Financial Statements Simulation

ACC 529

University of Phoenix Online

Facilitator:

April 23, 2007

INTEROFFICE MEMORANDUM

TO: KEY DECISION-MAKER OF AUNT CONNIE’S COOKIES

FROM:

SUBJECT: NOVEMBER AND DECEMBER SUMMARY

DATE: 4/23/07

CC: JIM ANDERSON

Many of the transaction in the simulation affect more than one financial statement. Below identifies five accounting transactions and specific information that is conveyed to the manager.

1. Connie Rocha withdraws $80,000 from her personal account and invested in a new checking account (Aunt Connie’s Cookies).

The transaction is recorded on the balance sheet under the accounting principle: Asset = Liabilities + Owners’ Equity

Identify increase and decrease on specific transaction

In this accounting transaction $80,000 debit (own) to “Invested Cash” and credit (owe) to “Connie Rocha Capital.”

Conveyed to manager that the company owe Connie $80,000 for her initial investment it in the company startup.

2. Purchase $20,000 worth of operation infrastructure (oven, etc., equipment)

The transaction is recorded on the balance sheet

Identify which chart of accounts are effected by the transaction (Asset under the Cash and Equipment ledger)

Balance Sheet: Debit asset (Equipment) increase by $20,000

Cash flow: Credit (decrease) of $20,000

Conveyed to manager that the firm purchased equipment worth $20,000 and paid cash for the procurement.

3. In second week of December Connie sold cookies worth $7,000 on credit to her club.

Balance sheet: Accounts Receivable (A/R) is debit (increase) by $7,000

Income Statement: Credit (increase) $7,000 to Sales and net income is re-calculated showing a $15,000

Owners’ Equity is affected by the net income, which is reflected in the Statement of Changes and Balance sheet.

Conveyed to manager that there is an outstanding $7,000 in A/R and the transaction is recorded on the second week of December (at the time of the sell). See figure 1 below

Figure 1: Change in Financial Statement

4. Connie’s club paid $3,000 as partial payment towards previous order of $7,000 owed to the company.

Effect only the Balance Sheet (see figure 2)

Convey to the manager that cash was paid on an owe account by customer; hence sales revenue, net income and owners’ equity are not changed.

Balance sheet: Increase (debit) in cash and decrease (debit) in A/R

Figure 2: Cash & Account Receivables

5. Instant expense (salary) paid for two delivery people at $250 each, for a total of $500.

Effect the Income, Statement of Changes, and Balance sheets. (See figure 3)

Income Statement: Debit (increase) salaries expense and decrease net income from $15,000 to $14,500.

Statement of Changes: Decreased net income is transfer from Income Statement and expense comes out directly from owners’ equity.

Balance sheet: Payment comes from the Balance sheet as a credit (decrease) on Cash and Owners’ equity change is transfer over from the Statement of Changes

Convey to manager that salary is instant expense coming out from the bottom line and reflected in Owners’ equity. The actual decrease (credit) is recorded on the Balance sheet.

Figure 3: Instant Expense

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