small business management class:

Please answer the three question from the article below:

Q1)In setting up an accounting system, which one of theaccounting functions is best illustrated in the article? Explainhow you know. ?

Q2)Which one of the five common financial statements is bestillustrated in the article? Provide facts to support youranswer?

Q3)Which one of the uses of financial accounting is bestillustrated in the article? Explain how you know. ?

The article:

HUGH MCHUGH, owner of Overhill Flowers Inc. in the Philadelphianeighborhood of Overbrook, made a declaration a few years ago. "Nomore house accounts," he told his staff.

These accounts offering credit were a business staple for theflorist for years, covering about 85% of his business. Hospitals,corporations and other customers would order flowers, and he'd billthem at the end of the month, dutifully printing out statements,mailing them, processing the checks. Sixty days would often elapsebetween the time flowers were delivered and when the bill was paid.Customers often paid late, and about 2% didn't pay at all. "That'sa significant blow to a small business with profit margins of 12%,"he says.

Now, if anyone asks to open a house account, he requests acredit- card number, so he can collect immediately; for thosealready with house accounts, he got their approval to switch themto credit-card accounts. The simple change has not only ensuredthat he'll be paid, but it also has smoothed out the bumps of cashflow, as well, so that now in January, he isn't nervous aboutmaking payroll while he awaits payment for holiday bouquets.

Collecting debts efficiently, Mr. McHugh realized, is one of thebest ways for small businesses to manage the ebb and flow of cashand hang on to precious capital. It's not unusual for businesses toborrow, often at high interest rates, or sell chunks of equity thatthey'd rather keep, because they've managed collections poorly. Butmost entrepreneurs would rather focus on their product, theirservice, their marketing, their lease, their health insurance --anything -- before dealing with the gritty work of collections.

"One thing business owners always tell me is that they neverthought about this when they started their own business," saysMichelle Dunn, who owned her own collections agency, M.A.D.Collections, for years, and has written several books on thetopic.

The time for an entrepreneur to think about collecting fromcustomers is when he or she is writing the business plan, says Ms.Dunn of Plymouth, N.H. She advises businesses to establish a"credit policy" mandating that before they hand over a product to acustomer who says "bill me," they will run a credit check on thebuyer. She also advises small businesses to join Equifax or someother credit bureau to be able to pull credit reports for anyoneapplying for credit, and also to report late payers.

Small start-ups, she says, are often so happy to have customersthat they are slow to take action for nonpayment. That's a mistake,she says. It's best to promptly make a phone call, and follow upwith a letter, so the nonpayer understands that it's a seriousmatter. Any payment at all on the account -- even $5 -- isworthwhile, she says, because it establishes a legal recordacknowledging the debt. "Once you get any kind of payment towardtheir balance, they have to pay the rest if you wind up in court,"she says.

Her years spent tracking debtors have honed unusual instincts.She has found, for instance, that when she would call a young manabout a debt and a woman answered the phone, she'd ask for thecreditor by just his first name. "So many times it would be themother of the guy," Ms. Dunn says, "and just think it was a girlcalling. I'd say, 'Do you have his work number or his cell number?'and she'd give it to me," she says.

She also advises anyone who deals with college kids to not giveup on the slow payers. "It's not pay, not pay for years," she says."Then they are about to get married and need a loan. Suddenly,they'll pay to clear the debt." It also helps to remind nonpayersthat the unpaid debt shows up on their credit report, making itdifficult for them to obtain additional credit.

Entrepreneurs who take a laissez-faire attitude on collectionstend to have sad tales to share -- particularly solo operators,such as consultants. David Leopold of Cincinnati puts networkstogether for small business, making money by brokering thoserelationships. When a client was late paying him, he was stuck andstill had to pay his own vendors. "I had to borrow money at a veryhigh interest rate," he says. "That hurt." Another time he took aclient to court for nonpayment of $1,500, but because the clientwas "a friend," he had no written contract. The judge threw out hiscase. "To a small-business proprietor, that check is our paycheck,"he says.

Even with a contract, collections can require great stamina. Aclient owed Julie Phillippi, a Cincinnati marketing consultant,more than $3,000 for months. She could have turned it over to acollections agency or written it off, but the principle mattered toher. "I did good work for him," she says.

After months, she took her contract to small-claims court, andfollowing many delays, won a judgment against him. He ignored it.She put a lien on his house. She tried to garnish his wages. Shefinally took a step called a "personal body attachment," in which acouple of bailiffs were going to arrest him for contempt of court.At that point he paid, in cash. One bright spot amid the six monthsof aggravation: The lawyer representing her adversary was soimpressed by her resolve that he hired her for a marketingproject.

The nasty episode made her review how she handles collections.Now she invoices twice a month, rather than once. "It's a pain, butI get money in the door more often," she says. And she has begun totack on a 10% interest payment for bills more than 30 days late,which she highlights with a marker. That has speeded up payment,too.

Big corporate customers are a different sort of challenge, saysBrenda Cusick, a founder of ClickWare Inc., a Moorpark, Calif.,database company. She makes it a point to become chummy with theaccounts-payable clerks who work for her big clients, calling tocheck on an invoice, but always chatting about the clerk's childrenor recent vacation -- details that she meticulously tracks in herown database. Those relationships tend to speed an invoice througha big corporation's otherwise slow bureaucracy, and have helpedClickWare and its sister company grow to about $3 million inrevenue without outside investors, she says, even as the foundershave poured money into developing new software products.

Her rapport with the accounts clerks came in quite handyrecently. Ms. Cusick got word from a very big corporate client thatit was undergoing a financial audit. The auditor concluded that thebig corporation was indeed paying Ms. Cusick promptly -- but itwasn't taking a 2% discount to which it was entitled for earlypayment. Many companies offer such a discount, but typically theonus is on the customer to subtract the discount from the payment.For Ms. Cusick's client, the 2% over many months piled up to morethan $10,000. The company wanted it back from ClickWare.

Panicked, Ms. Cusick called the accounts-payable clerk at thebig company. "Don't do anything yet," the clerk advised. Soon Ms.Cusick got a second notice demanding reimbursement. "Sit tight,"the accounts-payable clerk told her, adding that other vendors gotthe notice and were resisting. Ms. Cusick did nothing, and nofurther correspondence arrived. "I made two friendly phone callsand saved thousands of dollars," she says.

Similarly, Ms. Dunn of M.A.D. Collections says her bestcollection "trick" is simply being nice and straightforward. Sherecognizes that many debtors have been beset by medical crises orother tragedies. In those cases, she'd often intercede on theirbehalf, making a case to settle the debt for a smaller lump sum,say, when an income-tax refund arrived. "Some people have actuallysent me thank-you letters for being so nice," she says, telling herthat they paid her before other creditors because she took the timeto listen to them. "I've saved those letters," she says

Henriettaâs Pine Bakery

Background

You are an Analyst for the professional service firm, BUSI 1043LLP. Your firm specializes in providing a wide variety of internalbusiness solutions for different clients. Given the outstandingfeedback you received on your first engagement working for BigSpenders Inc., a Senior Manager in the Financial Advisory grouprequested your support on a compilation engagement.

Additional Information

Henriettaâs was established in 1963 when it first opened itsdoors in Dwight, Muskoka on highway 60. Over the past 50 years,there have been four owners and is currently owned by Carine &Geoff Harris who incorporated and took over the store on January 1,2013. Their sons, Kyle and Nicholas have been an intricate part ofthe business from dishwashing to head bakers. Henrietta's has grownover the years with the addition of new items all the time, but the"Sticky Buns and Clouds" remain the most popular items amongst the150 varieties of breads and pastries.

Henriettaâs runs out of 90 square meters (1,000 share feet) ofspace. It has one entrance into the bakery and doors leading out tohighway 60. Henriettaâs pays $5,000 per month for the rental of thespace. Carine and Geoff were able to negotiate with the landlordand were not required to pay the first monthâs rend in advance. Allof the rental payments are current and up to date. For the last twoyears, Henriettaâs has had a very reliable accountant prepare itsyear-end financial statements and everything has been correct. Thisyear, Henriettaâs accountant retired and Geoff did the best hecould recording his own financial information. For the informationhe was not sure about, he kept all of the required supportingdocumentation. Geoff hired your firm, BUSI 1043 LLP to prepare hisfinancial statements for the year. Geoff supplied you with hisunadjusted trial balance and the information in Exhibit I to assistyou.

Supplementary information:

The amount currently sitting in prepaids arose due the insurancepolicy last year. Geoff didnât know how to correct it, so he leftit. This yearâs insurance policy was purchased on November 1 for$9,000. The policy runs from November 1 to October 31 of eachyear.

Geoff has a note that he owed $900 in wages to his employees forthe period ending December 31^st.

The loan was incurred when the bakery was opened. The loancarried an interest rate of 8%. The interest is payable two monthsafter year end and the principal is due in 2019.

Henriettaâs will sometimes book special events with smallorganizations that are allowed to pay after the event has takenplace. On December 29^th, a small company had a gatheringat the bakery. The company was billed $1,089 and has 30 days to payit. Geoff has not yet recorded this in his financial records.

Henriettaâs declared a dividend of $5,000 on December30^th.

Geoff didnât know how to record amortization for the year and soleft it for you to record. Amortization for all assets is chargedusing a straight-line method by taking the cost of the asset anddividing it by its expected useful life. The assets have expecteduseful lives as follows:

Computer: 5 years

Bakery equipment: 10 years

Furniture and fixtures: 20 years

The information shows that Henriettaâs owes $400 for a telephonebill and $400 for electricity for December. These amounts have notbeen recorded yet.

Exhibit I

Henriettaâs Pine Bakery

Unadjusted Trial Balance

December 31, 2015

Account Name	Debit	Credit
Cash	$35,000
Accounts Receivable	5,600
Food Inventory	21,000
Merchandise Inventory	62,500
Prepaids	3,400
Computers	30,000
Accumulated Amortization â Computers		12,000
Bakery Equipment	90,000
Accumulated Amortization â Bakery Equipment		18,000
Furniture and Fixtures	150,000
Accumulated Amortization â Furniture and Fixtures		15,000
Accounts Payable		18,000
Accrued Liabilities		-
Interest Payable
Dividend Payable		-
Long-term Loan		220,000
Common Shares		50,000
Retained Earnings		22,000
Food Revenue		468,500
Internet Revenue		127,000
Merchandise Revenue		103,000
Food Expense	240,000
Internet Expense	54,000
Electricity Expense	65,000
Telephone Expense	20,000
Interest Expense	0
Salary Expense	200,000
Insurance Expense	9,000
Supplies Expense	8,000
Depreciation Expense	-
Rent Expense	60,000
	1,053,500	1,053,500

Required

Based on the information you have, prepare the adjusting journalentries, an adjusting trial balance, the statement of earnings(income statement), statement of financial position (balancesheet), and statement of retained earnings. After you havecompleted the statements, prepare the closing journal entries andthe posting closing trial balance. Ensure you show all of yourwork, and prepare proper journal entries and properly formattedfinancial statements.

maroontrout45

Henriettaâs Pine Bakery

Background

You are an Analyst for the professional service firm, BUSI 1043LLP. Your firm specializes in providing a wide variety of internalbusiness solutions for different clients. Given the outstandingfeedback you received on your first engagement working for BigSpenders Inc., a Senior Manager in the Financial Advisory grouprequested your support on a compilation engagement.

Additional Information

Henriettaâs was established in 1963 when it first opened itsdoors in Dwight, Muskoka on highway 60. Over the past 50 years,there have been four owners and is currently owned by Carine &Geoff Harris who incorporated and took over the store on January 1,2013. Their sons, Kyle and Nicholas have been an intricate part ofthe business from dishwashing to head bakers. Henrietta's has grownover the years with the addition of new items all the time, but the"Sticky Buns and Clouds" remain the most popular items amongst the150 varieties of breads and pastries.

Henriettaâs runs out of 90 square meters (1,000 share feet) ofspace. It has one entrance into the bakery and doors leading out tohighway 60. Henriettaâs pays $5,000 per month for the rental of thespace. Carine and Geoff were able to negotiate with the landlordand were not required to pay the first monthâs rend in advance. Allof the rental payments are current and up to date. For the last twoyears, Henriettaâs has had a very reliable accountant prepare itsyear-end financial statements and everything has been correct. Thisyear, Henriettaâs accountant retired and Geoff did the best hecould recording his own financial information. For the informationhe was not sure about, he kept all of the required supportingdocumentation. Geoff hired your firm, BUSI 1043 LLP to prepare hisfinancial statements for the year. Geoff supplied you with hisunadjusted trial balance and the information in Exhibit I to assistyou.

Supplementary information:

The amount currently sitting in prepaids arose due the insurancepolicy last year. Geoff didnât know how to correct it, so he leftit. This yearâs insurance policy was purchased on November 1 for$9,000. The policy runs from November 1 to October 31 of eachyear.

Geoff has a note that he owed $900 in wages to his employees forthe period ending December 31^st.

The loan was incurred when the bakery was opened. The loancarried an interest rate of 8%. The interest is payable two monthsafter year end and the principal is due in 2019.

Henriettaâs will sometimes book special events with smallorganizations that are allowed to pay after the event has takenplace. On December 29^th, a small company had a gatheringat the bakery. The company was billed $1,089 and has 30 days to payit. Geoff has not yet recorded this in his financial records.

Henriettaâs declared a dividend of $5,000 on December30^th.

Geoff didnât know how to record amortization for the year and soleft it for you to record. Amortization for all assets is chargedusing a straight-line method by taking the cost of the asset anddividing it by its expected useful life. The assets have expecteduseful lives as follows:

Computer: 5 years

Bakery equipment: 10 years

Furniture and fixtures: 20 years

The information shows that Henriettaâs owes $400 for a telephonebill and $400 for electricity for December. These amounts have notbeen recorded yet.

Exhibit I

Henriettaâs Pine Bakery

Unadjusted Trial Balance

December 31, 2015

Account Name	Debit	Credit
Cash	$35,000
Accounts Receivable	5,600
Food Inventory	21,000
Merchandise Inventory	62,500
Prepaids	3,400
Computers	30,000
Accumulated Amortization â Computers		12,000
Bakery Equipment	90,000
Accumulated Amortization â Bakery Equipment		18,000
Furniture and Fixtures	150,000
Accumulated Amortization â Furniture and Fixtures		15,000
Accounts Payable		18,000
Accrued Liabilities		-
Interest Payable
Dividend Payable		-
Long-term Loan		220,000
Common Shares		50,000
Retained Earnings		22,000
Food Revenue		468,500
Internet Revenue		127,000
Merchandise Revenue		103,000
Food Expense	240,000
Internet Expense	54,000
Electricity Expense	65,000
Telephone Expense	20,000
Interest Expense	0
Salary Expense	200,000
Insurance Expense	9,000
Supplies Expense	8,000
Depreciation Expense	-
Rent Expense	60,000
	1,053,500	1,053,500

Required

Based on the information you have, prepare the

1) adjusting journal entries,

2) an adjusting trial balance,

3) the statement of earnings (income statement),

4) statement of financial position (balance sheet), andstatement of retained earnings. After you have completed thestatements,

5) prepare the closing journal entries and the

6) posting closing trial balance.

Ensure you show all of your work, and prepare proper journalentries and properly formatted financial statements.

blueplatypus48

ACC 100 Lecture Notes - Lecture 2: Retained Earnings

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