Accounting project

I. Introduction:

Your good friend Kyra recently opened an art studio, Kyra’s Krafts, LLC. She has been creating and selling art work for years, and subsequently already has a good customer base. In January of this year she started the process of setting up an LLC, filing for an EIN in February. She found and rented a studio on March 1st, and has been cleaning, painting, and setting up the space ever since. Her grand opening was April 1, 2019.

She knows you are going to school for your master’s degree in accounting and has asked for your help setting up and using QuickBooks Online (QBO). You agree to help her set up her QBO business account, complete her first month of transactions, and then teach her how to do it. You are not very familiar with QBO, but you know that it will be beneficial to you in your accounting career to learn the program, since it is the most used accounting platform for small business in the United States, so you agree.

She has heard about and is interested in using the following features:

· Sales Receipts/Invoices

· Purchase Orders/Inventory tracking

· Bills and Bill Pay

Details of this project can be found below.

For most of the steps below, you will have the option of viewing a short video or referring to the Intuit Education PPT, all page references given below.

· View the Video:

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Step 9 – Add invoices*, purchase orders (POs) and bills.

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· View the videos:

1. Submit 1 PDF file by combining multiple PDF documents into 1 PDF file that contains the following files generated from QuickBooks:

A. Profit & Loss, accrual basis for April 2019,

B. Balance Sheet, accrual basis ending April 30, 2019, and

C. General Ledger Report for all time.

2. Submit 1 Excel file that contains the following:

A. The April bank reconciliation with formulas embedded into all cell that require calculations.

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You will find the rubric in LEO under Contents>Course Resources>Projects & Rubrics

VI. Competencies Assessed by Project:

Communication Competencies:

1.1 Organize document or presentation clearly in a manner that promotes understanding.

1.2 Develop coherent paragraphs or points so that each is internally unified and so that each function as part of the whole document or presentation.

1.3 Provide sufficient, correctly cited support that substantiates the writer’s ideas.

1.4 Tailor communications to the audience.

1.5 Use sentence structure appropriate to the task, message, and audience.

1.6 Follow conventions of Standard Written English.

1.7 Create and employ multimedia supports, visual aids and/or documents appropriate to the needs of the project, the message, and the audience.

1.8 Create clear oral messages.

Critical Thinking Competencies:

2.1 Articulate and frame the issue.

2.2 Collect and evaluate information.

2.3 Evaluate the underlying causes or conditions of elements contributing to issue.

2.4 Use systems thinking to arrive at a decision in the context of an issue.

2.5 Apply ethical principles when determining actions.

Accounting Competencies:

5.2 Measure, analyze and interpret: measure, analyze, and interpret accounting data and information

5.3 Report: report accounting information

5.6 Technology and Tools: Identify and use relevant technology and tools to analyze data, perform requisite tasks efficiently and effectively, and support other competencies required in the profession.

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Remember - “QuickBooks is a very forgiving program. Most mistakes can be fixed as you have the ability to go back and make historical changes, however a correct setup will prevent the need in most cases.” (Intuit Education PPT).

The following are the important pieces of information you need to set up Kyra’s Krafts, LLC in QBO. Each of the Bolded items are Categories in the Account and Settings page.

COMPANY:

· Owner Name: Kyra Forester

· Email: use your email address

· Telephone: use your phone number

· Company Name: Kyra’s Krafts, LLC

· EIN: - LEAVE BLANK. EIN not received yet

· Company Type: Limited Liability Company (Form 1065)

Panama City Beach, FL 32413

· Tax form: 1065

· She will not be using track classes or track locations.

SALES:

· Kyra’s terms are Net 30 unless otherwise stated

· She does offer shipping, which she charges for

· She does offer occasional discounts

· She does commission work and takes 50% upfront deposits for all commission work.

· She tracks quantity and price/rate.

EXPENSES:

· She wants to use purchase orders, so make sure you check the box. All other default settings are fine.

PAYMENTS:

· This setting is used to allow clients to pay an invoice through their system, right on the invoice. Although Kyra is possibly be interested in this in the future, she has no current interest.

ADVANCED:

· She is a calendar year tax payer. She received her LLC paperwork but hasn’t received her EIN yet. (First month of fiscal year stays January).

· Accounting method she will be using is Cash.

· Tax form: 1065

· She does not want to use account numbers and she will not be using track classes nor track locations.

NOTE: Sales Tax must be set up in the “TAXES” area in QBO. Proceed with this section carefully. QBO is very user friendly for the most part; however, there are areas that are hard to fix should you set it up incorrectly and Sales Tax is one of those areas so do not rush here. Read all the way through this appendix, watch the how to videos and then proceed with caution.

Kyra’s new art studio is located in Panama City Beach Florida. She is ONLY required to pay 7% to the State of Florida. The State of Florida is responsible for the disbursement of 1 % of that 7% to Bay County.

The State of Florida requires most taxpayers to file monthly sales tax returns, Kyra falls into this category. April 1st she must start collecting taxes and her first return is due no later than May 20th (QBO knows when it is due) for the reporting period of April 1 – April 30.

Kyra needs to make sure she charges customers and remit sales tax for everything she sells except her group art classes. Those are not taxed because they are for services only.

Address: 94-1278 Front Beach Road, Suite 1703

Panama City Beach, FL 32413

Go to the “TAXES” area and set up sales tax for the state of Florida. If you entered the business address when you were setting up the account, QBO should suggest the correct tax agency(s). If not, it should ask you for an address here. You must select the Florida Department of Revenue from the dropdown list. Again, make sure to select ONLY the Florida Department of Revenue from the dropdown list.  Do NOT select or manually add any other taxing authority.  QBO already has all the information it needs to correctly tax products and it will automatically update taxes should laws change but only if it is set up correctly from the beginning.

The setup of Inventory will be done in the “SALES” area of QBO. Once in SALES, got to the Products and Services tab.

Then click “New” in the upper, right corner. Next click “Inventory”. Fill in the name, category, and

· Fill in the name of the first inventory item.

· Select the category. The first time you will have to add a new category. The categories you will add are: Originals, Prints, Non-inventory item and Unusual Sales.

· The “initial quantity on hand” will be the owner contributed inventory, see table below.

· As of date will be 4/1/2019.

· Do not put any quantity in the “Reorder Point” field for any items.

· The Inventory asset account is “Inventory asset”

· She does not use product codes aka SKU numbers.

· She does want you to put the Sales price in for each item for all items that have a fixed sales price associated with it.

· Also, make sure you associate the correct Income Account with the correct product. i.e. All original artwork should be going to Income account: Art Sales:Original Artwork Sales

· She also wants you to put in the costs price for the prints.

· Remember, all EXCEPT FOR Group Art Project, is taxable so make sure you click the “Is taxable” box. NOTE: Just click the “Is taxable” box. Do not put anything in to the “Sales tax category” nor “What you sell”. These should stay blank.

Kyra primarily sells 3 types of original artwork and prints - large, medium, and small.

Pricing and Cost of Original Artwork:

Pricing:

Standard pricing for Kyra’s original artwork:

Sales of Kyra’s original artwork should set the product Income account to: Art Sales: Original Artwork Sales.

Cost:

She was instructed years ago by her tax accountant that her original artwork inventory should not have a COGS associated with it. Instead she needs to expense all of her art supplies purchases. However, if she buys a painting or has prints in her inventory, the cost of those items should be considered COGS. So although her original artwork inventory will have zero cost associated with it, you will be able to enter the sales price of the inventory she transfers in to the business.

Cost and Pricing of Prints:

She transfers all her print inventory (reproductions of original artwork) to the business April 1st, as follows:

All of the prints in the table above should have the following setting:

1. Income account to: Art Sales: Print Sales

2. Expense account to: Print Expense

In addition to original artwork and prints, Kyra has several non-inventory items that you will need to add.

For all commission work, Kyra requires 50% deposit due at time of order and the remainder due at time of pickup.

* Remember, this is the only non-taxable item.

** She also displays and sells consignment pieces. She gets 25% commission on each piece sold. The consignee sets the price, so Kyra keeps those records on an Excel spreadsheet and won’t put them in QBO until she sells the pieces. In other words, the consignment inventory is not an inventory item but you need to set up a product item to handle the transaction when you do. However, make note of all consignment sales because in order to complete the sales transaction, you will need to make a JE to move 75% of the sale from the P&L to the balance sheet as Consignments Payable.

*** Sales of PP&E will also require a JE to remove the item from the balance sheet and reduce the gain (or increase the loss) on the sale. The transaction is not complete until this JE is made.

To enter all owner contributions you will need to create one or multiple JEs, your choice. You will need to select the correct expense account to debit for the list below and the credit entry will be to: Owner’s Investments. Remember all of the items below were paid by Kyra from her personal accounts. Also remember to put the description of each item in the JEs.

Enter all customers in the “SALES” area and all Vendors in the “EXPENSES” area.

Make sure you pay all bills through the EXPENSES area and receive all invoice payments in the SALES area.

Make sure you pay the sales tax through the TAXES area. If your sales taxes due for the period of April is different than the transaction amount below, there is a problem with your sales tax somewhere along the way.

All receipts that were not invoice payments will require a Sales Receipt. You will create Sales Receipts in the SALES area. All sales can be considered cash. Just make sure the dates are correct and the account the money is deposited to is Kyra’s bank.

Unless Kyra does recurring business with a customer, or it is a special sale, all Sales receipt transactions will be from customer “Customers"

Write checks for all expenses that are not bill payments. However, if there is no check number associated with the transaction, it is a debit card transaction so change the check number to sometimes like EFT, DEBIT or something like that. Just be consistent.

Small purchases, under $500, are usually expensed. Make sure you select the appropriate account for each transaction. You should not have to add any more accounts as you enter these transactions. Think macro instead of micro. For example, paying for a PO Box or making small furniture purchases should be considered an Office Expense.

QBO is sometimes limited in what you can do in a single transaction. This is where JEs will be necessary. Make note of the transactions where JEs will be necessary (hint: sale of fixed assets, sale of consignment artwork). I suggest you make the JEs as you go to complete the transactions; however, you can also take care of all adjusting journal entries after the bank reconciliation during the financial statement review.

*Note, this transaction is instructing you to code an expense item to an income account. However, in the original transaction, the entire sales was added to consignment income. This check is taking out the consignee’s portion of the consignment sale income. The amount that will remain in the Consignment Income account will be Kyr’a 25% of the sale. There are many different ways to properly record the revenue and this is one of them. You could also create a J/E to move 75% of the consignment sale to a payable account at the time of sale and then record the check against that payable. Following these instructions just skips the J/E step but the end result is the same.

Note, make sure the basis for the financial statement is in the correct basis for your comparison. The best practice is to review in both basis to ensure you don’t have errors in the statements.

Other than the accounts listed above, make sure you scan and make sure all balances make sense. For example, the only negative numbers in the financials should be the Owner Distributions and Discounts given.

You may notice a balance in the Opening Balance Equity account (QBO “junk” account). QBO made this entry against the owner contributed inventory when you created the product inventory. If there is a balance, you will need to create a J/E to move the balance from Opening Balance Equity to Owner Contribution. (Debit: Opening Balance Equity DO NOT USE to Credit: Owner Investment)

If your fixed asset account is incorrect, another J/E will be required is to remove the art display PP&E that was sold from the books because it hasn’t been done yet. (Debit: Gain on Sale of PPE and Credit: Art Displays.)