Instruction Pack 4
Bookkeeping
Lesson 16: Computerized Bookkeeping
Lesson 17: Daily Bookkeeping Concepts
Lesson 18: Partnerships, Corporations and Non-profi t Organizations
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© Copyright 2004-2010, Weston Distance Learning, Inc. All Rights Reserved. 0201201LB14B-C0
ACKNOWLEDGMENTS
AUTHORS
Robert James
EDITORIAL STAFFTrish BowenChristine DunlapSara FagerDebbie HelmersElizabeth MunsonLeonard ValoreRobin VaughanKaty LittleBridget TishammerSarah Rohr
DESIGN/LAYOUTConnie HunsaderBrent HausemanSandy Petersen
FOR MORE INFORMATION CONTACT:
U.S. Career InstituteFort Collins, CO1-800-347-7899
www.uscareerinstitute.edu
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Table of Contents
I
LESSON 16—COMPUTERIZED BOOKKEEPING
Step 1 Lesson Preview .......................................................................... 1Step 2 Learning Objectives for Lesson 16 ........................................... 1Step 3 Corporate Bookkeeping Software Applications ....................... 2Step 4 Specialized Bookkeeping Software for Small
Businesses ............................................................................. 2Step 5 Small Business Bookkeeping Software .................................... 3Step 6 Peachtree Premium Bookkeeping Software............................. 4Step 7 Practice Exercise 16-1 ............................................................. 12Step 8 Review Practice Exercise 16-1 ................................................ 13Step 9 Personal Financial Software Programs ................................. 14Step 10 Spreadsheets and Their Applications .................................... 14Step 11 Practice Exercise 16-2 ............................................................. 15Step 12 Review Practice Exercise 16-2 ................................................ 16Step 13 Spreadsheet Building Basics .................................................. 16Step 14 Practice Exercise 16-3 ............................................................. 19Step 15 Review Practice Exercise 16-3 ................................................ 19Step 16 Lesson Summary ..................................................................... 19Step 17 Mail-in Quiz 16 ........................................................................ 20
LESSON 17—DAILY BOOKKEEPING CONCEPTS
Step 1 Lesson Preview .......................................................................... 1Step 2 Learning Objectives for Lesson 17 ........................................... 1Step 3 Terms You Will Need to Know ................................................. 2Step 4 Daily Cash and Accounts .......................................................... 2Step 5 Cash Receipts Portion of the Summary ................................... 4
Cash Sales ................................................................................. 4Collections on Account .............................................................. 5Refunds ...................................................................................... 5
CONTENTS
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Step 6 Cash On Hand Section Of The Summary ................................ 6Step 7 Petty Cash and Change Bank ................................................... 6Step 8 Cash Short and Cash Over ....................................................... 7Step 9 Total Sales ................................................................................. 8Step 10 Practice Exercise 17-1 ............................................................. 10Step 11 Review Practice Exercise 17-1 ................................................ 12Step 12 Handling the Petty Cash/Change Bank ................................. 13
The Amount in the Petty Cash/Change Bank ....................... 13Petty Cash Slips (Vouchers) ................................................... 14
Step 13 Journalizing Petty Cash Slips and Cash Over/Short ............................................................................. 15
Step 14 Lesson Summary ..................................................................... 19Step 15 Mail-in Quiz 17 ........................................................................ 19
LESSON 18—PARTNERSHIPS, CORPORATIONS, AND NON-PROFIT ORGANIZATIONS
Step 1 Lesson Preview .......................................................................... 1Step 2 Learning Objectives for Lesson 18 ........................................... 2Step 3 Terms You Will Need to Know ................................................. 2Step 4 Partnerships .............................................................................. 3
Co-Ownership ............................................................................ 3Step 5 A Partner’s Interest ................................................................... 4
Transferring Interest ................................................................ 4Goodwill ..................................................................................... 5Capital accounts ........................................................................ 6Additional Investment .............................................................. 8Drawing Accounts ..................................................................... 9The Worksheet and Financial Statements .............................. 9Figuring Division of Income or Loss ........................................ 9Preparing a Distribution of Net Income Statement .............. 10
Step 6 Practice Exercise 18-1 ............................................................. 12Step 7 Review Practice Exercise 18-1 ................................................ 14Step 8 The Capital Statement ............................................................ 14Step 9 Preparing Partnership Balance Sheets .................................. 16Step 10 Closing Accounts in a Partnership ......................................... 17
Closing the Drawing Accounts ............................................... 19
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Step 11 Corporations ............................................................................ 20Stocks, Dividends and Stockholders ..................................... 21Dividends ................................................................................. 21Common Stock ......................................................................... 21Preferred Stock ........................................................................ 22Par Value and Retained Earnings ......................................... 23
Step 12 Practice Exercise 18-2 ............................................................. 23Step 13 Review Practice Exercise 18-2 ................................................ 24Step 14 What Is a Non-profi t Organization? ....................................... 24
Non-Profi t Organizations and the Bookkeeper .................... 25Form 990 for Non-profi t Organizations ................................. 25
Step 15 Practice Exercise 18-3 ............................................................. 39Step 16 Review Practice Exercise 18-3 ................................................ 39Step 17 Lesson Summary ..................................................................... 40Step 18 Mail-in Quiz 18 ........................................................................ 40
ANSWER KEY
Practice Exercise 16-1 .............................................................................. 1Practice Exercise 16-2 .............................................................................. 2Practice Exercise 16-3 .............................................................................. 2Practice Exercise 17-1 .............................................................................. 3Practice Exercise 18-1 .............................................................................. 5Practice Exercise 18-2 .............................................................................. 6Practice Exercise 18-3 .............................................................................. 7
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LESSON
16
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ComputerizedBookkeeping
Step 1 Lesson Preview
Now you have a good grasp of the payroll process. You have learned about all of the different government forms relating to payroll. This lesson will introduce you to a variety of bookkeeping software programs, used by the very large corporation to the individual at home.
The day of providing bookkeeping by hand is going the way of the dinosaur. Most businesses, even very small ones, use some form of bookkeeping software. In this lesson we will give you a brief overview of some of these programs.
This lesson also introduces you to spreadsheets. Because of their versatility and ability to manipulate information, businesses use spreadsheets all the time. With a spreadsheet you can compare year-end expenses or create a list of guests for a party. This lesson will introduce you to some applications and to some spreadsheet building basics.
Step 2 Learning Objectives for Lesson 16 After completing the instruction in this lesson, you will have an understanding of:
Large corporate bookkeeping software applications.
Specialized bookkeeping software for small businesses.
Small business bookkeeping software.
Personal fi nancial software programs.
Spreadsheets.
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Step 3 Corporate Bookkeeping Software Applications
Most large corporations, because of their size, will not have a single bookkeeping program they use to maintain all information for their business operations. Instead, different departments will use specialized programs to maintain information. For example, one department will manage the accounts payable, while another will manage accounts receivable, and yet another inventory. Sometimes a corporation will develop its own software programs to manage the special needs of its different departments. In our computer age, corporations hire and maintain large IT (information technology) departments to build and maintain software to meet their specifi c needs. In most cases, this includes building and maintaining bookkeeping software.
Step 4 Specialized Bookkeeping Software for Small Businesses
Many small businesses also have very specifi c bookkeeping needs. Take for example a physician’s offi ce. You wouldn’t think of a physician’s offi ce as a business, but it is. The physician provides a service and expects to be paid, or reimbursed, for that service. To be reimbursed, the medical offi ce usually has to bill a medical insurance company. This makes the billing process of a medical offi ce very different from the billing process of, say, a fl oral shop. To accommodate this very specifi c bookkeeping need, software programmers have developed medical billing software.
Many other specialty bookkeeping programs have been created over the years to meet the special needs of small businesses. These businesses have bookkeeping practices that are different from the services that a standard bookkeeping program provides. To meet this need, a variety of specialty bookkeeping programs exist.
Most small businesses, however, have pretty basic bookkeeping needs that can be met by a good general bookkeeping program. In the next step you will be introduced to this type of bookkeeping software.
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Step 5 Small Business Bookkeeping Software
There are many companies who have developed bookkeeping software programs to meet the needs of small businesses. These programs range in abilities and price.
Previously, software programs that covered all of your bookkeeping needs were very expensive. Now you will fi nd even basic programs have become more sophisticated in the types of bookkeeping they can provide. Two such small business programs that are widely used are Peachtree and QuickBooks Pro. For more information on these programs you may visit their websites at www.peachtree.com and www.quickbooks.com.
Most small business software programs function similarly. You start by entering your business information, name, address, tax ID numbers, etc. Then you will setup the type of assets, liabilities and expense accounts that apply to the business you are providing bookkeeping for. For example a gas station will have a different set of accounts than a pet store.
If the business has an accounts receivable, an account for each customer will need to be setup, including names, addresses and phone numbers. If the business has creditors, you would need to enter an account into the accounts payable for each creditor. To maintain the business’s payroll, you will need to complete a roster for every employee, including each employee’s name, address, phone number, and withholding information.
If the business sells merchandise, you would need to enter into the computer all of the items being sold, their current number and their value.
Setting up a business in a computer may seem like a lot of work; however, once you enter the initial information the actual maintenance of the business’s accounts is pretty easy. To enter transactions into bookkeeping software in most cases does not require entering debits and credits. Instead entries are made to a checkbook represented in the software. As you write checks for various expenses, creditors and liabilities, the appropriate accounts are debited and credited automatically. As cash is received and entered into the check stub, again the appropriate accounts are debited and credited.
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After you enter an entire accounting cycle into the program, you can access a reports utility to produce a balance sheet, an operating statement or a capital statement.
Most programs can also provide expense reports, cash fl ow reports, comparisons to previous years and a whole variety of information to help businesses manage themselves.
You can see why bookkeeping software programs have become so popular. They have taken all of the fi guring and hand work out of the bookkeeping process. They have allowed companies to gain more information and better manage business.
Step 6 Peachtree Premium Bookkeeping Software
Now that you have a basic idea of how small business bookkeeping software works, let’s get a little more insight by taking a look at an actual program, Peachtree Premium Accounting. The opening window allows you to choose between opening an existing company, setting up a new company, opening a tutorial, exploration of a sample company, or the conversion of fi les from another program to Peachtree.
The next window will prompt you to enter the company’s information, including the name, address, phone, tax ID number, and internet information.
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Peachtree provides a set of simplifi ed chart of accounts based on the type of company. They can then be modifi ed later to better fi t the needs of the company. The Chart of Accounts window is where this selection is made.
The next window determines the bookkeeping method to be used, accrual or cash. Accrual records income and expenses as they occur, even if cash has not changed hands. The cash method records income and expense only as cash is exchanged.
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The next window designates the bookkeeping period for the company.
After a few more prompts that help you set defaults, you fi nally come to the main menu of Peachtree called Peachtree Today. From Peachtree Today, you may select My Business, the Daily Register, My Resources, Navigation Aids, Preferences, and a Setup Guide. My Business is where all of the main entries are recorded for the company. The Daily Register is a summary of the day’s transactions. My Resources connects you to the web for additional assistance. The Navigation Aid is a reference that helps you to move around within the Peachtree program. Preferences allows you to set up the desired settings for your program. The Setup Guide helps new users with the process of setting up their business.
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Let’s take a closer look at My Business. It has three sections: sales and receipts, purchases and payables, and a general ledger.
If you were to select Sales and Receipts, you would bring up aging information on the company’s accounts receivable. You can also access the ability to set up your accounts from this page.
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If you were to select Payment Received, you will see where all sales are recorded and where the accounts receivable accounts are set up and maintained.
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Purchases and Payables contains aging information on the company’s accounts payable. From this page, you may use a utility called Payment Manager. Payment Manager is a useful tool that helps a company manage its account payable. You can also access the ability to set up your accounts from this selection.
Within this page you are able to make payments, set up your accounts and maintain them. Click on Payment Manager to obtain this utility.
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The last of the three selections is the General Ledger. This page allows you to complete the fi nancial statements for a business. All of the entries made to Sales and Receipts and Purchases and Payables have automatically been posted to their appropriate accounts. This page then pulls the information from the general ledger accounts to provide the desired statements.
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Click on Display and the current Income Statement report will be shown.
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This has been a quick overview of Peachtree Premium Accounting to help introduce you to bookkeeping software. If you would like to take a closer look at this program and its features, you may visit their website at www.peachtree.com.
Step 7 Practice Exercise 16-1
1. Today, corporations hire and maintain large _____ departments.a. IT (information technology)b. TI (technology information)c. IT (internal technology)d. IT (internet technology)
2. Physicians may use _____ software.a. bookkeeping b. reimbursementc. medical billingd. unspecialized
3. Many bookkeeping programs function _____.a. differentlyb. similarlyc. exactly the samed. not at all the same
4. To setup the accounts receivable, you will need to enter an account for each _____.a. creditorb. resale itemc. addressd. customer
5. In most cases, debits and credits are entered _____.a. automaticallyb. by handc. into the checking accountd. on the check stub
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6. The main menu for Peachtree is called _____.a. Peachtree Tomorrow b. Peachtree Yesterdayc. Peachtree Morningd. Peachtree Today
7. The _____ method mean expenses and income are recoded without cash being exchanged.a. cashb. accrualc. bookkeepingd. payment
8. The three main parts to My Business are Sales and Receipts, Purchases and Payables and _____.a. General Journalb. General Accountsc. General Ledgerd. General Receipts
9. The _____ is set up by selecting a type of business.a. chart of accountsb. company informationc. accounting periodd. bookkeeping method
10. The _____ page is where the name, address, phone, tax ID, and internet information is entered.a. Company Informationb. Chart of Accountsc. Bookkeeping Methodd. Accounting Period
Step 8 Review Practice Exercise 16-1
Check your answers with the Answer Key at the back of this book. Correct any mistakes you may have made.
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Step 9 Personal Financial Software Programs
Bookkeeping software is even coming into our homes. There are now programs that will manage your personal checking, your fi nancial investments, your retirement funds and even your taxes.
The programs that manage your personal fi nances work on the same principle as a regular bookkeeping program. You enter in your personal information, accounts are created, and as you write checks, the program automatically calculates a new balance for you.
From the information you enter, you are able to create a variety of expense reports that will help you manage and budget your money more effectively. With a program like this, balancing your checkbook is a matter of marking off the items that have not cleared and then clicking an icon. Along with checking, savings, retirement and investment accounts can be managed as well.
Tax preparation software is also widely available. These programs start by having you enter your basic tax information, name, address, SSN, fi ling status, etc. Then through a series of prompts, the software program encourages the user to enter wages, other income, deductions and withholdings. Once completed, you can send the tax form electronically or print and mail it.
Bookkeeping software is making our lives much easier. In the next step, we’ll cover the last of the bookkeeping software applications, the spreadsheet.
Step 10 Spreadsheets and Their Applications
Although spreadsheets are not a bookkeeping program, they are important to businesses because of their ability to manipulate numbers. Spreadsheets can be used to calculate an inventory, compare expenses, calculate increased profi t, sort information and do just about any mathematical application you can think of.
In previous lessons, you worked with a Daily Cash and Sales Summary. If you were a small business and did not want to complete this sheet by hand, a spreadsheet could be created to calculate the fi gures for you. In the payroll lesson, you completed a Payroll Register, another good application for a spreadsheet. Businesses also use spreadsheets to compare information. For example, with a spreadsheet a business could compare this year’s expenses to a previous year’s expenses.
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Step 11 Practice Exercise 16-2
Choose the best answer for each question.
1. Personal fi nancial software will _____.a. balance your checkbookb. manage your retirement accountc. track your expensesd. all of the above
2. A spreadsheet is important to businesses because of its ability to _____ numbers.a. manipulateb. utilizec. fi gured. register
3. A spreadsheet can _____ this year’s expenses with last year’s expenses.a. sortb. examinec. compared. arrange
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4. A _____ can be used to create a payroll register.a. checkbookb. daily cash and sales summaryc. spreadsheetd. bookkeeping software program
5. A _____ can be used to calculate an inventory.a. checkbookb. daily cash and sales summaryc. spreadsheetd. bookkeeping software program
Step 12 Review Practice Exercise 16-2
Check your answers with the Answer Key at the back of this book. Correct any mistakes you may have made.
You can see why a spreadsheet is a useful tool. In the next step, you’ll learn some basics about building a spreadsheet.
Step 13 Spreadsheet Building Basics
First let’s take a look at the different components that make-up a spreadsheet. A spreadsheet is made up of rows and columns. Rows run horizontally, and columns run vertically. As a row and a column intersect they create what’s called a cell. Rows are labeled by number, and columns are labeled by letter. Cells have locations that are determined by the row number and column letter. A cell in column B, row 15, for example, would be located at B15.
To move around a spreadsheet you may use your mouse and click on the desired cell, or you may use your up, down, right and left arrows to move you one cell up, down, right or left. The cell you are currently in will be highlighted.
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You can place any kind of information into a spreadsheet. The information can be a numeral, a date, time, currency or text. Information can be sorted by value, or alphabetically. So if you wanted to create a list of people to invite to a party, the names could be sorted alphabetically and the information that you would be entering would be text. If you were creating a spreadsheet to keep track of your personal expenses, the amounts would be sorted by value, and the information would be currency.
As mentioned earlier one of the main functions of a spreadsheet is to manipulate numbers. To accomplish this task, formulas can be created. These formulas can be used to add up a column, to add a row, to subtract or add a row from a previous row. You name the desired outcome and a formula can be created to provide that outcome. Say, for example, you need to know the total of column B, and the numbers in this column end at row 54. You would click on cell B55, because this is the cell location for your total, and then you would type a formula. Hit the enter button and you have the total for the column.
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To create a formula, you need to familiarize yourself with the following symbols:
= This symbol tells the computer you are creating a formula
+ addition
subtraction
* multiplication
/ division
sum adds a group of numbers
( ) use to surround a cell group
: through
This is not a complete list, but it is enough to get you started. To enter a formula, start by selecting the cell you wish to create a formula in. Every formula starts with an equals sign, so type an equals sign. Next, determine the outcome of your formula. For example, do you want to add? Do you want to subtract? Which cells do you want to include? If you are adding cell A1 and A2, your formula would look like =A1+A2. If you are subtracting cell B3 from B2, your formula would look like =B2B3.
In some cases, you will want to add a group of cells. For this formula you would use the word sum to communicate to the computer that a group of cells are being added, and the parentheses to communicate which group of cells are being added. In our example above, our formula for adding column B would look like = sum(B1:B54). The colon indicates B1 through B54 are to be added.
If you get a chance, open up a spreadsheet program and try some of the things you have learned here. Have fun!
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Step 14 Practice Exercise 16-3
Match the symbol with its meaning.
1. _____ sum a. This symbol tells the computer you are | creating a formula
2. _____ * b. addition
3. _____ / c. subtraction
4. _____ : d. multiplication
5. _____ + e. division
6. _____ - f. adds a group of numbers
7. _____ = g. use to surround a cell group
8. _____ ( ) h. through
Step 15 Review Practice Exercise 16-3
Check your answers with the Answer Key at the back of this book. Correct any mistakes you may have made.
Step 16 Lesson Summary
In this lesson you were introduced to the world of software and its role in the bookkeeping process. It is used by all levels of business as well as by individuals to help manage their fi nances. You now have a basic idea of how small business bookkeeping software functions. You have also learned how spreadsheets can be used to manipulate fi gures, and some of the basic operations of a spreadsheet. As a professional bookkeeper you may choose to use some of these software tools to assist you in your profession.
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Step 17 Mail-in Quiz 16
Follow the steps to complete the quiz.
a. Be sure you’ve mastered the instruction and the Practice Exercises that this quiz covers.
b. Mark your answers on your quiz. Remember to check your answers with the lesson content.
c. When you’ve fi nished, transfer your answers to the Scanner Answer Sheet included. Use only blue or black ink on your Scanner Answer Sheet.
d. Important! Please fi ll in all information requested on your Scanner Answer Sheet or when submitting your quiz online.
e. Submit your answers to the school via mail, e-mail,fax or, to receive your grade immediately, submit your answers online at www.uscareerinstitute.edu.
1. A formula starts by entering a/an _____.a. equals signb. colonc. multiplication symbold. parenthesis
2. Large corporations _____ have an overall bookkeeping program they use.a. willb. will notc. work hardd. never
3. Spreadsheets can be used to _____.a. calculate inventoryb. compare expensesc. create guest listsd. all of the above
4. IT stands for _____.a. information terminologyb. internal technologyc. information technologyd. internet technology
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5. Medical billing software might be used by _____.a. physician’s offi cesb. patientsc. insurance companiesd. nurses
6. If a column of numbers is being added, which of the following would need to be included in the formula? _____a. avgb. * c. +d. sum
7. Specialty bookkeeping programs have been developed _____.a. to provide services for businesses where standard bookkeeping
software will not workb. to provide software programmers with bookkeeping softwarec. to help physician’s offi ces bill for their servicesd. both a and c
8. When entering accounts payable information into bookkeeping software, an account will need to be set up for each _____.a. customerb. item purchasedc. creditord. address
9. When writing a check with personal bookkeeping software, the new balance is fi gured _____.a. automaticallyb. by handb. incorrectlyd. by calculations
10. Personal account software can manage _____ accounts.a. savingsb. investmentc. retirementd. all of the above
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11. The formula for adding column C, rows 21 through 29 would be _____.a. =sum(C21:C29)b. sum(C21:29)c. =C21+C29d. sumC21+C29
12. What kind of information can be placed into a spreadsheet? _____a. numeralsb. datesc. textd. all of the above
13. Bookkeeping software programs start by having you enter _____.a. accounts receivable and payable informationb. your personal business informationc. the accounts you wish to used. inventory
14. The next step in setting up a bookkeeping software program is _____.a. to assign assets, liabilities and expense accountsb. inventoryc. your personal business informationd. accounts receivable and payable information
15. The correct formula for adding rows 1 and 2 in column D would be _____.a. =1D+2Db. 1D+2Dc. D1+D2d. =D1+D2
16. Tax forms can be sent either _____ or by mail.a. UPSb. electronicallyc. next day aird. none of the above
17. Information is entered into a tax preparation program through a series of _____.a. data portsb. databasesc. promptsd. spreadsheets
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18. What types of information are entered into tax preparation software? _____a. name and addressb. SSN and fi ling statusc. wages and withholdingsd. all of the above
19. The colon in a formula means what? _____a. addb. subtractc. throughd. divide
20. Rows run _____, columns run _____, and where they intersect are called _____.a. vertically, horizontally, cellsb. up and down, left and right, cellsc. horizontally, vertically, cellsd. horizontally, left and right, cells
21. The _____ method accounts for expenses and income as money is exchanged.a. cashb. accrualc. bookkeepingd. payment
22. Which of the following is not a selection on Peachtree Today? _____a. My Businessb. Daily Registerc. Accounts Receivabled. Navigation aids
23. Aging of payables for the business can be view from which page in Peachtree? _____a. sales and receiptsb. purchases and payablesc. general ledgerd. preferences
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24. The _____ page is where sales are recorded and accounts receivable accounts are set up and maintained.a. purchases and payablesb. general ledgerc. preferencesd. payment received
25. A/An _____ can be accessed from the general ledger page.a. income statementb. check bookc. accounts receivable customerd. accounts payable customer
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Don’t wait for your quiz results tocontinue with Lesson 17.
CongratulationsYou’ve completed Lesson 16.
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LESSON
17
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Daily BookkeepingConcepts
Step 1 Lesson Preview
Up until now, we have discussed bookkeeping procedures as they apply to “specifi c accounting periods.” These accounting periods are usually months, quarters or years. There are, however, many businesses that must have some bookkeeping done every day. These daily bookkeeping procedures enable business owners, especially those in retail sales and service businesses, to keep a running tab on how their business is doing. You may be asked to prepare a daily summary of receipts for such an owner. This lesson will show you how to prepare that document. In addition, you will learn how to handle petty cash and change accounts, as well as cash receipts and sales. These items all work together to prepare the daily summary.
Step 2 Learning Objectives for Lesson 17 After completing instruction for this lesson, you will be able to:
Work with the different daily accounts and receipts.
Explain the difference between petty cash and change accounts.
Prepare a daily summary of receipts.
Journalize the daily summary.
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Step 3 Terms You Will Need to Know
Here are the bookkeeping terms you will learn about in this lesson:
cash on hand cash over
cash receipts cash short
change bank collections on account
petty cash fund total
Step 4 Daily Cash and Accounts
You’ve probably had the experience of going into a store just minutes before closing to make a last minute purchase. You may have found that the clerk is busy with the end-of-the-day procedure—counting the cash in the register and recording and fi ling credit slips.
Keeping track of the daily cash and accounts is often the responsibility of the professonal bookkeeper. This section will show you how to organize those receipts into a summary called the daily cash and sales summary.
You may wonder why a daily summary is so important. It is important for three reasons:
1. It reconciles the daily sales with the amount of money brought in.
2. It keeps employees honest—an employee who knows his or her cash drawer will be reconciled at the end of the day will be careful to handle each sale accurately.
3. It provides an easy-to-read source of information for journalizing the day’s transactions.
Let’s look at a sample daily cash and sales summary.
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Lesson 17—Daily Bookkeeping Concepts
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Daily Cash and Sales Summary
Date: November 11, 20XX
Cash Receipts1. Cash Sales $_____________2. Collections on Account _____________3. Minus Refunds _____________ TOTAL RECEIPTS _____________
Cash on Hand4. Cash in Register $_____________5. Coins in Register _____________6. Checks in Register _____________7. Credit Card Receipts in Register _____________ TOTAL CASH FROM REGISTER $_____________
8. Petty Cash/Change Fund _____________9. Less Petty Cash Slips _____________
10. Total Petty Cash/Change Fund _____________ TOTAL CASH on HAND $_____________
If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $_____________
If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $_____________
TOTAL SALES13. Cash Sales $_____________14. Sales made On Account Total _____________15. TOTAL SALES $_____________
Form Prepared By: _________________________
Let’s go through the form line by line to understand how it is fi lled out. First, we will discuss the cash receipts portion of the summary.
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Step 5 Cash Receipts Portion of the Summary
The cash receipts portion of the summary is where you list the total amount of money collected during the business day. The fi rst line in this section is for listing the total amount of cash sales.
Cash Sales
The most common type of receipt for a cash sale is the paper receipt from a cash register. In many stores, the cash register tape records not only the exact item sold and its price, but also the time and date of the sale. Most cash registers keep a running total of everything rung up each day. At the end of the day, you can fi nd the total amount of cash sales by pressing the correct button on the register. It will print out totals for items sold, cash refunds made and sales tax collected. Some smaller businesses may have a manual cash register or perhaps just a calculator. These businesses often issue handwritten receipts and keep carbon copies.
Whatever the method of recording the cash sales, the total must be calculated and entered on line 1 of the daily cash and sales summary at the end of each business day.
Cash sales (remember, cash sales include sales made with cash, checks or credit cards) are not the only transactions that require a receipt. Payments on accounts receivable must also be recorded.
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Collections on Account
Line 2 of the daily cash and sales summary is for listing the amount of money collected on account. As discussed in the lesson on accounts receivable, some businesses extend credit to individuals and other businesses. Periodically, these customers who charge items from the shop will make payments on their accounts. They might pay by mail or they might come in and drop off a payment. Either way, any payment received must be accounted for on that day’s daily cash and sales summary as collections on account. To fi nd this fi gure, simply total all the payments made on account for the day. In this case, you are not worried about who paid for which accounts. That will be listed in the accounts receivable ledgers. Here, you are looking simply for the total payments received for the day. Add up the receipts for these transactions and enter the amount on the appropriate line on the summary.
Refunds
The third item in the cash receipts section concerns refunds given during the day. If a customer buys an item and later returns it for a refund, the business deducts the amount of the refund from the cash receipts total. This is because when the customer returns the item, he is essentially unwinding the transaction—it’s as if the transaction never took place.
When a refund is issued, the business should fi ll out a credit slip (or ring up the refund on the cash register). Enter the total of all these refund receipts in the appropriate space on the daily summary.
Note: Do not include refunds made to accounts receivable accounts in this total. This section only concerns cash refunds.
Now we have covered the cash receipts section of the daily summary. Let’s go on to the cash on hand section.
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Step 6 Cash on Hand Section of the Summary
Cash on hand is the amount of money currently in the cash register, money drawer, safe or other storage area. This total includes all the cash and coins in the register, plus the total of the checks and credit card slips. The summary sheet has a space to enter each of these totals. The term “cash” on line 4 refers to the currency (paper money); “coins” refers to the change, such as quarters, dimes, nickels and pennies; “checks” refers to customers’ personal checks and money orders; “credit card receipts” refers to the total amount of credit card charge slips.
Simply total up all the items listed to calculate the total cash on hand. The next part of this section deals with petty cash and the change bank.
Step 7 Petty Cash and Change Bank
Most businesses have a standard change bank amount that is in the register each morning. This change bank is used for making change for customers during the day. Additionally, the business may have a certain amount of money designated for a petty cash fund. The petty cash fund is used by the business for incidental expenses during the day.
First, fi nd out what the standard amounts for each of these are and enter the total amount on line 8 of the daily cash and sales summary. For example, the business may have $300 for the change bank and $200 for petty cash. You would then write $500 on line 8.
As mentioned above, the petty cash fund is used by the business to buy incidental items throughout the day. We will discuss the handling of petty cash in detail later in this lesson, but for now, let’s say that the business owner discovers she is out of staples for the stapler. She has ordered a large quantity from the local offi ce supply store, but the order won’t be delivered until tomorrow. The business owner decides to use $2 from petty cash to buy enough staples to get through the day. She takes $2 out of the cash register and fi lls out a petty cash slip to indicate how much she took out.
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Lesson 17—Daily Bookkeeping Concepts
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At the end of the day, the total of the petty cash slips is entered on line 9 of the daily cash and sales summary.
Now deduct the amount of petty cash slips from the total petty cash/change fund amount you listed on line 8. Enter the result on line 10.
Now you deduct the amount on line 10 from the total cash from register amount. This gives you the total daily cash on hand. This amount should be the same as your total receipts in the cash receipts portion of the summary.
Total daily cash sales = Total receipts in cash receipts
Step 8 Cash Short and Cash Over
Sometimes when you compare your total daily cash on hand with your total receipts, you will fi nd the two numbers are different.
If the total daily cash on hand is greater than the total receipts, you have more money in the cash register or money drawer than you should (according to your receipts). This excess is called cash over.
If, on the other hand, your total daily cash on hand fi gure is less than the total receipts, you have less money in the cash register or money drawer than you should (according to your receipts). This shortfall is called cash short.
SOLDSOLD
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If you are over or short, the fi rst step is to look for an error in one of four areas:
1. The fi gures in the summary added incorrectly.
2. A sale entered in the register incorrectly (check the cash register tape).
3. Petty cash slips fi lled out or added incorrectly.
4. Accounts receivable slips omitted or added incorrectly.
Another possible reason for a difference in these two amounts is that the clerk gave someone the wrong amount of change. This is diffi cult to discover.
If after checking each of the items mentioned in the four steps above you are still over or short, enter the amount of the difference in the appropriate spot on the daily cash and sales summary.
The fi nal section of the daily cash and sales summary concerns total sales, regardless of whether they were cash or on account.
Step 9 Total Sales
Total sales is the combination of cash sales and sales made on account. To fi nd the total sales for a business, take the cash sales and add to it any sales made on account. This allows you to see how many sales were made during the day. The sales made on account are usually recorded with some type of invoice or sales slip. Some cash registers will make a notation.
The reason the sales made on account are added in last is that these transactions do not affect your cash on hand. It is an important fi gure, however, and must be accounted for.
After you have fi gured total sales, the daily cash and sales summary is complete. Look at this sample of the completed daily cash and sales summary for Jim’s Motorcycle Parts.
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Daily Cash and Sales SummaryJim’s Motorcycle Parts
Date: November 14, 20XX
Cash Receipts1. Cash Sales $496.752. Collections on Account 21.003. Minus Refunds 10.00 TOTAL RECEIPTS $507.75
Cash on Hand4. Cash in Register $486.005. Coins in Register 19.456. Checks in Register 51.317. Credit Card Receipts in Register 48.99 TOTAL CASH FROM REGISTER $605.75
8. Petty Cash/Change Fund 150.00 9. Less Petty Cash Slips 52.00
10. Total Petty Cash/Change Fund 98.00 TOTAL CASH on HAND $507.75
If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $-0-
If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $-0-
TOTAL SALES13. Cash Sales $496.7514. Sales made On Account Total 122.5415. TOTAL SALES $619.29
Form Prepared By: John Doe
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Step 10 Practice Exercise 17-1
Choose the best answer for each question.
1. Which of the following is classifi ed as a cash sale? _____a. When a customer uses a credit card to pay for a purchase.b. When a customer buys something on account.c. When a customer uses cash to pay for a purchase.d. Both a and c
2. The total of all cash, checks and credit card slips in the cash register is called _____.a. cash on handb. cash salesc. collections on accountd. refunds
3. When your daily cash on hand is less than the total receipts, you have a situation of _____.a. cash overb. cash shortc. cash underd. cash overextended
4. _____ is cash sales and sales made on account added together.a. Total salesb. Cash salesc. Cash underd. Cash receipts
5. Why are sales made on account the last items on the daily cash summary? ______a. These sales affect cash on hand.b. These sales do not affect cash on hand.c. These sales are considered fi rst on the daily cash summary.d. None of the above
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Now, use the following information to complete a daily cash and sales summary for Joan’s Gems.
At the end of business on December 22, 20XX, Joan’s Gems has the following:
Cash receipts —$3,255.65 Cash sales 288.00 Collections on account 155.00 Refunds
Cash on Hand — $3,299.00 Cash in registers 54.97 Coins in register 75.68 Checks 215.00 Credit card receipts
The business keeps a petty cash/change bank of $500.00 each day. There is a total of $245 in petty cash slips.
The business had $565.98 in sales made on account.
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Daily Cash and Sales SummaryJoan’s Gems
___________________________
Cash Receipts1. Cash Sales $_____________2. Collections on Account _____________3. Minus Refunds _____________ TOTAL RECEIPTS _____________
Cash on Hand4. Cash in Register $_____________5. Coins in Register _____________6. Checks in Register _____________7. Credit Card Receipts in Register _____________ TOTAL CASH FROM REGISTER $_____________
8. Petty Cash/Change Fund _____________9. Less Petty Cash Slips _____________
10. Total Petty Cash/Change Fund _____________ TOTAL CASH on HAND $_____________
If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $_____________
If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $_____________
TOTAL SALES13. Cash Sales $_____________14. Sales made On Account Total _____________15. TOTAL SALES $_____________
Form Prepared By: _________________________
Step 11 Review Practice Exercise 17-1
Check your answers with the Answer Key at the back of this book. Correct any mistakes you have made.
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Step 12 Handling the Petty Cash/Change Bank
Since the petty cash/change bank is an important part of what goes on during the business day, let’s cover this in a little more detail. When it comes to the petty cash/change bank, it is important to remember three things:
1. The petty cash/change bank must begin each day with the same amount of money in it.
2. Whenever money is removed from petty cash, it must be accounted for with a petty cash slip (also called a petty cash voucher).
3. When change is made from the change bank, that money must be replaced. In other words, clerks should “buy” change from the change bank—put in a $10 bill and remove two $5 bills, for example.
At the end of the day, the petty cash slips are used to journalize the money that went out from petty cash. Then the amount taken out is repaid by issuing a check to the person in charge of the petty cash fund so that the next day’s petty cash/change fund starts at the standard amount.
The Amount in the Petty Cash/Change Bank
As we mentioned earlier, when a business opens each day, there will be a set amount of money that goes into the cash registers for making change and for making petty cash purchases. This money is known as the petty cash/change bank. Sometimes businesses have their petty cash in a separate place of its own—a box in the manager’s offi ce, for example. Smaller businesses usually use the change bank as petty cash—if the business needs something and pays for it from petty cash, the clerk writes up a petty cash slip and takes the money from the register. In larger businesses, there is someone in charge of petty cash and change. If a clerk needs change, he must go to this person and “buy” it—putting in a $20 bill and getting back the change (a $10 and two $5 bills for example). In any case, at the end of the day, the petty cash/change bank must be brought back to its original amount.
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It is important that the petty cash/change bank remains at a set amount. This makes it much easier to fi gure total cash on hand. By being able to subtract out the money you started the day with (the petty cash/change bank), you are able to fi gure how much money was taken in. For example, if you end the day with $600 in the register, and you know the petty cash/change bank is $100 every day, you are able to fi gure the total cash on hand as $500. Imagine if the petty cash/change bank was different each day. If you assumed it was $100, but today it was only $67, what would that do to your total cash on hand fi gures?
Another important part of managing the petty cash/change bank is keeping track of the amount of money that went out of the petty cash account during the day.
Petty Cash Slips (Vouchers)
Imagine this scenario: At the T-Shirt Shoppe, the clerks are running around helping customers. A shipping company brings in a package that is C.O.D.—Collect on Delivery. This package requires the business to pay $5.75 for the part that is inside. Since the company that sent the part does not accept checks for C.O.D. payments, the clerk walks over to a stack of forms behind the cash register. She selects a petty cash slip and fi lls it out with the date, the amount and description of the transaction. Then she gets a receipt from the shipping company and staples that receipt to the petty cash slip. She puts the petty cash slip with the receipt attached in the cash register, takes out $5.75 and pays the delivery person.
By fi lling out the petty cash slip and attaching the receipt for the expenditure, the clerk has accounted for a payout of $5.75 from the petty cash bank. It sounds simple, and it is. As long as every petty cash expenditure is treated in this manner, your job as a bookkeeper is that much easier. A petty cash slip (or voucher) may look something like this:
PETTY CASH SLIPDate: __________________ Amount: $ ___________________Description of Expense: _________________________________(attach receipt here)Approved by __________________________________________Paid out by ____________________________________________
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After you have prepared the daily cash and sales summary, you will need to journalize the petty cash transactions and the cash over/cash short amount, if any.
Step 13 Journalizing Petty Cash Slips and Cash Over/Short
Remember, petty cash is cash used for the business. As it is paid out, it must be accounted for, just like every other business transaction.
When you journalize petty cash slips, fi rst determine what accounts the expenditure affects. This information should come from the description section of the slip. After you have determined what account the expenditure applies to, you then enter that transaction into the journal. This can be done in one of two ways:
1. Petty cash as an account itself
2. Petty cash as part of the cash account
If you have a system where there is a petty cash account, then you journalize the slips like this:
Date Description P/R Dr CrSupplies 5 75 Petty Cash 5 75
General Journal
Enter each slip individually, and pay close attention to the account each one affects.
You then repay your petty cash account by taking money from the cash account and putting it into the petty cash account. If you have a total of $75 in petty cash expenditures and the account normally has $150 in it, you need to repay the difference so the account stays at $150.
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The journal entries for a petty cash purchase of $5.75 for offi ce supplies would look like this:
Date Description P/R Dr CrOffi ce Supplies 5 75 Petty Cash 5 75Petty Cash 5 75 Cash 5 75
General Journal
The second technique used for petty cash is a little simpler than the one shown above. By classifying petty cash as part of the cash account, it eliminates the need to “reimburse” the petty cash account from cash. But it also eliminates the extra accuracy check that reimbursement gives you. To journalize the same $5.75 expense shown above in a system where petty cash is part of cash, you simply enter this:
Date Description P/R Dr CrOffi ce Supplies 5 75 Cash 5 75
General Journal
Businesses that use petty cash extensively might create a petty cash journal. This is a specialized journal in which you enter all petty cash transactions for an accounting period. From this journal, you post information to the proper ledgers at the end of each month.
Another item that must be journalized is the amount of cash over or cash short shown on the summary. Because the shortage or excess occurs in the cash dealings, you handle cash over and cash short as part of petty cash.
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Lesson 17—Daily Bookkeeping Concepts
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To enter a $1 cash short situation in the petty cash account, you would journalize it like this:
Date Description P/R Dr CrOffi ce Supplies 5 75 Over/Short 1 00 Petty Cash 6 75
General Journal
Then, a check for $6.75 is written to reimburse petty cash and journalized this way:
Date Description P/R Dr CrPetty Cash 6 75 Cash 6 75
General Journal
In the case of a business without a separate petty cash account, the entire process would be journalized in one step:
Date Description P/R Dr CrOffi ce Supply 5 75Over/Short 1 00 Cash 6 75
General Journal
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Now, in the case of a cash over entry, you would make the same entries, except you would change the entry on the over/short line to a credit. To fi nd the total for cash reimbursement, you subtract the over amount from the expense. For example, in the case of a $5.75 offi ce supply expense and a $1 cash over situation, your journal entry would look like this:
Date Description P/R Dr CrOffi ce Supply 5 75Over/Short 1 00 Cash 4 75
General Journal
If there is a separate petty cash account, the entry would look like this:
Date Description P/R Dr CrOffi ce Supply 5 75Over/Short 1 00 Cash 4 75
General Journal
and when the check is written to reimburse petty cash:
Date Description P/R Dr CrPetty Cash 4 75 Cash 4 75
General Journal
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The total of $4.75 refl ects the additional $1 in the petty cash as a result of the cash over situation. Because there is $1 additional in the account, the reimbursement is $1 less.
Step 14 Lesson Summary
Bookkeeping is not just about monthly statements and annual documents. There are many bookkeeping functions that are performed on a daily basis. The daily cash and sales summary illustrates these functions. Many businesses use petty cash and change banks along with the daily cash receipts to fi gure day-to-day earnings in the business.
Step 15 Mail-in Quiz 17
Follow the steps to complete the quiz.
a. Be sure you’ve mastered the instruction and the Practice Exercises that this quiz covers.
b. Mark your answers on your quiz. Remember to check your answers with the lesson content.
c. When you’ve fi nished, transfer your answers to the Scanner Answer Sheet included. Use only blue or black ink on your Scanner Answer Sheet.
d. Important! Please fi ll in all information requested on your Scanner Answer Sheet or when submitting your quiz online.
e. Submit your answers to the school via mail, e-mail,fax or, to receive your grade immediately, submit your answers online at www.uscareerinstitute.edu.
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Part I—Choose the best answer for each question.
1. The daily cash and sales summary is prepared _____.a. by each manager in the businessb. at the end of each business dayc. every monthd. annually
2. Which items may appear on a cash register tape? _____a. The date of the saleb. The time of the salec. The item soldd. All of the above
3. When a customer uses a credit card to make a purchase, that sale is classifi ed _____.a. at the end of the weekb. as a cash salec. as a purchase made on accountd. as a credit sale
4. The document that summarizes daily transactions for a business is called the _____.a. daily cash and sales summaryb. daily income statementc. daily bookkeeping summary listd. weekly cash and daily sales summary
5. Which of these is important to remember about petty cash? _____a. The petty cash/change bank must begin each day with the same
amount of money in it.b. Every business will use petty cash for large purchases.c. Whenever money is removed from petty cash, it must be accounted for
with a petty cash slip (also called a petty cash voucher).d. Both a and c are correct.
6. The form a person fi lls out to remove money from petty cash is called a/n _____.a. petty cash slipb. petty cash write-offc. invoiced. receipt
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7. What is not contained on a petty cash slip? _____a. The dateb. The amount of money taken out of petty cashc. The total cash remaining in petty cashd. The name of the person paying out the money
Part II —Use the following information to complete the Daily Cash and Sales Summary on the next page for Runaway Junkets Retail Shop.
On January 15, 20XX, Runaway Junkets closed at the end of the day. At that time, the business sales fi nances looked like this:
Total cash (bills) in register: $690.00
Coins in register: $30.00
Refunds issued: $51.64
Cash sale receipts: $1,952.00
Credit card receipts: $220.00
Checks in register: $1,115.36
Collections on account: $21.00
Petty cash slips: $165.00
Sales on account: $435.86
The business begins each day with $300 in its petty cash/change fund.
Complete the daily cash and sales summary for January 15, 20XX for Runaway Junkets. Then answer questions 8 through 25. Remember to transfer your answers for items 1-25 to the Answer Sheet.
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Daily Cash and Sales SummaryRunaway Junkets
Date: January 15, 20XX
Cash Receipts1. Cash Sales $_____________2. Collections on Account _____________3. Minus Refunds _____________ TOTAL RECEIPTS _____________
Cash on Hand4. Cash in Register $_____________5. Coins in Register _____________6. Checks in Register _____________7. Credit Card Receipts in Register _____________ TOTAL CASH FROM REGISTER $_____________
8. Petty Cash/Change Fund _____________9. Less Petty Cash Slips _____________
10. Total Petty Cash/Change Fund _____________ TOTAL CASH on HAND $_____________
If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $_____________
If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $_____________
TOTAL SALES13. Cash Sales $_____________14. Sales made on Account Total _____________15. TOTAL SALES $_____________
Form Prepared By: _________________________
Answer these questions using your completed daily cash and sales summary for Runaway Junkets:
8. What is the amount listed for cash sales? _____a. $1,115.36b. $855.00c. $1,952.00d. $51.64
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9. What is the amount listed for collections on account? _____a. $21.00b. $51.64c. $435.86d. $135.00
10. What is the amount listed for the minus refunds line? _____a. $51.64b. $51.75c. $30.00d. $1,920.36
11. What is the amount listed for total receipts? _____a. $855b. $1,922.95c. $2,220.36d. $1,921.36
12. What is the amount listed for cash in register? _____a. $900.55b. $220.00c. $1,115.36d. $690.00
13. What is the amount listed for coins in register? _____a. $30.00b. $55.00c. $129.76d. $51.00
14. What is the amount listed for checks in register? _____a. $400.95b. $2,356.22c. $1,115.36d. $4,566.21
15. What is the amount listed for credit card receipts in register? _____a. $2,205.91b. $220.00c. $55.21d. $1,952.00
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16. What is the amount listed for total cash on hand from register? _____a. $2,356.22b. $2,055.36c. $2,230.36d. $2,221.37
17. What is the amount listed for petty cash/change fund? _____a. $300b. $500c. $100d. $165
18. What is the amount listed for less petty cash slips? _____a. $135.00b. $165.00c. $150.00d. $300.00
19. What is the amount listed for total petty cash/change fund? _____a. $135.00b. $165.00c. $195.00d. $500.00
20. What is the amount listed for total cash on hand? _____a. $2,100.75b. $1,977.56c. $1,920.36d. $1,875.22
21. What is the amount listed for cash over? _____a. $1.00b. $100.00c. $50.00d. $0.00
22. What is the amount listed for cash short? _____a. $1.00b. $100.00c. $50.00d. $0.00
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23. What is the amount listed for cash sales in the total sales section? _____a. $2,000.95b. $5,986.22c. $2,356.32d. $1,952.00
24. What is the amount listed for sales made on account total? _____a. $500.00b. $435.86c. $225.86d. $1,922.86
25. What is the amount listed for total sales? _____a. $1,920.36b. $2,387.86c. $567.99d. $2,120.11
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Don’t wait for your quiz results tocontinue with Lesson 18.
CongratulationsYou’ve completed Lesson 17.
LESSON
18
88-880201201LB14B-18-C0
Partnerships,Corporations, andNon-profi t Organizations
Step 1 Lesson Preview
So far in this course, we have covered acccounting from the view of the sole proprietorship; that is, businesses with one owner and a single drawing account. This lesson will move into three more areas of ownership—partnerships, corporations, and non-profi t organizations.
A partnership is defi ned as the association of two or more persons who agree to run a business for profi t. The partners in this agreement enter into the arrangement willingly.
A corporation is a legal entity that divides personal and business fi nances. Corporations are different from partnerships in many ways.
A non-profi t organization works for a public interest with no intent to earn a profi t.
This lesson will cover bookkeeping concepts and procedures from the partnership and non-profi t points of view and will touch briefl y on concepts for corporations. You will learn about the characteristics of a partnership, as well as the equitable division of assets and liabilities between partners. This equitable division follows the instructions of a specifi c partnership agreement. The agreement dictates how to fi ll out the required forms and documents for the partnership.
You will also learn how corporations differ from partnerships—in both liability and asset division.
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Step 2 Learning Objectives for Lesson 18 After completing instruction in this lesson, you will be able to:
Defi ne partnerships and explain the various characteristics of the partnership arrangement.
Account for partners’ shares in assets and liabilities, as well as in drawing accounts.
Defi ne goodwill.
Prepare partnership balance sheets.
Explain the differences between a partnership and corporation.
Explain the characteristics of a non-profi t organization and how it maintains tax-exempt status.
Step 3 Terms You Will Need to Know
Here are the bookkeeping terms you will learn about in this lesson:
co-owners common stock
dividends goodwill
goodwill fee incorporated
investment mutual agents
par value percentage interest
preferred stock retained earnings
shareholders stock
stockholders treasury stock
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Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
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Step 4 Partnerships
As explained in the introduction to this lesson, partnerships are agreements between two or more people who enter into a business for profi t. Although every partnership agreement is unique, there is one main characteristic of a partnership that is always present—the concept of co-ownership.
Co-Ownership
When a partnership is formed, all parties in the partnership become co-owners of the business. That is, if two people decide to enter into a 50-50 partnership, they each own half of the business. The 50-50 refers to the percent owned by each partner. There can be any combination of percentages, as long as each partner owns something and the total equals 100 percent. For example, if there is a three-person partnership, that partnership could be a 40-30-30 partnership. Or it could be 75-20-5 or 33 1/3 - 33 1/3 - 33 1/3. As long as each of the three partners owns something and the total adds up to 100 percent.
The amount of the business a partner owns is known as percentage interest. The percentage interest helps determine a partner’s share of profi t and loss and liability. Percentage interest does not, however, affect the next characteristic—mutual agents.
No matter how much a partner owns (how big his or her percentage interest in the company is), each partner can make decisions for the entire fi rm. This is known as the concept of mutual agents. These decisions include entering into binding contracts, as long as the contracts lie in the normal scope of the fi rm’s business. A partner in the Rock Hard Gym and Health Club could sign a contract to purchase exercise equipment, for example. However, if the equipment was not normally used in a health club, the partner would not have the authority to enter into a binding contract.
Because a partnership involves people, the length of the partnership agreement can vary. People change and situations change. As changes occur, the establishment or dissolution of partnerships takes place.
There are some elements of the partnership that must always be in writing. These include percentage interest of each partner, pay-out information and the length of the partnership.
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Having the agreement in writing ensures that the terms of the agreement are understood by all parties involved and eliminates possible misunderstandings.
Each partner in a business is personally liable for the debts the partnership incurs while that partner is associated with the business. This is a very important concept. Partners are not shielded by the business, and if a partner leaves the business, he or she is still personally responsible for the share of debt incurred by a business while he or she was a partner.
Additionally, when a partner leaves a fi rm, he must give adequate public notice of his departure. This is the only way he can keep from being held liable for debts incurred after he leaves.
As a bookkeeper for a partnership, you will be asked to fi gure each partner’s ownership of liabilities and assets.
Step 5 A Partner’s Interest
As explained previously, percentage interest is the amount of a business owned by a partner. This is the fi gure that you, the bookkeeper, will use to fi gure how much each partner owes, earns, and is responsible for as far as the business fi nances go.
The percent interest can be broken down into a ratio that is often used to determine division of net income or net loss in a partnership. To fi gure the ratio, you fi nd the greatest common factor of the percent interest fi gures. In a 25-25-50 partnership, the greatest common factor (the largest number that can be evenly divided into each of the percentage interest fi gures) is 25. And 25 goes into 25 once and into 50 twice. The ratio, therefore, is 1 : 1 : 2.
Transferring Interest
In a partnership, each partner owns some part of the business, and all the partners’ shares added up equal 100 percent of the business. That means there is no portion of the business available to new investors. This doesn’t stop new partners from being able to buy into the fi rm. Existing partners can sell a percentage of their percent interest. This allows new partners to join.
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For example, say Company A has three partners: Bob, Jim and Chuck. Bob owns 50 percent of the company. Jim and Chuck own 25 percent each. Bob decides to sell Aaron half of his interest. Well, half of Bob’s 50 percent is 25 percent of the entire business. After Bob sells Aaron 25 percent of the business, all four partners are now equal.
Some partnership agreements require all partners to agree to allow new partners to buy into the company; some do not. Most of the time, partners are allowed to sell their percentage for whatever sum they wish, as long as the buyer pays at least what the percentage is worth to the partner. If Bob’s share of the business was worth $50,000, he wouldn’t want to sell half of his share for $10,000 (it’s worth $25,000).
Sometimes, new partners have to pay a fee to join a company. This goodwill fee reduces the amount of percentage interest they acquire.
Goodwill
When a company offers quality products or services, it doesn’t take long for the word to get around. Newspapers sometimes take surveys to fi nd the best restaurant, the best night club, or the best hardware store. When people think a company delivers quality, that increases that company’s reputation. Goodwill means that a company has a good reputation. It is an intangible asset that adds value to a company. Sometimes, a new partner might be charged a fee for joining a company with a good reputation. This fee is called a goodwill fee.
Franchises take advantage of goodwill. If you want a hamburger, there are several fast food outlets whose names might pop into your head. If you need building supplies or a plumber, the same thing might happen. Whatever company’s name pops into your head probably works the hardest to get your business. That may or may not be good, but it does increase sales.
For example, working harder for your business might mean all-out advertising blitzes designed to drive the company name into the customer’s head. On the other hand, it could be subtle and the result of local word of mouth (“The best at what you need is Company A.... My brother had them do some work and it was excellent.”).
Many franchisers charge franchise fees. Whether a company charges goodwill fees or franchise fees, the fees for an initial investment must be entered into the books. Let’s look at how you would journalize this for the investor.
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Date Description P/R Dr Cr1 5 Cash 1 0 0 0 0 0 00 Goodwill 1 0 0 0 0 00 I.M. Investor, Capital 9 0 0 0 0 00 Initial Investment
General Journal
As you can see, the investor received $90,000 worth of capital for his $100,000 investment. He is relying on the company growing and making money for him to recoup the $10,000 goodwill fee.
When the company receives a goodwill fee, the other partners see their capital increase. Suppose I.M. Investor bought into a company owned by Jon Dyer. Dyer’s journal would look something like this, if Dyer started out with $500,000 cash in the business:
Date Description P/R Dr Cr1 5 Cash 5 0 0 0 0 0 00 Goodwill 1 0 0 0 0 00 Dyer, Capital 5 1 0 0 0 0 00 Initial Investment
General Journal
Many bookkeeping tasks are the same for sole proprietorships and partnerships. The main difference is the capital accounts.
Capital Accounts
With partnerships, there are two or more people involved in a business. Each partner has contributed a different amount of equity or capital to the business. As a professional bookkeeper, you will need to keep track of the equity and capital amounts each partner holds in the business. This information is kept in individual capital accounts for each partner.
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Note: When a business becomes a partnership, you should allow an accountant to set up the different accounts for the business. The accountant is better prepared to perform this task. Use the balance sheet provided by the accountant to establish the amounts in each account and then go from there.
Let’s look at the capital accounts from a partnership between John Jones and Alice White.
Date Description P/R Dr Cr8 31 Beginning Capital 2 0 0 0 00
John Jones, Capital Account No. 31
Date Description P/R Dr Cr8 31 Beginning Capital 5 0 0 0 00
Alice White, Capital Account No. 32
As you can see, John Jones has $2,000 capital in the business while Alice White has $5,000. Just as with a sole proprietorship, any addition to the capital account by any partner must be recorded in the general journal and posted to the proper ledger accounts, including the individual capital accounts. To record an addition to capital (known as an investment), follow these steps:
1. Determine who is making the additional investment.
2. Make the appropriate journal entry.
3. Post the journal entry to the appropriate ledger accounts.
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Let’s take our previous example of initial capital investment by Mr. Jones and Miss White. Imagine that for this situation, the amounts invested represent additional capital. With that in mind, we would record Mr. Jones’ new investment like this:
Date Description P/R Dr Cr1 31 Cash 2 0 0 0 00 John Jones, Capital 2 0 0 0 00 Additional Investment
General Journal Page 8
Additional Investment
The journal entries would then be posted to the ledger. The fi rst account is the cash account. You enter a $2,000 debit. Then, you go to John Jones’ capital account and credit it $2,000.
Other factors affect capital accounts. Net income and drawing accounts both need to be accounted for in individual capital accounts. This is done in the same manner as it would be in a sole proprietorship—through the closing of the books process. We’ll get to that process later in this lesson.
One difference between a partnership and a sole proprietorship is that a partnership changes the Assets = Liabilities + Capital equation. It doesn’t really change the numbers, but the order is a bit different. Remember, you have more than one person involved with the business, so now you have to account for as many partners as there are in the partnership. For example, if a business has three partners, the assets formula looks like this:
Assets = Liabilities + Capital Partner #1 + Capital Partner #2 + Capital Partner #3
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Drawing Accounts
The drawing accounts in a partnership serve the same purpose as that in a sole proprietorship—to provide the partners with funds from their capital accounts. Any withdrawals from the drawing account are recorded in the same manner as we discussed previously in this course. You credit the cash account and debit the drawer’s capital account. Let’s say Nora Smith from the bakery has a drawing account. She decides to take out $500 for personal use. That transaction would be journalized like this:
Date Description P/R Dr Cr7 31 N. Smith, Drawing Account 5 0 0 00 Cash 5 0 0 00 Personal draw
General Journal Page 7
The Worksheet and Financial Statements
The worksheet for a sole proprietorship and a partnership are very similar. The only difference is that for a partnership, there are extra capital and drawing accounts for each partner.
The fi nancial statements for a partnership are very similar to those for a sole proprietorship. However, a partnership also has an additional statement called the distribution of net income statement. In addition, the balance sheet for a partnership is a little different than that of a sole proprietorship. As with a sole proprietorship, a partnership prepares an operating statement. This document is prepared the same for a partnership as for a sole proprietorship.
Figuring Division of Income or Loss
Every investor wants a return on his investment. Partners are entitled to whatever share their agreement dictates of the business’ profi t or loss. Look back to the note in this lesson about ratios to see the way to fi gure each partner’s share. If the partnership agreement dictates that Partner A gets 25 percent and Partner B gets 75 percent of the business’ net income or net loss, you must fi gure how much money each partner receives. There are two ways to do this: the ratio method we covered above and the percentage method.
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The percentage method of fi guring the division of income or loss simply takes the total net income or loss and multiplies it by the percentage of the company each partner owns. If Partner A’s and B’s combined net income is $50,000, then using the percentage method, we would fi gure their shares like this:
Partner A: Partner A is entitled to 25 percent of the $50,000. To fi nd this, multiply $50,000 by 25% (0.25). This gives you
Partner A’s share: 12,500.
Partner B: Partner B is entitled to 75 percent of the $50,000. Take $50,000 and multiply it by 75% (0.75). This gives you
Partner B’s share: 37,500.
To check your work, take the total shares and add them together. The result should equal the total net income or loss of the company.
Partner A: $12,500
Partner B: + 37,500
Total $50,000
Preparing a Distribution of Net Income Statement
As you can see from the previous section, the partners divide the net income of the business. You learned how to fi gure each partner’s share; now you will see how to record this information on a special document—the distribution of net income statement.
The distribution of net income statement spells out who received how much of the business’ net income. It looks like this:
Sue & Martha’s FlowersDistribution of Net Income Statement
Month ending Dec. 31, 20XX
Sue Miller 50% of Net Income ...............................................2,500
Martha Jones 50 % of Net Income ..............................................2,500
Net Income ................................................................5,000
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To complete the statement, follow these steps:
1. Use the operating statement to determine the share of net income for each partner.
2. Head up the distribution of net income statement with the business name, the words “Distribution of Net Income Statement,” and the dates the statement covers.
3. Fill out the statement by entering each partner’s name and that partner’s share (expressed as a percentage) of the business. This entry should be in this form:
Name of Partner Percentage Share of Net Income
4. In the column to the right of the “Percentage Share of Net Income” label, fi ll in the dollar amount that partner is entitled to. This amount can be found by completing the steps you learned in the previous section.
5. After all partners are entered on the statement, add up all the dollar amounts shown. The total of the partners’ interest should equal the total net income (or net loss) shown on the partnership’s statement.
6. If your fi gures are correct (the total on the distribution of net income statement matches the total on the operating statement), draw a double line under the total on the distribution of net income statement. You are fi nished with this document.
7. If the fi gures do not match, you have made an error. To fi nd the error, fi rst, check the percentage interest for each partner. Add up the percentages—they should total 100 percent. If they don’t, there is your error. If they do, check your math in fi guring the dollar amounts due each partner. Then check your net income statement. The error must lie somewhere in one of these areas.
Now, take a few moments to review what you’ve learned.
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Step 6 Practice Exercise 18-1
Part I. Choose the best answer for each question.
1. When a partnership is formed, all partners become _____ of the business.a. sole ownersb. co-ownersc. equal co-ownersd. all of the above
2. _____ refers literally to how much of the company a partner owns.a. Percentage interestb. Current interestc. Depreciating interestd. Asset interest
3. The concept allowing each partner to enter into binding contracts for the fi rm is known as _____.a. depreciationb. mutual agentsc. submissive contractual obligationd. underwritten law
4. The length of a partnership agreement _____.a. is determined by the partnership agreementb. should be in writingc. is never spelled out in the partnership agreementd. both a and b
5. When a partnership is formed, the bookkeeper must create a(n) _____ account for each partner.a. capitalb. expensec. liabilityd. travel
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6. To fi gure the ratio of percent interest, you must fi rst determine the _____.a. highest common ratiob. single highest factor affecting net incomec. greatest common factord. business type
7. The _____ method of fi guring the division of income or loss takes the total net income or loss and multiplies it by the percentage of the company each partner owns.a. percentageb. ratioc. net lossd. double declining balance
Part II
Complete this distribution of net income statement for Iris’ Flower Bin.
Iris Hirmins owns 55 percent of Iris’ Flower Bin. John Yoder owns 35 percent and Bev Yoder owns 10 percent. For the month ending December 31, 20XX, the business shows a $7,500.00 net income. What is each partner due?
____________________________________
Distribution of Net Income Statement
Month ending Dec. 31, 20XX
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
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Step 7 Review Practice Exercise 18-1
Check your answers with the Answer Key at the back of this book. Correct any mistakes you have made.
Step 8 The Capital Statement
When you complete the distribution of net income statement, you determine how much each partner has gained or lost for a given month. One place you enter this fi gure is on the capital statement. On the capital statement for a partnership, you must account for each owner. The capital statement is laid out like this:
Sue & Martha’s FlowersCapital Statement
Month Ending December 31,20XXSue Miller
Capital, December 1, 20XX 36 0 7 5 50Share of Net Income 2 5 0 0 00Less withdrawals 5 0 0 00Net Increase in Capital 2 0 0 0 00Capital, December 31, 20XX 38 0 7 5 50
Martha JonesCapital, December 1, 20XX 36 0 7 5 50Share of Net Income 2 5 0 0 00Less withdrawals 4 0 0 00Net Increase in Capital 2 1 0 0 00Capital, December 31, 20XX 38 1 7 5 50
Total Capital, December 31, 20XX 76 2 5 1 00
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To fi ll out the capital statement for a given month, you should follow these steps for each partner:
1. Determine the beginning balance in the capital account for the month or accounting period you are working with by locating the capital account for each owner in the general ledger.
2. Enter this information on the capital statement by writing the partner’s name on the capital statement, then on the next line, enter the description “capital” and the beginning balance date. Enter the beginning balance in the middle column.
3. Next, add in the partner’s share of net income for the month. This is entered in the left column.
4. After you have fi gured the partner’s share of net income, take her withdrawals from her drawing account and enter them in the left column, directly under the income share amount.
5. Take the fi gures in steps 3 and 4 and subtract the smaller from the larger. Enter the result in the middle column.
6. If the withdrawn amount is larger than the net income share amount, subtract the result of step 5 from the beginning capital balance.
7. Write the result of step 6 in the center column with the description “Net Decrease in Capital.” Because the number is negative, you should place parentheses around it. Then, subtract that amount from the beginning capital. Enter the result in the far right column with the description “Capital” and the date the statement period ended.
8. If the share of net income amount is larger than the withdrawn amount, add the total from step 5 to the beginning capital balance. Write the result of step 6 in the center column with the description “Net Increase in Capital.” Then, add that amount to the beginning capital. Enter the result in the far right column with the description “Capital” and the date the statement period ended.
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Look at this example:
If a partner invests additional assets into a company during the month, that partner would be credited with that investment as an increase in capital. To do this, simply add the amount of the additional investment to the partner’s existing capital. Then complete the capital statement using this revised beginning capital amount.
Step 9 Preparing Partnership Balance Sheets
There is only one difference between a balance sheet for a partnership and one for a sole proprietorship. That difference lies in the capital section.
In a partnership, the amount of capital held by each partner is shown individually.
Iris’ Flower BinCapital Statement
Month Ending December 31,20XXIris Hirmins
Capital, December 1, 20XX 22 5 0 0 00Share of Net Income 4 1 2 5 00Less withdrawals 6 2 5 00Net Increase in Capital 3 5 0 0 00Capital, December 31, 20XX 26 0 0 0 00
John YoderCapital, December 1, 20XX 15 0 0 0 00Share of Net Income 2 6 2 5 00Less withdrawals 3 0 0 0 00Net Decrease in Capital (3 7 5 00)Capital, December 31, 20XX 14 6 2 5 00
Bev YoderCapital, December 1, 20XX 10 0 0 0 00Share of Net Income 7 5 0 00Less withdrawals - 0 -Net Increase in Capital 7 5 0 00Capital, December 31, 20XX 10 7 5 0 00
Total Capital, December 31, 20XX 51 3 7 6 00
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A balance sheet for a partnership will look like this:
ASSETS LIABILITIES
Current Assets Current Liabilities Cash $1,000 Accounts Payable $1,000 Acc. Receivable 1,000 Total Current Liabilities $1,000Total Current Assets $2000 Long-Term Liabilities Fixed Assets Mortgage Payable $500 Equipment $1,000 Total Long-Term Liabilities 500 Building 1,000 TOTAL LIABILITIES $1,500Total Fixed Assets $2,000 CAPITAL J. Jones, Capital $1,500 A. White, Capital 1,000 TOTAL CAPITAL $2,500
TOTAL ASSETS $4,000 TOTAL LIABILITIES & CAPITAL $4,000
Step 10 Closing Accounts in a Partnership
A partnership’s books must be closed out at the end of the accounting period, just like any other business. The procedure for closing out the books for a partnership is very similar to the sole proprietorship process. The main difference lies with the number of drawing and capital accounts you must deal with.
To close the books, follow these steps:
1. Make the adjusting entries to the inventory into the income summary as you would for a sole proprietorship:
Date Description P/R Dr Cr
Inventory 2 0 0 0 00
Income Summary 1 8 0 0 00
Inventory 1 8 0 0 00
Income Summary 2 0 0 0 00
General Journal Page 8
Adjusting Entries
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2. Make the revenue and expense entries the same way:
Date Description P/R Dr Cr
Income Summary 2 0 0 0 00
Rent Expense 2 5 0 00 Supply Expense 2 5 0 00
Income Summary 5 0 0 00
Revenue 2 0 0 0 00
General Journal Page 8
Closing Entries
Date Description P/R Dr Cr
Sales 2 0 0 0 00
Account Balance 1 3 0 0 00
Expense 5 0 0 00
Inventory 1 8 0 0 00
General Journal Page 8 Income Summary
Inventory 2 0 0 0 00
3. The income summary account now looks like this after our example postings.
When you complete this step, you should have your distribution of net income statement handy. In our example, we’ll say John Jones and Alice White each get 50% of the net income.
The account balance shown by the income summary should match the net income line of the distribution of net income statement. From that statement, determine how much each partner is entitled to.
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Then make the next entry to close the income summary:
The $650 refl ects the percentage shown on the distribution of net income statement.
Closing the Drawing Accounts
After you have closed the income summary, the next step is closing the drawing accounts. To do this, take these steps:
1. Determine each partner’s balance in their drawing accounts either from their individual accounts or from the worksheet.
2. Next, close each account as you’ve learned previously. Remember, however, that now you have two or more drawing accounts to close. If, for example, Mr. Jones and Miss White each had a $200 balance in their drawing accounts, the accounts would be closed this way:
Date Description P/R Dr Cr
Alice White, Drawing 2 0 0 00 Alice White, Capital 2 0 0 00
John Jones, Drawing 2 0 0 00
General Journal Page 8
John Jones, Capital 2 0 0 00
Income Summary 1 3 0 0 00Date Description P/R Dr Cr
Alice White, Capital 6 5 0 00
John Jones, Capital 6 5 0 00
General Journal Page 8
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3. Finally, post all closing entries to the appropriate ledger accounts. In this case, capital accounts and drawing accounts for both John Jones and Alice White would be posted with the information from the journal.
Now let’s see how corporations differ from partnerships.
Step 11 Corporations
NOTE: This section is designed as an introduction to corporations and the special bookkeeping needs of these types of businesses. It is NOT intended to prepare you to work as a bookkeeper for a corporation. Corporations usually employ certifi ed accountants to keep their fi nancial records. The additional training you need to work for a corporation is covered in more advanced bookkeeping classes. You might consider taking these classes in the future, after you have enjoyed working as a professional bookkeeper for a few years. Until then, enjoy the success that comes your way as a bookkeeper and keep the information from this lesson in the back of your mind. It will come in handy if you decide to become an accountant.
Partners are not protected from liability in a partnership. It’s kind of like riding a bicycle together. If the partners go for this bike ride and it rains, they will both get wet. If someone sues the partnership, each partner is personally responsible for any liability.
If partnerships are bicycles, corporations are cars. Corporations give some protection for the people in the corporation by shielding them from some personal liability and protecting them against some losses—the same way a car shields its occupants from the rain. Corporations are not always better than partnerships, but they are extremely common in the United States. If you look through the phone book, many times you will see the abbreviation “Inc.” This abbreviation stands for “incorporated.” Incorporated means the business is a corporation instead of a partnership or a sole proprietorship.
This section will introduce you to the concepts of a corporation. You will learn about stocks, shares and dividends. We also will cover retained earnings and par value. When you fi nish this lesson, you will have a better grasp of what the abbreviation “Inc.” really means.
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Stocks, Dividends and Stockholders
Corporations attain a legal separation of personal and business assets and liabilities. Businesses become incorporated to keep the business in the business—in other words, in a corporation, there are no owner drawing accounts. The business profi ts are used to pay business expenses. How can you tell who owns a corporation? Generally, corporations issue stock in the company. Stock refers to a portion of a company that is sold to generate money for the business. People who own stock are referred to as stockholders or shareholders.
Generally, stocks are sold as “shares.” Who owns the shares varies from company to company. Some companies
offer shares to the public. Look in your local daily newspaper. Find the stock listings in the business section. All these companies (the ones with the funny abbreviations in tiny type) are corporations that offer some shares of the company to the general public. Some corporations are owned by as few as two people. Others are kept all in the family with family members each owning a portion of the total stock available. In order for
business decisions to be made, a majority of the stockholders must agree on a course of action. Any
amount over 50 percent is considered a majority.
Dividends
In exchange for the money invested in the company, stockholders are paid dividends. Dividends are money paid per share of stock by the company. Usually, the company limits its total dividend payout, and stocks do not always earn dividends. At the end of an accounting period, the company determines its net income and uses that fi gure to determine dividends for its stockholders. These dividends are paid on a per-share basis—that is, each stockholder receives an amount of money based on how many shares of stock are owned.
There are two basic types of stock: common and preferred.
Common Stock
Common stock is stock that is basically the same no matter who owns it. The owners of common stock split dividends equally and carry equal voting rights. If there are six shares of common stock and the company pays a total of $12 dividend for stock shares, then each shareholder receives $2.
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Preferred Stock
Sometimes, a company limits the amount of dividends it will pay out to a percentage of net income. This leaves money left over for the company to reinvest in itself. When this happens, holders of preferred stock are more likely to get dividends. Preferred stock is stock that is paid in dividends before the common stocks are paid. This comes into play in the situation we described at the beginning of this paragraph. If the company limits its dividends to 1 percent of its net income, and the net income is $1,000, then the company has $10 to pay its shareholders. If preferred stockholders take up $9 of this money, then the common stock holders must split the remaining $1. Preferred stock lives up to its name—it is preferable to have preferred stock and get paid fi rst. Preferred stock carries voting privileges similar to common stock.
Corporations that sell stock in their company to the public are subject to many laws and regulations. There is a governmental agency whose sole responsibility is to oversee stock trading. This agency polices corporations and stock traders to ensure the trade is legal.
In addition to common and preferred stock, there is another type of stock—treasury stock. Treasury stock is stock the company buys back from stockholders. It is not an asset and shares of treasury stock do not carry voting rights. When a company holds stock of its own, it does not “own itself.” These shares reduce the number of outstanding shares of the corporation’s stock.
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Par Value and Retained Earnings
Par Value
Par value is the amount of money a share of stock originally cost. Par value is also referred to as “par” or “face value.” For example, if Robert buys 500 shares of stock in a company and pays $5,000, the par value of that stock is $10 per share.
Retained Earnings
When a company has a profi table year, that company doesn’t want to turn around and pay all its profi ts out as dividends. Instead, the company will hold back some of the profi t to reinvest in the company and help it grow. This reinvestment of profi t is known as retained earnings. Retained earnings affect how large and how often dividends are paid.
If a company keeps 90 percent of its profi t as retained earnings, that leaves 10 percent to be paid out in dividends. Remember, if you own preferred stock, you will receive your dividends before common stockholders do. This gives you a better chance of receiving a full dividend.
Step 12 Practice Exercise 18-2
Select the best answer to complete each sentence.
1. There are _____ steps in completing a capital statement for a partnership.a. 12b. 8c. 9d. 2
2. The fi rst step in completing a capital statement for a partnership is to _____.a. determine the beginning balanceb. enter the information on the capital statementc. add the partners’ share of net incomed. enter the withdraws in the left column
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3. The difference in a balance sheet for a partnership lies in the _____.a. assetsb. assets and liabilitiesc. liabilitiesd. capital
4. To close the income summary, you should have the _____ handy.a. income statementb. distribution of net income statementc. operating statementd. capital statement
5. When closing the drawing account for a partnership, _____ drawing account(s) should be closed.a. all of theb. only onec. the company president’sd. neither
Step 13 Review Practice Exercise 18-2
Check your answers with the Answer Key at the back of this book. Correct any mistakes you have made.
Step 14 What Is a Non-profi t Organization?
Non-profi t means just exactly what it implies, an organization that works for a public interest without the intent of earning a profi t from the services it renders. Non-profi t organizations involve a large variety of religious, civic, public service, and activist organizations.
To qualify for non-profi t status, an organization must meet requirements set by federal law and be approved by the IRS. The laws govern how a non-profi t can earn money. In addition, the expenditures must fall within non-profi t purposes. Once an organization has been approved by the IRS, it then becomes exempt from paying income tax.
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Even though a non-profi t organization is tax exempt, it is still very important for it to accurately account for the organization’s money. In the next section, you will learn how a non-profi t organization may use a bookkeeper.
Non-Profi t Organizations and the Bookkeeper
As a bookkeeper, you may be called upon to provide services for a non-profi t organization. It would seem strange that an organization that does not need to pay taxes needs bookkeeping services, but they do. The government requires non-profi t organizations to fi le returns and fi nancial statements in order to maintain their tax-exempt status. Many times, non-profi t organizations have a small margin of funds from which to provide services. Knowing how much they have and how much has been spent can be very important budgeting tools. Most organizations accept contributions; for contributions of $250.00 or more, a receipt must be provided to the contributor. This receipt is normally generated at the end of the year. In non-profi t organizations that have employees, bookkeepers are needed to provide payroll services. Non-profi t organizations also must manage receivables and payables.
So as you can see, just about any service you can provide for a business can also be provided to a non-profi t organization. Now let’s talk a bit about that IRS return that non-profi t organizations must fi le: Form 990, Return of Organization Exempt from Income Tax.
Form 990 for Non-profi t Organizations
All non-profi t organizations must fi le Form 990 or Form 990 EZ in order to maintain their tax-exempt status. Take a look at the form on the following pages and compare to the following basic outline of the information required to complete it.
The top part of Form 990 is completed with the organization’s name, address, EIN, exemption number, and the type of organization.
Part I summarizes the organization’s revenues, expenses, and assets.
Part II summarizes the expenses involved with providing program services, managing those services, and fundraising.
Part III requires a statement of program services accomplishments, which provides the government with information on the particulars of the non-profi t’s operation and accomplishments.
0201201LB14B-18-C0
Bookkeeping
18-26
Part IV is a summary of the organization’s assets, liabilities, and capital. A completed balance sheet would be most helpful in completing this portion of the form.
Part V requires the non-profi t organization to list all of its offi cers, directors, trustees, and key employees.
Part VI requests information regarding signifi cant changes to the programs or services provided by the non-profi t organization.
Part VII analyzes the non-profi t’s income to determine if it falls within the government’s guidelines.
Part VIII has the non-profi t provide information about its activities to make sure they fall within the purpose stated for the exemption.
Part IX requires the non-profi t organization to list any subsidiaries it may belong to or have.
Part X is the last part of this form and requires non-profi t organizations to report income paid for personal benefi t contracts.
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-27
Part I
OMB No. 1545-0047 Return of Organization Exempt From Income Tax 990 Form
Under section 501(c), 527, or 4947(a)(1) of the Internal Revenue Code (except black lungbenefit trust or private foundation) Department of the Treasury
Internal Revenue Service
� The organization may have to use a copy of this return to satisfy state reporting requirements. For the 2009 calendar year, or tax year beginning , 2009, and ending , 20
D
Employer identification number
Name of organization
Pleaseuse IRSlabel orprint or
type.See
SpecificInstruc-tions.
E
Telephone number
Number and street (or P.O. box if mail is not delivered to street address)
City or town, state or country, and ZIP + 4
Summary 1
Number of voting members of the governing body (Part VI, line 1a) Number of independent voting members of the governing body (Part VI, line 1b)
Total number of employees (Part V, line 2a)
2 3 4 5
Total gross unrelated business revenue from Part VIII, column (C), line 12
6 7a
Act
ivit
ies
& G
ove
rnan
ce
Check this box � if the organization discontinued its operations or disposed of more than 25% of its net assets.
Contributions and grants (Part VIII, line 1h)
Other revenue (Part VIII, column (A), lines 5, 6d, 8c, 9c, 10c, and 11e) Total revenue—add lines 8 through 11 (must equal Part VIII, column (A), line 12 )
Grants and similar amounts paid (Part IX, column (A), lines 1–3) Benefits paid to or for members (Part IX, column (A), line 4)
Salaries, other compensation, employee benefits (Part IX, column (A), lines 5–10)
Other expenses (Part IX, column (A), lines 11a–11d, 11f–24f)
Revenue less expenses. Subtract line 18 from line 12
8
Total assets (Part X, line 16) Total liabilities (Part X, line 26)
9
Net assets or fund balances. Subtract line 21 from line 20
10
12
Net
Ass
ets
or
Fund
Bal
ance
s
13 14 15 16a
18
Form 990 (2009)
For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11282Y
A C
Room/suite
Name and address of principal officer:
F
L
B
Check if applicable:
Terminated Amended return
Address change
Form of organization:
501(c) ( )�
527
4947(a)(1) or J
(insert no.)
Initial return
Name change
Open to PublicInspection
( )
Application pending
Website: �
Year of formation:
I
Program service revenue (Part VIII, line 2g)
Briefly describe the organization’s mission or most significant activities:
Net unrelated business taxable income from Form 990-T, line 34
Professional fundraising fees (Part IX, column (A), line 11e)
19
21 22
Exp
ense
s
Rev
enue
3 4 5 6
7a 7b b
Prior Year
Current Year
Beginning of Current Year
End of Year
Corporation
Trust
Association
Is this a group return for affiliates?
17
H(a)
Investment income (Part VIII, column (A), lines 3, 4, and 7d) 11
Tax-exempt status:
K
Other �
M
State of legal domicile:
H(b)
Are all affiliates included? If “No,” attach a list. (see instructions) Group exemption number �
H(c)
Yes
No Yes
No
Total number of volunteers (estimate if necessary)
Total expenses. Add lines 13–17 (must equal Part IX, column (A), line 25)
20
Signature Block
Date
EIN �
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than officer) is based on all information of which preparer has any knowledge.
SignHere
Type or print name and title
Date Signature of officer
Preparer’ssignature
Check ifself-employed �
PaidPreparer’sUse Only
Firm’s name (or yoursif self-employed),address, and ZIP + 4
Preparer’s identifying number(see instructions)
Phone no. � ( )
� �
� �
Yes No
Part II
2009
Gross receipts $
Doing Business As
G
May the IRS discuss this return with the preparer shown above? (see instructions)
Total fundraising expenses (Part IX, column (D), line 25) �
b
0201201LB14B-18-C0
Bookkeeping
18-28
Page 2
Form 990 (2009)
Form 990 (2009)
4e
Total program service expenses �
Statement of Program Service Accomplishments 1 Briefly describe the organization’s mission:
Yes
No If “Yes,” describe these new services on Schedule O.
Part III
2 Did the organization undertake any significant program services during the year which were not listed onthe prior Form 990 or 990-EZ?
3 Did the organization cease conducting, or make significant changes in how it conducts, any programservices?
Yes
No If “Yes,” describe these changes on Schedule O.
4 Describe the exempt purpose achievements for each of the organization’s three largest program services by expenses.Section 501(c)(3) and 501(c)(4) organizations and section 4947(a)(1) trusts are required to report the amount of grants andallocations to others, the total expenses, and revenue, if any, for each program service reported.
(Code: ) (Expenses $ including grants of $ ) (Revenue $ ) 4a
(Code: ) (Expenses $ including grants of $ ) (Revenue $ ) 4b
(Code: ) (Expenses $ including grants of $ ) (Revenue $ ) 4c
Other program services. (Describe in Schedule O.) 4d (Expenses $ including grants of $ ) (Revenue $ )
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-29
Form 990 (2009) Page 3
Checklist of Required Schedules Yes
No
Is the organization required to complete Schedule B, Schedule of Contributors?
1 2
3
2
Did the organization report an amount in Part X, line 21; serve as a custodian for amounts not listed in Part X; or provide credit counseling, debt management, credit repair, or debt negotiation services? If “Yes,” complete Schedule D, Part IV
3
Did the organization maintain any donor advised funds or any similar funds or accounts where donors have the right to provide advice on the distribution or investment of amounts in such funds or accounts? If “Yes,” complete Schedule D, Part I
4
7
8
4
5
6
15
16
18
6
Did the organization maintain collections of works of art, historical treasures, or other similar assets? If “Yes,” complete Schedule D, Part III
11
13
Is the organization described in section 501(c)(3) or 4947(a)(1) (other than a private foundation)? If “Yes,” complete Schedule A
1
Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office? If “Yes,” complete Schedule C, Part I
Section 501(c)(3) organizations. Did the organization engage in lobbying activities? If “Yes,” completeSchedule C, Part II
Did the organization, directly or through a related organization, hold assets in term, permanent, orquasi-endowments? If “Yes,” complete Schedule D, Part V
Is the organization a school described in section 170(b)(1)(A)(ii)? If “Yes,” complete Schedule E Did the organization maintain an office, employees, or agents outside of the United States?
Did the organization have aggregate revenues or expenses of more than $10,000 from grantmaking, fundraising,business, and program service activities outside the United States? If “Yes,” complete Schedule F, Part I
Did the organization report a total of more than $15,000 of expenses for professional fundraising serviceson Part IX, column (A), lines 6 and 11e? If “Yes,” complete Schedule G, Part I
Did the organization report more than $15,000 total of fundraising event gross income and contributions on Part VIII, lines 1c and 8a? If “Yes,” complete Schedule G, Part II
Did the organization report more than $15,000 of gross income from gaming activities on Part VIII, line 9a? If “Yes,” complete Schedule G, Part III
Did the organization operate one or more hospitals? If “Yes,” complete Schedule H
9
10
14a 13
15
16
17
b
18
Section 501(c)(4), 501(c)(5), and 501(c)(6) organizations. Is the organization subject to the section 6033(e) notice and reporting requirement and proxy tax? If “Yes,” complete Schedule C, Part III
5
Part IV
7
8
9
10
14a
14b
17
20
Did the organization receive or hold a conservation easement, including easements to preserve open space, the environment, historic land areas, or historic structures? If “Yes,” complete Schedule D, Part II
Did the organization report an amount for land, buildings, and equipment in Part X, line 10? If “Yes,” complete Schedule D, Part VI.
Did the organization obtain separate, independent audited financial statements for the tax year? If “Yes,” complete Schedule D, Parts XI, XII, and XIII.
Did the organization report on Part IX, column (A), line 3, more than $5,000 of grants or assistance to anyorganization or entity located outside the United States? If “Yes,” complete Schedule F, Part II
Did the organization report on Part IX, column (A), line 3, more than $5,000 of aggregate grants or assistance to individuals located outside the United States? If “Yes,” complete Schedule F, Part III
12
19
20 19
Form 990 (2009)
Did the organization report an amount for investments—other securities in Part X, line 12 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part VII.
Did the organization report an amount for investments—program related in Part X, line 13 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part VIII.
Did the organization report an amount for other assets in Part X, line 15 that is 5% or more of its total assets reported in Part X, line 16? If “Yes,” complete Schedule D, Part IX.
Did the organization report an amount for other liabilities in Part X, line 25? If “Yes,” complete Schedule D, Part X. Did the organization’s separate or consolidated financial statements for the tax year include a footnote that addresses
the organization’s liability for uncertain tax positions under FIN 48? If “Yes,” complete Schedule D, Part X.
12 Was the organization included in consolidated, independent audited financial statements for the tax year? If “Yes,” completing Schedule D, Parts XI, XII, and XIII is optional.
Is the organization’s answer to any of the following questions “Yes”? If so, complete Schedule D, Parts VI,VII, VIII, IX, or X as applicable
11
●
●
●
● ●
●
12A 12A
Yes
No
0201201LB14B-18-C0
Bookkeeping
18-30
Page 4
Form 990 (2009)
Form 990 (2009)
Yes
No
Checklist of Required Schedules (continued)
Did the organization sell, exchange, dispose of, or transfer more than 25% of its net assets? If “Yes,” complete Schedule N, Part II
32
Part IV
Did the organization own 100% of an entity disregarded as separate from the organization under Regulations sections 301.7701-2 and 301.7701-3? If “Yes,” complete Schedule R, Part I
33
Was the organization related to any tax-exempt or taxable entity? If “Yes,” complete Schedule R, Parts II,III, IV, and V, line 1
34
Did the organization conduct more than 5% of its activities through an entity that is not a related organization and that is treated as a partnership for federal income tax purposes? If “Yes,” complete Schedule R, Part VI
36
37
35
28a
29
30
31
32
33
34
Was the organization a party to a business transaction with one of the following parties (see Schedule L,Part IV instructions for applicable filing thresholds, conditions, and exceptions): A current or former officer, director, trustee, or key employee? If “Yes,” complete Schedule L, Part IV
A family member of a current or former officer, director, trustee, or key employee? If “Yes,” complete Schedule L, Part IV
An entity of which a current or former officer, director, trustee, or key employee of the organization (or afamily member) was an officer, director, trustee, or direct or indirect owner? If “Yes,” complete Schedule L, Part IV
Did the organization receive contributions of art, historical treasures, or other similar assets, or qualifiedconservation contributions? If “Yes,” complete Schedule M
Did the organization liquidate, terminate, or dissolve and cease operations? If “Yes,” complete Schedule N, Part I
a
c
b
29 30
31
Did the organization receive more than $25,000 in non-cash contributions? If “Yes,” complete Schedule M
28
28b
28c
Is any related organization a controlled entity within the meaning of section 512(b)(13)? If “Yes,” completeSchedule R, Part V, line 2
Section 501(c)(3) organizations. Did the organization make any transfers to an exempt non-charitable related organization? If “Yes,” complete Schedule R, Part V, line 2
35
36
37
b c
Did the organization have a tax-exempt bond issue with an outstanding principal amount of more than$100,000 as of the last day of the year, that was issued after December 31, 2002? If “Yes,” answer lines24b through 24d and complete Schedule K. If “No,” go to line 25
Did the organization invest any proceeds of tax-exempt bonds beyond a temporary period exception? Did the organization maintain an escrow account other than a refunding escrow at any time during the year
to defease any tax-exempt bonds? Did the organization act as an “on behalf of” issuer for bonds outstanding at any time during the year?
Section 501(c)(3) and 501(c)(4) organizations. Did the organization engage in an excess benefit transaction with a disqualified person during the year? If “Yes,” complete Schedule L, Part I
Is the organization aware that it engaged in an excess benefit transaction with a disqualified person in aprior year, and that the transaction has not been reported on any of the organization’s prior Forms 990 or990-EZ? If “Yes,” complete Schedule L, Part I
Was a loan to or by a current or former officer, director, trustee, key employee, highly compensated employee, ordisqualified person outstanding as of the end of the organization’s tax year? If “Yes,” complete Schedule L, Part II
Did the organization provide a grant or other assistance to an officer, director, trustee, key employee,substantial contributor, or a grant selection committee member, or to a person related to such an individual? If “Yes,” complete Schedule L, Part III
24a
d 25a
b
24a
25a
26
27
24b
24c 24d
25b
26
27
Did the organization report more than $5,000 of grants and other assistance to governments and organizations in the United States on Part IX, column (A), line 1? If “Yes,” complete Schedule I, Parts I and II
Did the organization report more than $5,000 of grants and other assistance to individuals in theUnited States on Part IX, column (A), line 2? If “Yes,” complete Schedule I, Parts I and III
Did the organization answer “Yes” to Part VII, Section A, line 3, 4, or 5 about compensation of theorganization’s current and former officers, directors, trustees, key employees, and highest compensatedemployees? If “Yes,” complete Schedule J
21
22
23
21
22
23
38 Did the organization complete Schedule O and provide explanations in Schedule O for Part VI, lines 11 and 19? Note. All Form 990 filers are required to complete Schedule O.
38
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-31
Form 990 (2009)
Page 5
Form 990 (2009)
Statements Regarding Other IRS Filings and Tax Compliance
Part V
Section 4947(a)(1) non-exempt charitable trusts. Is the organization filing Form 990 in lieu of Form 1041?
Section 501(c)(12) organizations. Enter: Gross income from members or shareholders
Gross income from other sources (Do not net amounts due or paid to other sources against amounts due or received from them.)
11b
11a
11 a
b
12a 12b
12a b
If “Yes,” enter the amount of tax-exempt interest received or accrued during the year
If “Yes,” indicate the number of Forms 8282 filed during the year
7a b
8
7d
7b
8
7
Organizations that may receive deductible contributions under section 170(c). Did the organization receive a payment in excess of $75 made partly as a contribution and partly for goods and services provided to the payor?
If “Yes,” did the organization notify the donor of the value of the goods or services provided? Did the organization sell, exchange, or otherwise dispose of tangible personal property for which it was
required to file Form 8282?
Did the organization, during the year, receive any funds, directly or indirectly, to pay premiums on a personal benefit contract?
Did the organization, during the year, pay premiums, directly or indirectly, on a personal benefit contract? For all contributions of qualified intellectual property, did the organization file Form 8899 as required?
Sponsoring organizations maintaining donor advised funds and section 509(a)(3) supportingorganizations. Did the supporting organization, or a donor advised fund maintained by a sponsoringorganization, have excess business holdings at any time during the year?
Sponsoring organizations maintaining donor advised funds. Did the organization make any taxable distributions under section 4966?
Did the organization make a distribution to a donor, donor advisor, or related person? Section 501(c)(7) organizations. Enter:
Initiation fees and capital contributions included on Part VIII, line 12 Gross receipts, included on Form 990, Part VIII, line 12, for public use of club facilities
10b
10a
a
c d e f g
9
10
a b
a b
7c
7e 7f 7g
9a 9b
1a
Enter the number reported in Box 3 of Form 1096, Annual Summary and Transmittal ofU.S. Information Returns. Enter -0- if not applicable
Yes
No
2a
Enter the number of employees reported on Form W-3, Transmittal of Wage and TaxStatements, filed for the calendar year ending with or within the year covered by this return
4a
5a
6a
3a b
2a 2b
4a
5a
6a
If at least one is reported on line 2a, did the organization file all required federal employment tax returns? Note. If the sum of lines 1a and 2a is greater than 250, you may be required to e-file this return. (see
instructions) Did the organization have unrelated business gross income of $1,000 or more during the year covered bythis return?
If “Yes,” has it filed a Form 990-T for this year? If “No,” provide an explanation in Schedule O At any time during the calendar year, did the organization have an interest in, or a signature or other authority
over, a financial account in a foreign country (such as a bank account, securities account, or other financial account)?
If “Yes,” enter the name of the foreign country: �
Was the organization a party to a prohibited tax shelter transaction at any time during the tax year? Did any taxable party notify the organization that it was or is a party to a prohibited tax shelter transaction?
If “Yes” to line 5a or 5b, did the organization file Form 8886-T, Disclosure by Tax-Exempt Entity Regarding Prohibited Tax Shelter Transaction?
Does the organization have annual gross receipts that are normally greater than $100,000, and did theorganization solicit any contributions that were not tax deductible?
If “Yes,” did the organization include with every solicitation an express statement that such contributions or gifts were not tax deductible?
b
b
b c
b
3b
5b
5c
6b
Enter the number of Forms W-2G included in line 1a. Enter -0- if not applicable Did the organization comply with backup withholding rules for reportable payments to vendors and reportable
gaming (gambling) winnings to prize winners?
b c
1a 1b
1c
3a
See the instructions for exceptions and filing requirements for Form TD F 90-22.1, Report of Foreign Bankand Financial Accounts.
For contributions of cars, boats, airplanes, and other vehicles, did the organization file a Form 1098-C asrequired?
h 7h
0201201LB14B-18-C0
Bookkeeping
18-32
Page 6
Form 990 (2009)
Does the organization have a written whistleblower policy?
13 Does the organization have a written document retention and destruction policy?
14
13
a
15a
14 Did the process for determining compensation of the following persons include a review and approval by
independent persons, comparability data, and contemporaneous substantiation of the deliberation and decision?
15
The organization’s CEO, Executive Director, or top management official Other officers or key employees of the organization
15b
Section C. Disclosure List the states with which a copy of this Form 990 is required to be filed �
17 Section 6104 requires an organization to make its Forms 1023 (or 1024 if applicable), 990, and 990-T (501(c)(3)s only)
available for public inspection. Indicate how you make these available. Check all that apply.
18
Own website
Another’s website
Upon request
Section B. Policies (This Section B requests information about policies not required by the InternalRevenue Code.)
Does the organization have a written conflict of interest policy? If “No,” go to line 13
12a
Yes
No
Are officers, directors or trustees, and key employees required to disclose annually interests that could give rise to conflicts?
b
12a
12b
Does the organization regularly and consistently monitor and enforce compliance with the policy? If “Yes,” describe in Schedule O how this is done
12c
c
b
Describe in Schedule O whether (and if so, how), the organization makes its governing documents, conflict of interestpolicy, and financial statements available to the public.
19
Form 990 (2009)
Governance, Management, and Disclosure For each “Yes” response to lines 2 through 7b below, andfor a “No” response to line 8a, 8b, or 10b below, describe the circumstances, processes, or changes inSchedule O. See instructions.
Part VI
Section A. Governing Body and Management
Enter the number of voting members of the governing body Enter the number of voting members that are independent
Yes
No
2
3
Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee?
4 5
Did the organization become aware during the year of a material diversion of the organization’s assets?
2
b
Did the organization delegate control over management duties customarily performed by or under the directsupervision of officers, directors or trustees, or key employees to a management company or other person?
Did the organization make any significant changes to its organizational documents since the prior Form 990 was filed?
1a
7a
3
5 6
1b
1a
8a
Does the organization have members, stockholders, or other persons who may elect one or more members of the governing body?
8
Are any decisions of the governing body subject to approval by members, stockholders, or other persons? Did the organization contemporaneously document the meetings held or written actions undertaken during
the year by the following: The governing body?
Each committee with authority to act on behalf of the governing body? Is there any officer, director, trustee, or key employee listed in Part VII, Section A, who cannot be reached
at the organization’s mailing address? If “Yes,” provide the names and addresses in Schedule O
b 9
8b
9a
Does the organization have members or stockholders?
6
b
a
4
7a 7b
State the name, physical address, and telephone number of the person who possesses the books and records of theorganization: �
20
If “Yes” to line 15a or 15b, describe the process in Schedule O. (See instructions.) Did the organization invest in, contribute assets to, or participate in a joint venture or similar arrangementwith a taxable entity during the year?
If “Yes,” has the organization adopted a written policy or procedure requiring the organization to evaluateits participation in joint venture arrangements under applicable federal tax law, and taken steps to safeguard the organization’s exempt status with respect to such arrangements?
16a
b
16a
16b
10a
Does the organization have local chapters, branches, or affiliates?
10a b
If “Yes,” does the organization have written policies and procedures governing the activities of such chapters, affiliates, and branches to ensure their operations are consistent with those of the organization?
10b 11
Has the organization provided a copy of this Form 990 to all members of its governing body before filing theform?
11 Describe in Schedule O the process, if any, used by the organization to review this Form 990.
11A
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-33
Page 7
Form 990 (2009)
Compensation of Officers, Directors, Trustees, Key Employees, Highest CompensatedEmployees, and Independent Contractors
Form 990 (2009)
Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees 1a Complete this table for all persons required to be listed. Report compensation for the calendar year ending with or within the
organization’s tax year. Use Schedule J-2 if additional space is needed.
● List the organization’s five current highest compensated employees (other than an officer, director, trustee, or key employee) who received reportable compensation (Box 5 of Form W-2 and/or Box 7 of Form 1099-MISC) of more than $100,000 from theorganization and any related organizations.
● List all of the organization’s former officers, key employees, and highest compensated employees who received more than $100,000 of reportable compensation from the organization and any related organizations. ● List all of the organization’s former directors or trustees that received, in the capacity as a former director or trustee ofthe organization, more than $10,000 of reportable compensation from the organization and any related organizations.
Name and Title
Position (check all that apply)
Reportable compensation
fromthe
organization (W-2/1099-MISC)
Reportablecompensation
from relatedorganizations
(W-2/1099-MISC)
Estimatedamount of
othercompensation
from theorganizationand related
organizations
(C)
(D)
(E)
(F)
Former
Highest com
pensated
emp
loyee K
ey emp
loyee O
fficer Institutional trustee Ind
ividual trustee
or director
Section A.
(A)
Part VII
● List all of the organization’s current officers, directors, trustees (whether individuals or organizations), regardless of amount of compensation. Enter -0- in columns (D), (E), and (F) if no compensation was paid.
List persons in the following order: individual trustees or directors; institutional trustees; officers; key employees; highestcompensated employees; and former such persons. Check this box if the organization did not compensate any current officer, director, or trustee.
(B) Average
hours perweek
● List all of the organization’s current key employees. See instructions for definition of “key employee.”
0201201LB14B-18-C0
Bookkeeping
18-34
Page 8
Form 990 (2009)
Section A. Officers, Directors, Trustees, Key Employees, and Highest Compensated Employees (continued)
1b
Total �
Total number of individuals (including but not limited to those listed above) who received more than $100,000 inreportable compensation from the organization �
2
Part VII
Form 990 (2009)
Did the organization list any former officer, director or trustee, key employee, or highest compensatedemployee on line 1a? If “Yes,” complete Schedule J for such individual
3
4
For any individual listed on line 1a, is the sum of reportable compensation and other compensation from the organization and related organizations greater than $150,000? If “Yes,” complete Schedule J for such individual
5
Did any person listed on line 1a receive or accrue compensation from any unrelated organization forservices rendered to the organization? If “Yes,” complete Schedule J for such person
(A) Name and business address
(B) Description of services
(C) Compensation
2
Total number of independent contractors (including but not limited to those listed above) who received more than $100,000 in compensation from the organization �
Yes
No
Section B. Independent Contractors Complete this table for your five highest compensated independent contractors that received more than $100,000 of
compensation from the organization.
1
3
4
5
Name and title
Position (check all that apply)
Reportable compensation
fromthe
organization (W-2/1099-MISC)
Reportablecompensation
from relatedorganizations
(W-2/1099-MISC)
Estimatedamount of
othercompensation
from theorganizationand related
organizations
(C)
(D)
(E)
(F)
Former
Highest com
pensated
emp
loyee K
ey emp
loyee O
fficer Institutional trustee Ind
ividual trustee
or director
(A)
(B) Average
hours perweek
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-35
Gross income from fundraisingevents (not including $
Form 990 (2009)
Page 9
Form 990 (2009)
Total revenue. See instructions. �
b c
11a
Business Code
Miscellaneous Revenue
d e
12 Total. Add lines 11a–11d �
Statement of Revenue (C)
Unrelatedbusinessrevenue
Oth
er R
even
ue
Federated campaigns
1a Membership dues
Fundraising events Related organizations
b
Government grants (contributions)
c
All other contributions, gifts, grants,and similar amounts not included above
(D)Revenue
excluded from taxunder sections
512, 513, or 514
(B)Related or
exemptfunctionrevenue
(A)Total revenue
d e f
Noncash contributions included in lines 1a-1f: $
g
2a b c d
e f g Total. Add lines 2a–2f �
Investment income (including dividends, interest, andother similar amounts) �
Gross Rents Less: rental expenses
Rental income or (loss)
Gross amount from sales ofassets other than inventory
Less: cost or other basisand sales expenses
Gain or (loss) Net gain or (loss) �
3
4 5
6a b c
7a
b
c d
8a
Less: direct expenses Net income or (loss) from fundraising events �
Gross sales of inventory, lessreturns and allowances
Less: cost of goods sold Net income or (loss) from sales of inventory �
Net rental income or (loss) �
b c
b c
(i) Securities
(ii) Other
(i) Real
(ii) Personal
Business Code
10a
Con
trib
utio
ns, g
ifts,
gra
nts
and
othe
r si
mila
r am
ount
s
Prog
ram
Ser
vice
Rev
enue
All other program service revenue
1a
b a
b a
Royalties �
Income from investment of tax-exempt bond proceeds �
1b 1c 1d 1e
h Total. Add lines 1a–1f �
d
All other revenue
1f
Part VIII
Gross income from gaming activities.See Part IV, line 19
Less: direct expenses Net income or (loss) from gaming activities �
b a
9a
b c
of contributions reported on line 1c).See Part IV, line 18
0201201LB14B-18-C0
Bookkeeping
18-36
Form 990 (2009)
Page 10
Statement of Functional Expenses
(C)Management andgeneral expenses
Grants and other assistance to governments and organizations in the U.S. See Part IV, line 21
1
Grants and other assistance to individuals inthe U.S. See Part IV, line 22
Grants and other assistance to governments, organizations, and individuals outside theU.S. See Part IV, lines 15 and 16
Compensation of current officers, directors,trustees, and key employees
Compensation not included above, to disqualifiedpersons (as defined under section 4958(f)(1)) andpersons described in section 4958(c)(3)(B)
Form 990 (2009)
(D)Fundraisingexpenses
(B) Program service
expenses
(A)Total expenses
Do not include amounts reported on lines 6b,7b, 8b, 9b, and 10b of Part VIII.
Other salaries and wages
9
Pension plan contributions (include section 401(k)and section 403(b) employer contributions)
Other employee benefits Payroll taxes
Accounting
Professional fundraising services. See Part IV, line 17 Investment management fees
Other Advertising and promotion
Office expenses Information technology
Royalties
Travel Payments of travel or entertainment expenses
for any federal, state, or local public officials Conferences, conventions, and meetings
Interest
a b c d e
Other expenses. Itemize expenses notcovered above. (Expenses grouped togetherand labeled miscellaneous may not exceed5% of total expenses shown on line 25 below.)
b c
Section 501(c)(3) and 501(c)(4) organizations must complete all columns.All other organizations must complete column (A) but are not required to complete columns (B), (C), and (D).
Fees for services (non-employees): Management
Legal
Lobbying
Occupancy
Depreciation, depletion, and amortization
Total functional expenses. Add lines 1 through 24f
2
3
4 5
6
7 8
10 11
f g
12 13 14 15 16 17 18
19 20
24
22
a
d e f
25
Benefits paid to or for members
All other expenses
Payments to affiliates
21
Part IX
Joint costs. Check here � if followingSOP 98-2. Complete this line only if theorganization reported in column (B) joint costsfrom a combined educational campaign andfundraising solicitation
26
Insurance
23
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-37
Form 990 (2009)
Page 11
Balance Sheet (B)
End of year
(A)Beginning of year
Ass
ets
1 Cash—non-interest-bearing
1 2 2 Savings and temporary cash investments
3 4 Accounts receivable, net
4
5
6 7
Receivables from current and former officers, directors, trustees, keyemployees, and highest compensated employees. Complete Part II of Schedule L
Notes and loans receivable, net
7 8
11
Inventories for sale or use 9 Prepaid expenses and deferred charges
Total assets. Add lines 1 through 15 (must equal line 34)
Liab
iliti
es
Accounts payable and accrued expenses Grants payable
Deferred revenue Tax-exempt bond liabilities
Escrow or custodial account liability. Complete Part IV of Schedule D
Secured mortgages and notes payable to unrelated third parties
Total liabilities. Add lines 17 through 25
25
Payables to current and former officers, directors, trustees, keyemployees, highest compensated employees, and disqualifiedpersons. Complete Part II of Schedule L
Net
Ass
ets
or
Fund
Bal
ance
s
Organizations that do not follow SFAS 117, check here �
and complete lines 30 through 34.
28 Unrestricted net assets
29
Temporarily restricted net assets
30
Permanently restricted net assets
30 31
Capital stock or trust principal, or current funds
32 Paid-in or capital surplus, or land, building, or equipment fund
Form 990 (2009)
Receivables from other disqualified persons (as defined under section 4958(f)(1)) and persons described in section 4958(c)(3)(B). CompletePart II of Schedule L
Pledges and grants receivable, net
Unsecured notes and loans payable to unrelated third parties Other liabilities. Complete Part X of Schedule D
5
6
8 9
19 18
20 21 22
23
17
24
26
27
Organizations that follow SFAS 117, check here � andcomplete lines 27 through 29, and lines 33 and 34.
3
31
29 28 27
10a
33 Retained earnings, endowment, accumulated income, or other funds
34 Total net assets or fund balances
Total liabilities and net assets/fund balances
32 33 34
11
Part X
10a
10b
Land, buildings, and equipment: cost orother basis. Complete Part VI of Schedule D Less: accumulated depreciation
Investments—publicly traded securities Investments—other securities. See Part IV, line 11
Investments—program-related. See Part IV, line 11 Intangible assets
Other assets. See Part IV, line 11
12 13 14 15 16
b 10c
12 13 14 15 16 17 18 19 20 21
22
24 25
23
26
0201201LB14B-18-C0
Bookkeeping
18-38
Form 990 (2009)
Page 12
Form 990 (2009)
Financial Statements and Reporting
Accounting method used to prepare the Form 990:
1
Cash
Accrual
Other
2a
2a
Yes
No
Were the organization’s financial statements compiled or reviewed by an independent accountant? Were the organization’s financial statements audited by an independent accountant?
If “Yes” to line 2a or 2b, does the organization have a committee that assumes responsibility for oversight ofthe audit, review, or compilation of its financial statements and selection of an independent accountant?
As a result of a federal award, was the organization required to undergo an audit or audits as set forth inthe Single Audit Act and OMB Circular A-133?
If “Yes,” did the organization undergo the required audit or audits? If the organization did not undergo therequired audit or audits, explain why in Schedule O and describe any steps taken to undergo such audits.
2b
2c
3a 3b
b c
3a b
Part XI
d
If “Yes” to line 2a or 2b, check a box below to indicate whether the financial statements for the year wereissued on a consolidated basis, separate basis, or both: Separate basis
Consolidated basis
Both consolidated and separate basis
If the organization changed its method of accounting from a prior year or checked “Other,” explain inSchedule O.
If the organization changed either its oversight process or selection process during the tax year, explain inSchedule O.
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-39
Step 15 Practice Exercise 18-3
Write true or false in the blank.
1. _____ Non-profi t organizations must be approved by the IRS.
2. _____ Non-profi t organizations are only religious groups.
3. _____ Non-profi t organizations can obtain tax-exempt status if they meet government requirements.
4. _____ A bookkeeper might be called upon to complete a balance sheet for a non-profi t organization.
5. _____ A professional bookkeeper will not be required to provide payroll services for a non-profi t organization.
6. _____ The government requires non-profi t organizations to provide receipts for donations of $200.00 or more.
7. _____ A bookkeeper may be asked to complete an income statement for a non-profi t organization.
8. _____ Part I of Form 990 contains the name, address, EIN and exemption number of the non-profi t organization.
9. _____ Part VII analyzes the non-profi t’s income to determine if it falls within the government’s guidelines.
10. _____ Part III requires a statement of program services accomplishments.
Step 16 Review Practice Exercise 18-3
Check your answers with the Answer Key at the back of this book. Correct any mistakes you have made.
0201201LB14B-18-C0
Bookkeeping
18-40
Step 17 Lesson Summary
Bookkeeping is used in many facets of all kinds of businesses. If you operate a bookkeeping business out of your home, you probably will deal mostly with sole proprietorships and perhaps an occasional partnership. Corporations usually use certifi ed accountants rather than bookkeepers to take care of the fi nancial affairs of the business; however, as a bookkeeper, it is important that you understand some of the basic differences between sole proprietorships, partnerships, and corporations.
Non-profi t organizations must keep track of income and expenses just like a for-profi t business. The non-profi t organization must also fi le statements and a Form 990 with the federal government to maintain its exempt status. Bookkeeping can be provided to all of these non-profi t organization bookkeeping needs.
Step 18 Mail-in Quiz 18
Follow the steps to complete the quiz.
a. Be sure you’ve mastered the instruction and the Practice Exercises that this quiz covers.
b. Mark your answers on your quiz. Remember to check your answers with the lesson content.
c. When you’ve fi nished, transfer your answers to the Scanner Answer Sheet included. Use only blue or black ink on your Scanner Answer Sheet.
d. Important! Please fi ll in all information requested on your Scanner Answer Sheet or when submitting your quiz online.
e. Submit your answers to the school via mail, e-mail,fax or, to receive your grade immediately, submit your answers online at www.uscareerinstitute.edu.
Choose the BEST answer for each question.
1. An agreement between two or more people who enter into a for-profi t business is called a _____.a. corporationb. partnershipc. non-profi t corporationd. presentation
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-41
2. When a partnership is formed, the partnership parties become _____ of the business.a. equalsb. semi-ownersc. partial ownersd. co-owners
3. There can be any combination of percentages each partner owns, as long as the total equals _____ percent.a. 95b. 200c. 100d. 25
4. The amount of a company a partner owns is known as her _____.a. percentage interestb. fair sharec. preferred stockd. share holder
5. When each partner can make decisions for the entire fi rm, it is known as _____.a. mutual agentsb. unfair business practicec. practical underwriting system hierarchy (PUSH)d. percentage interest
6. Regardless of the relationship between partners, the partnership agreement should always _____.a. contain an automatic renewal clauseb. be written down and signed by all partiesc. be oral and well understoodd. last more than 20 years
7. A partnership agreement _____.a. spells out all specifi c points of the agreementb. usually contains a length of time clausec. should be writtend. all of the above
0201201LB14B-18-C0
Bookkeeping
18-42
8. Each partner in a business is _____ the debts the partnership incurs while she is a partner.a. personally liable forb. not personally liable forc. corporately liable ford. worth
9. Any addition to the capital account in a partnership must be recorded _____.a. only in the journalb. in the journal and appropriate ledger accountsc. only in the ledgerd. on the capital statement
10. When a partnership is formed, the bookkeeper must manage _____ for each partner.a. a capital accountb. $60,000 cashc. a new ledgerd. fi ve journal entries
11. The fi rst posting to a partner’s capital account is the partner’s _____.a. fair share of the businessb. initial investmentc. percentage interestd. drawing account
12. Investment can take the form of _____.a. cashb. hardwarec. inventoryd. all of the above
13. The percent interest can be broken down into a(n) _____ that is used to determine division of net income or loss.a. fi gureb. educated guessc. scientifi c formulad. ratio
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-43
14. If the percentage interest in a partnership for the three partners is broken down like this:
Partner A = 50%, Partner B = 25%, and Partner C = 25%
What is the correct ratio? _____a. 1:2:4b. 1:2:2c. 2:1:1d. 1:2:1
15. If the business in number 14 has a $50,000 profi t, and the profi t is divided according to percentage interest, how much money is Partner B entitled to? _____a. All of itb. $65,000c. $25,000d. $12,500
16. Drawing accounts in a partnership provide partners with _____.a. funds from their capital accountsb. funds from the journalc. funds for business expenses onlyd. access to the business’ checking account
17. If Partner A gets 75% of a profi t or loss, Partner B gets 12% and Partner C gets 13%, how much does each partner pay if the company loses $67,000 during 1993? _____a. A pays $50,250, B pays $8,040 and C pays $8,710b. A pays $65,000 and the others pay nothingc. A, B and C all pay $23,333.33d. A pays $52,050, B pays $8,000 and C pays $6,950
18. Goodwill is a(n) _____ asset.a. tangibleb. fundedc. intangibled. both b and c
0201201LB14B-18-C0
Bookkeeping
18-44
19. The difference between a balance sheet for a sole proprietorship and one for a partnership lies in the _____ section.a. liabilitiesb. capitalc. assetsd. owner draw
20. _____ means a business is a corporation instead of a partnership or sole-proprietorship.a. Inpartnershipb. Incorporatedc. Inkd. Business enjoined stock company
21. _____ attain a legal separation of personal and business assets and liabilities.a. Corporationsb. Partnershipsc. Sole proprietorshipsd. Stock option contracts
22. Owners of common stock split dividends _____ and _____ carry voting rights.a. in alphabetical order / do notb. weekly / doc. equally / do notd. equally / do
23. People who own stock in a company are called _____.a. stockholdersb. stock partnersc. shareholdersd. both a and c are correct
24. The amount of money a share sold for originally is known as its _____.a. par valueb. face valuec. both a and b are correctd. initial amount
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-45
25. The profi t held back by a company for reinvestment into the company is known as _____.a. dividendsb. retained earningsc. retained valued. embezzlement
26. Non-profi t organizations involve _____ organizations.a. religious and civicb. public servicec. activistd. all of the above
27. Organizations must meet requirements set by _____ law and be approved by the _____.a. state/IRSb. federal/IRSc. IRS/federald. IRS/organization
28. Non-profi t organizations must provide a receipt for contributions of _____ or more.a. $350.00b. $200.00c. $250.00d. $100.00
29. Return of Organization Exempt from Income Tax also known as Form _____.a. 960b. 990c. 900d. 991
30. As a professional bookkeeper, you may be asked to complete which of the following for a non-profi t organization? _____ a. payrollb. balance sheetc. income statementd. all of the above
0201201LB14B-18-C0
Bookkeeping
18-46
31. Non-profi t organizations also have _____ and _____.a. receivables/interestb. payables/paymentsc. receivables/payablesd. volunteer payroll/corporation tax status
32. The top part of Form 990 is completed with the _____.a. name, addressb. EIN, exemption numberc. type of organizationd. all of the above
33. Part III requires a statement of program services _____.a. accomplishmentsb. requirementsc. incomed. expenses
0201201LB14B-18-C0
Lesson 18—Partnerships, Corporations, and Non-profi it Organizations
18-47
CongratulationsYou’ve completed Lesson 18
and Pack 4!
Don’t wait for your quiz resultsbefore moving on.
0201201LB14B-18-C0
Bookkeeping
18-48
PACK
4
88-880201201LB14B-AK-C0
BookkeepingAnswer Key
PRACTICE EXERCISE 16-1
1. Today, corporations hire and maintain large a. IT (information technology) departments.
2. Physicians may use c. medical billing software.
3. Many accounting programs function b. similarly.
4. To setup the accounts receivable, you will need to enter an account for each d. customer.
5. In most cases debits and credits are entered a. automatically.
6. The main menu for Peachtree is called d. Peachtree today.
7. The b. accrual method mean expenses and income are recoded without cash being exchanged.
8. The three main parts to My Business are sales and receipts, purchases and payables and c. General Ledger.
9. The a. chart of accounts is set up by selecting a type of business.
10. The a. Company Information page is where the name, address, phone, tax ID, and internet information is entered.
0201201LB14B-AK-C0
Bookkeeping
AK-2
PRACTICE EXERCISE 16-2
1. Personal fi nancial software will d. all of the above.
2. A spreadsheet is important to businesses because of its ability to a. manipulate numbers.
3. A spreadsheet can c. compare this year’s expenses with last year’s expenses.
4. A c. spreadsheet can be used to create a payroll register.
5. A c. spreadsheet can be used to create a list of guests for a party.
PRACTICE EXERCISE 16-3
1. f sum adds a group of numbers
2. d * multiplication
3. e / division
4. h : through
5. b + addition
6. c subtraction
7. a = This symbol tells the computer you are creating a formula.
8. g ( ) use to surround a cell group
0201201LB14B-AK-C0
Answer Key—Pack 4
AK-3
PRACTICE EXERCISE 17-1
1. Which of the following is classifi ed as a cash sale? d. Both a and c
2. The total of all cash, checks and credit card slips in the cash register is called a. cash on hand.
3. When your daily cash on hand is less than the total receipts, you have a situation of b. cash short.
4. a. Total sales is cash sales and sales made on account added together.
5. Why are sales made on account the last items on the daily cash summary? b. These sales do not affect cash on hand.
0201201LB14B-AK-C0
Bookkeeping
AK-4
Daily Cash and Sales SummaryJoan’s Gems
Cash Receipts1. Cash Sales $3255.652. Collections on Account 288.003. Minus Refunds 155.00 TOTAL RECEIPTS $3388.65
Cash on Hand4. Cash in Register $3299.005. Coins in Register 54.976. Checks in Register 75.687. Credit Card Receipts in Register 215.00 TOTAL CASH FROM REGISTER $3644.65
8. Petty Cash/Change Fund $500.009. Less Petty Cash Slips $245.00
10. Total Petty Cash/Change Fund $255.00 TOTAL CASH on HAND $3389.65
If Total Cash on Hand is greater than Total Receipts, 11. Then enter the difference as CASH OVER: $1.00
If Total Cash on Hand is Less than Total Receipts,12. Then enter the difference as CASH SHORT: $-0-
TOTAL SALES13. Cash Sales $3255.6514. Sales made On Account Total 565.9815. TOTAL SALES $3821.63
Form Prepared By:
0201201LB14B-AK-C0
Answer Key—Pack 4
AK-5
PRACTICE EXERCISE 18-1
Part I
1. When a partnership is formed, all partners become b. co-owners of the business.
2. a. Percentage interest refers literally to how much of the company a partner owns.
3. The concept allowing each partner to enter into binding contracts for the fi rm is known as b. mutual agents.
4. The length of a partnership agreement d. both a and b.
5. When a partnership is formed, the accounting services professional must create a a. capital account for each partner.
6. To fi gure the ratio of percent interest, you must fi rst determine the c. greatest common factor.
7. The a. percentage method of fi guring the division of income or loss takes the total net income or loss and multiplies it by the percentage of the company each partner owns.
Part 2
Iris’ Flower BinDistribution of Net Income Statement
Month ending Dec. 31, 20XX
Iris Hirmins 55% of Net Income...................... $4,125.00John Yoder 35% of Net Income........................ 2,625.00Bev Yoder 10% of Net Income........................... 750.00
Net Income ............................................... $7,500.00
0201201LB14B-AK-C0
Bookkeeping
AK-6
PRACTICE EXERCISE 18-2
1. There are how many steps in completing a Capital Statement for a partnership? b. 8
2. The fi rst step in completing a capital statement for a partnership is to a. determine the beginning balance.
3. The difference in a balance sheet for a partnership lies in the d. capital.
4. To close the income summary you should have the b. distribution of net income statement handy.
5. When closing the drawing account for a partnership a. all of the drawing account(s) should be closed.
0201201LB14B-AK-C0
Answer Key—Pack 4
AK-7
PRACTICE EXERCISE 18-3
1. T Non-profi t organizations must be approved by the IRS.
2. F Non-profi t organizations are only religious groups.
3. T Non-profi t organizations can obtain tax exempt status if they meet government requirements.
4. T An accounting services specialist might be called upon to complete a balance sheet for a non-profi t organization.
5. F An accounting services specialist will not be required to provide payroll services for a non-profi t organization.
6. F The government requires non-profi t organizations to provide receipts for donations of $200.00 or more.
7. T An accounting specialist may be asked to complete an Income Statement for a non-profi t organization.
8. F Part I of the 990 contains the name, address, EIN and exemption number of the non-profi t organization.
9. T Part VII analyzes the non-profi ts income to determine if it falls with in the government’s guidelines.
10. T Part III requires a Statement of Program Services Accomplishments.
0201201LB14B-AK-C0
Bookkeeping
AK-8