The Wine Bar Transactions 1-10

Transcription

1 Economics /Management 4 Financial Accounting Step-by-Step Accrual Accounting: The Wine Bar Transactions 1-10 Updated 04/20/16

2 Balance Sheet Cash Receivables Inventory Pre Paid Expenses Customer Advances Payables Accrued expenses Paid in Capital Retained earnings

3 Revenue COGS Income Statement Template Gross Profit SG&A EBITDA D&A EBIT Interest Pre-Tax Tax expense Net Income

4 Wine Bar Business Plan The plan is to purchase wine in bottles for approximately $30 each and sell wine in glasses for $10 each. A bottle holds six glasses of wine.

5 Accounting for The Wine Bar #1 We (investors/owners), an entity separate from The Wine Bar, Invest $30 in the Wine Bar. The firm receives $30 in Cash; we (now The Wine Bar) give Shares prices at $30. This initial Investment of $30 will be classified as Paid-in-Capital ( PinK ) an Equity Account. DR Cash $30; CR P-in-K $30.

6 Transaction #1 Cash Loans 30 0 P-in-K 30

7 The Capitalized Balance Sheet $ 30 $ 30

8 Transaction #2 We purchase a bottle of Wine for $30. We receive Inventory; we give Cash. DR Inventory $30; CR Cash $30.

9 Transaction #2 Cash Inventory

10 Transaction #3 We sell two glasses of wine for $10 each: one customer pays cash and one customer will be invoiced, i.e. carried on-account. We give 2/6 of our Inventory, a $10 cost from Inventory; we receive $10 cash and $10 in Receivables. This transaction is a sale. How many accounts will affected?

11 Transaction #3 Five accounts will be affected: Temporary Accounts Revenue Expense Permanent Accounts Cash Receivables Inventory

12 Transaction #3 We give two glasses of wine; we receive Cash and a Receivable. DR Cash $10; CR Revenue $10 DR Receivables $10; CR Revenue $10 DR Expenses [COGS] $10; CR Inventory $10

13 Transaction #3 30 Cash 30 Revenue Receivables 10 Inventory Expense 10

14 Close the Accounts Cash P-in-K Receivables Inventory Retained Earnings 10

15 Income Statement Period 1 Revenue 20 COGS ( 10) Gross Profit 10 SG&A (0) EBITDA 10 Interest (0) Net Income 10

16 Closing Period #1 Balance Sheet $ 10 $ 10 $ 20 $ 30 $ 10

17 Transactions #4, #5, and #6. Period 2 #4 We purchase one bottle of wine from our Vendor on-account. We receive Inventory; we give a Payable. #5 We sell two glasses of wine for $10 each: both customers pay cash. We receive Cash; we give Inventory. #6 We collect the outstanding Receivable. We receive Cash; we return the Receivable

18 Transaction #4 Period 2 #4 DR Inventory $30; Inventory increases CR Payables $30; Amount owed increases

19 The T-Accounts for #4 Inventory Payables 30

20 Transaction #5. Period 2 #5 DR Cash $20; Cash increases CR Revenue $20; Revenue increases DR COGS Expense $10; this is an increase in Expenses which is a decrease to Equity CR Inventory $10; Inventory decreases

21 The T-Accounts for #5 Cash Revenue Inventory Expenses

22 Transaction #6. Period 2 #6 DR Cash $10; Cash increases CR Receivables $10; Receivables decrease

23 The T-Accounts for #6 Cash Receivables 10 10

24 Close all Accounts Cash Payables 40 Receivables 0 40 Inventory P-in-K Retained Earnings 20

25 Income Statement Period 2 Revenue 20 COGS ( 10) Gross Profit 10 SG&A (0) EBITDA 10 Interest (0) Net Income 10

26 Closing Period #2 Balance Sheet $ 40 $ 40 $ 30 $ 30 $ 20 RRRR = NNNN(tt) TT 1 =

27 Transactions #7, #8, and #9. Period 3 #7 We take a reservation for a birthday party and the group pays $20 in advance. #8 We pay our Vendor s Payable. #9 We purchase a three-period Insurance policy costing $10 per period and pay $30 in cash. How many accounts will be affected by these transactions and how?

28 Transaction #7 Period 3 #7 We take a reservation for a birthday party and the group pays $20 in advance. DR Cash $20; CR Advances $20. We did not sell any wine but we incurred an obligation, i.e. a liability, to do so.

29 Cash Advances 20 20

30 Transaction #8 Period 3 #8 We pay our Vendor s Payable. DR Payables $30; CR Cash $30.

31 Cash Payable 30 30

32 Transaction #9. Period 3 #9 We purchase a three-period Insurance policy costing $10 per period and pay $30 in cash. DR Pre-Paid Assets also called Pre-Paid Expenses $20; CR Cash $20 DR Expenses $10; CR Cash $10

33 30 Pre-Paids 10 Expense 10 Cash 30

34 Close the Accounts Cash Pre-Paids Inventory Advances P-in-K Retained Earnings 10

35 Income Statement Period 3 Revenue 0 COGS (0) Gross Profit 0 SG&A (10) EBITDA (10) D&A ( 0) EBIT (10) Interest (0) Net Income (10)

36 Close the Accounts Cash Pre-Paids Inventory Advances P-in-K Retained Earnings 10

37 Closing Balance Sheet $ 40 $ 20 $ 20 $ 30 $ 10 RRRR = NNNN(tt) TT 1 = (10)

38 Period 4: Transaction #10 and an Adjustment #10 Let s Party! We hold the birthday party and sell five glasses of wine: the party-goers get a check for $30 net and pay in cash. We recognize 1 period of insurance expense from the Pre-paid account. How many accounts will be affected by this transactions and the Adjustment?

39 Transaction #10 and the Adjustment #10 DR Cash $30; CR Revenue $30 DR Advances $20; CR Revenue $20 DR Expenses $25; CR Inventory $25 DR Expenses $10; CR Pre-paids $10

40 Income Statement Period 4 Revenue 50 COGS (25) Gross Profit 25 SG&A (10) EBITDA 15 D&A ( 0) EBIT 15 Interest (0) Pre-Tax Earnings (15) Tax (0) Net Income (15)

41 Closing Balance Sheet $ 30 $ 15 $ 10 $ 30 $ 25

42 Close the Accounts Cash Advances Pre-Paids Inventory P-in-K 0 30 Retained Earnings 25