Question

Discuss the significance of the contracting discussion between Brett and the large building’s manager concerning the window-washing contract. What amount should be shown on the books of record for Brett’s corporation and when?

            Discuss the significance (if any) of Brett’s truck repair appointment for September 13 to the accounting records?

            

             You are Brett’s business advisor.  Discuss the significant issues involved in the employee’s salary request.  What would you advise Brett to do?

#	Day	Description
1	1	Issued $9,000 of common stock for $9,000 of cash.
2	1	Purchased used truck for $6,000, paying $3,000 in cash and the balance on account.
3	3	Purchased cleaning supplies for $900 on account.
4	5	Paid $1,200 cash on a 1-year insurance policy, effective July 1.
5	12	Billed customers $2,500 for cleaning services.
6	13	Brett got a phone call from a manager of a large office building (Axis Building). The manager asked Brett to prepare a bid sheet for washing all of his windows 4 times per month.
7	18	Paid $1,000 cash on amount owed on truck and $500 on amount owed on cleaning supplies.
8	20	Paid $1,200 cash for employee salaries.
9	20	Brett met with the manager of the large office building (Axis Building) and submitted a bid of $5,500 for complete window washing maintenance 4 times per month. The manager liked the bid but had to discuss this large a contract with the owner. Brett is almost sure the work will come in starting August 1.
10	21	Collected $1,400 cash from customers billed on July 12.
11	25	Billed customers $2,000 for cleaning services.
12	26	Brett got a phone call from the manager of the Axis Building. The owner was willing to pay $5,000 per month for 4 window washings. Brett considered the offer and said it seemed acceptable for him.  The manager said to bring over the contract and start during the week of August 5th.
13	31	Paid cash for gas and oil for month for truck of $200.
14	31	When he picked up the truck after servicing the maintenance man told him the truck should be winterized before November.  The cost for all the work would be $75. Brett made an appointment for winterization of the truck on September 13.
15	31	Declared and paid a $300 dividend.
16	31	An employee approached Brett with a salary request.  The employee was willing to work for $3 less an hour if Brett would pay the salary ‘under the table’. The employee’s spouse had a good job and the salary the employee was getting would put the family into a new income tax bracket. The employee was a good employee and would have to quit if Brett did not oblige.  Brett saw the savings opportunity but said he’d have to talk to his advisor.

In addition the following adjustments were necessary

#	Day	Description
17	31	Services provided but unbilled and uncollected at July 31 were $1,100.
18	31	Depreciation on equipment for month was $200.
19	31	One-twelfth of the insurance expired.
20	31	An inventory count shows $600 of cleaning supplies on hand.
21	31	Accrued but unpaid employee salaries were $400.

Cornelian Window Washing Inc. Chart of Accounts:

100      Cash                            Cash in bank and in petty cash funds

120      Accounts Receivable  Revenue billed but not yet received

130      Cleaning Supplies       Supplies used in the cleaning business

140      Prepaid Insurance       Insurance policy for the operations of the business

150      Equipment                  Equipment used in the operations of the business

155      Accumulated Depreciation - Equipment

Amounts of equipment values previously assigned as an expense of business. (Contra Account)

200      Accounts Payable

Amounts owed by the business for items purchased and delivered but not paid for.

210      Salaries Payable          Amounts owed to employees of business for wages

300      Common Stock           Ownership investment

310      Retained Earnings       Net income retained in the business

330      Dividends                    Amounts paid to stockholders during the period.

340      Income Summary       Clearing account to close nominal accounts

400      Service Revenue         Revenues for operating purpose of the company

500      Gas & Oil Expense     Cost of operating equipment fuel and oil

510      Cleaning Supplies Expense    Expense of cleaning supplies

520      Depreciation Expense             Amounts recognized as equip. expense

530      Insurance Expense                  Amounts recognized as insurance used

540      Salaries Expense                     Amounts owed / or paid/ to employees

Answer 1

Case Study: A.	Concerning the Contract Between Brett and Large Building Manager
#	Date	Accounting Description	Dr.	Cr.
6	13 Day	NO Entry
Explanation	Because, as Manager only asked for preparationof Quotation / Bid sheet for the offer, hence not any transaction in economic terms.
9	20 Day	NO Entry
Explanation	Because, as Building manager has to discuss with his senior to finalise the contract, only submission of quotation/ bid willl not be deemed as contract formed between the parties.
12	26 Day	NO Entry
Explanation	Because, Contract effective is from 05. August, and Brett is in July only, from Next month same will be required to be dealt as. However, the whole contract shall be booked in the end of the August period, because the services of the contract is 4 times windows washing, while the contract consideration is payable on monthly basis, i.e when 4 window cleaning completed, hence Revenue shall be recognised on month end.
Case Study: B.	Truck expenses on 13
#	Date	Accounting Description	Dr.	Cr.
14	31 Day	Equipment A/c Dr.	75
		To Account Payable A/c	75
Explanation	Beecause, Winterization willl improve the productivity level of the truck, hence sam eis capitalised in books.
Case Study: C	Salary payable to Employees
#	Date	Accounting Description	Dr.	Cr.
16	31	Cleaning Supplies Expenses A/c Dr.
		To Cash A/c
Explanation	It is Advisable to show such salary expenses under cleaning expenses head, as with this the brett will be not obliged to do the statutory compliances under the employees appointment, and salary shall be paid in cash.