Week 5 Discussion

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Austin Community College District *

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1002

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Accounting

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May 22, 2024

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Week 5 Discussion James Morales South University ACC1002-Accounting II SU01 Professor Tim Crawford September 15th, 2023 Discussion Question One: You are forming a business with a couple of construction friends who want to build custom homes. They are good at construction, but do not know anything about accounting. Using the example of the construction in the PBS tv show “This Old House”:  Explain for your new business associates how you would do the accounting for this type of business. We will begin by creating a comprehensive chart of accounts which is a categorized list of all the financial transactions we'll encounter. This list will include accounts for revenues, expenses, assets, liabilities, and equity.

To streamline the recording and management of financial transactions, we will use specialized accounting software. This software will help us generate financial statements, track expenses, manage invoices, and monitor cash flow. Each financial transaction will be recorded as a journal entry that consists of a debit and a credit. This will help us maintain the fundamental accounting equation (Assets = Liabilities + Equity).  Using proper terminology and accounting concepts, give a general explanation of the different types of costs involved and make up some sample transactions to record what you see on the tv show. You can assume the costs amounts and identify anything else you are assuming in order to record the transaction. Here's a more precise version of the text, with corrected spelling, grammar, and punctuation errors: 1. Purchase of Construction Materials: Debit Inventory (Assets), Credit Accounts Payable (Liabilities). If materials worth $10,000 are purchased on credit.

2. Payment to Contractors: Debit Labor Expense (Expenses), Credit Cash (Assets). If $8,000 is paid to contractors for their services. 3. Home Sale Revenue: Debit Cash (Assets), Credit Sales Revenue (Income). Assuming that a custom home is sold for $200,000. 4. Depreciation of Equipment: Debit Depreciation Expense (Expenses), Credit Accumulated Depreciation (Assets). If equipment with a useful life of 5 years is depreciated by $2,000.  What other transactions and costs need to be recorded that you do not directly see on the tv show. Running a construction business involves various expenses that need to be accounted for. One of these expenses is overhead costs that cover administrative

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expenses such as office rent, utilities, insurance, and other operational costs. These expenses are vital to keep the business running smoothly and efficiently. Another expense that needs to be recorded is interest and loan payments. If a construction company takes out loans to finance their construction projects, it's important to keep track of the interest payments and loan repayments to avoid any financial difficulties. Permits and licensing fees are other expenses that need to be tracked. These costs are associated with obtaining building permits and licenses for the construction projects. Recording these expenses will help the company to stay in compliance with the law and avoid any legal issues. Marketing and sales expenses are also important to track. Expenses related to advertising, marketing, and sales efforts to attract clients should be recorded to calculate the ROI of marketing campaigns and adjust them if necessary. Taxes are another expense that needs to be accounted for. Income taxes, property taxes, and other applicable taxes should be tracked to avoid legal or financial issues. After selling a home, there might be costs associated with warranty repairs and ongoing maintenance. These expenses, known as warranty and maintenance costs,

should be recorded to ensure that the company meets its obligations and provide quality services to the clients. If a construction company has employees, expenses related to employee benefits such as health insurance, retirement contributions, and payroll taxes need to be recorded. These expenses are important to keep the employees satisfied and motivated, which is vital for the success of the company. References: Warren, C. S., Jones, J. P., & Tayler, W. B. (2020). Financial and managerial accounting . Cengage. Shinn, E. S. (2002). Accounting and financial management for residential construction . Builderbooks.

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