Solved by verified expert :Quattro
Paperless
Office Ltd.
(Version
A)
Introduction
to Accounting in the 21st Century
Gaber,
Hayes & Porporato
McGraw Hill
2013
Note: the project document files that
accompany this project contain the information needed to complete the project
Quattro Paperless Office (Version A)
While
technology has long promised a ‘paperless society’, the promise has been slow
to materialize. Small businesses in particular, can rarely afford to own the
high-speed scanners and shredders needed to efficiently eliminate the mountains
of paper generated and processed by many businesses. Duplex scanners are
available that scan both sides of a document at the rate of 100+ documents per
minute, over 10 times faster than most home scanners. However, they cost
$20,000 – $50,000 and would sit idle in a small business much of the time.
While
it is expensive to image, index, and save documents online, well implemented
digital solutions do reduce business operating costs. Online files take up less
storage space than paper files. They may be quickly accessed and easily shared
– locally or across the country. Digital records are simple to back-up and take
offsite: the risk of loss or damage if disaster strikes can be minimized.
Authentication software can protect confidential or sensitive digital
information. In short, document imaging can satisfy regulatory and security requirements
while maximizing information accessibility, records security and end-user
productivity and protection.
Imaging
paper records creates a problem: the originating paper documents need to be
eliminated. To comply with government privacy regulations and company policies
concerning handling of confidential and sensitive information, this often
requires shredding. Over the past twenty years in North America the market for
mobile information destruction contractors (operators with high-speed shredder
equipped trucks) has been rapidly expanding. It takes over 1,000 hours to shred
300 pounds of paper with the small, home-use $100 cross-cut shredder. The same
job can be done in less than ten minutes by a mobile information destruction
unit.
Imagine
the document management possibilities for small businesses if high-speed
scanners were added to these mobile destruction units. Part 1 of the term
project requires that you prepare accounting records and financial statements
for Quattro Paperless Office Ltd., a fictional company that does just that.
Quattro offers mobile scanning and shredding services, as well as document
management consulting services for small businesses. Complete the project using
the descriptive information following and additional project documents.
Description of the business
Brother
and sister, Susan and Steven Savey, had worked part-time since they were
sixteen for OfficeHelp Ltd., the temporary office personnel placement agency
owned and operated by their parents, Stella and Stuart Savey. By the time Susan
and Steven had graduated from university they had worked with filing systems in
over a hundred businesses. They appreciated the contribution a well-designed
information storage system made to business success, and recognized the need
for affordable document imaging and shredding solutions for small businesses.
Susan, a computer science graduate, had studied the scanning and digital
storage technologies used to create, maintain and search online imaged-document
files. Steven, a recent business school graduate, recognized the market for
Susan’s skills.
Susan
and Steven moved cautiously, conducted extensive market research and prepared a
business plan before committing to the venture. Steven and Susan’s parents were
2
confident their children had the talent,
training, and discipline to succeed in their planned venture. They offered to
help however they could.
In
the fall of 2013, Quattro Paperless Office Ltd., a document imaging and storage
solution company, was launched. Quattro’s consulting services assist customers
design online information flow, search and storage systems. Customers can
either purchase equipment to implement the systems designed by Quattro, or
contract with Quattro or others for mobile scanning and shredding services.
Quattro’s slogan is ‘providing small business scan, search, and shred solutions
for a paperless tomorrow’.
All
Quattro’s services, other than free quotes, are priced at $100 per hour. Susan
and Steven hope that by providing quality, information flow, search and storage
consulting services for rock-bottom prices, customers will also contract for
Quattro’s scanning and shredding services, even though cheaper shredding is
available elsewhere.
Share Capital and Banking
For
various tax and liability reasons, Susan and Steven decided the business should
be incorporated. They both put at risk all their inheritance from grandparents
and each bought 25,000 common shares of Quattro for $ 1.20 a share. Stella and
Stuart Savey also each bought 25,000 common shares for $1.20 a share.
Steven
opened a bank account for Quattro and deposited the $120,000 received from
share issue. When it set-up its banking arrangements, Quattro arranged for a
Wiza Credit Card with a $5,000 credit limit and a convenience card for online,
telephone and bank machine use.
As
could only happen in a fictional term project, Quattro managed to incorporate,
set-up and equip its facilities, begin operations, advertise its services, and
negotiate insurance all on September 3rd
2013!
Facilities and Mobis
Quattro
purchased two refurbished mobile document destruction units (shredders in
trucks) from ShredMaster Inc. Other used mobile document destruction units were
available from other companies, but Quattro chose ShredMaster when ShredMaster
agreed to (1) accept a one year note payable instead of cash and (2) to
subcontract 600 hours of shredding work to Quattro in 2013. The note was for a
one year term and both the principal and interest, at 12% per annum, were due
at the end of one year. ShredMaster’s owner indicated he would be willing to
renew the note for a further one-
3
year term, if he were to receive
Quattro’s financial statements and determined that it was likely the principal
and interest would all eventually be repaid.
Quattro
purchased two refurbished six-year-old scanners from DigitizeMe Ltd. In
exchange for Susan and Steven’s promise to purchase additional scanners from
DigitizeMe as Quattro’s business grows, DigitizeMe agreed to wait six months
for payment. Susan and Steven could not believe their good fortune: new, the
equipment would have cost over twice as much.
CustomTruck
reconfigured the mobile document destruction units, installed the scanners and
painted the mobile units. Susan and Steven called the two resulting mobile
document solution vehicles Mobi 1 and Mobi 2, names they felt would have more
customer appeal than the scanning industry choice for their mobile units of
‘document destruction units’. Susan and Steven expected to use the Mobis for
six years, after which time they expected Quattro would purchase newer
equipment and sell the Mobis for 10% of their original total cost.
Susan
and Steven’s parents came to the rescue again by agreeing to let Quattro use a
spare office at OfficeHelp Ltd. and park the Mobis at OfficeHelp free of
charge.
Other Furniture and Equipment
Susan
and Steven spent a fun morning purchasing the furniture and equipment,
including a phone/fax/copier combination unit and a computer, needed to get
Quattro’s office up and running. The purchases were charged to Quattro’s Wiza
Card. The business plan stated Quattro would operate out of OfficeHelp’s
premises for three years before expanding to premises of its own: Susan and
Steven decided to expense purchases under $1,000. They planned, at the end of
three years, to purchase new equipment and furniture and donate the simple
furnishing and equipment to charity.
Susan
and Steven felt like they were in business when the phone was set-up and the high-speed
internet connection was working. They authorized the bank to make an automatic
withdrawal from Quattro’s bank account to pay their phone and internet service
provider, BelTel, when amounts were due.
Advertising
Susan
and Steven were very busy on September 3rd.
Not only did they take delivery of the magically reconfigured Mobis and set-up
an office, they also placed ads in SOHO Magazine, the Small Office/Home Office
publication subscribed to by most of the small businesses in the area, arranged
printing of brochures and business cards, and passed out
4
2,000 business cards at the SOHO Trade
Show. Yes, Quattro is most definitely a fictional company … where else but in a
fictional business could all this happen on the first day of business!
Personnel
Susan
and Steve are Quattro’s only employees and they earn a salary of $48,000 per
year each. Although Steven and Susan plan to declare dividends to shareholders
if the business generates cash over and above its operating and expansion needs
in the first year, they wish to have some salaried income so they can
contribute to a Registered Retirement Savings Plan.
Susan
and Steven planned to hire and train Mobi operators, once the business was
established, but in the interim Quattro contracts with OfficeHelp for Mobi
operators. After the first bill arrived from OfficeHelp they decided they
needed to hire Mobi operators sooner rather than later!
Insurance:
Susan
and Steven negotiated an all perils, one-year insurance policy, effective
beginning September 1st, 2013, with RiskIt Insurance. The policy covers third
party liability and Mobi collision and equipment replacement as well as
business interruption.
Need for an information system
Steven
is not an accountant but he remembered from his accounting courses at
university that financial statement preparation was the least of his
record-keeping worries. He knew he needed a system of recordkeeping and
operating procedures that would assist him in ensuring:
Ø
all services were paid for,
Ø
all payments were deposited in the bank,
Ø
commitments for services paid for but
not yet provided, were known,
Ø
Mobi operators were only paid for hours
worked,
Ø
payroll source deductions and vacation
pay were accurately computed,
Ø
customers were called to make sure they
were satisfied with their service,
Ø
payroll, interest and supplier payments
were made on time.
The
more Susan and Steven thought about it, the more they realized that working
without well thought out systems resembled skydiving without a parachute. They
would be relying on Quattro’s systems and procedures for reliable reporting of
Quattro’s financial position, results of operations and cash flow.
5
Susan and Steven realized they would
eventually need a computer system tailored to Quattro’s operations, but decided
that it was best to begin with a non-computerized system. Once Quattro had been
operating longer, it would be easier to define the system needs of the
business.
Appointment spreadsheet
Quattro
charges $100 per hour for both consulting and Mobi services. Services are
billed to the nearest hour (including driving time) to keep the math easy.
Although many hours are also spent meeting with prospective clients, there is
no charge for this time as Quattro gives free quotes to interested customers. Customers
are asked to sign contracts before either consulting or Mobi services are
rendered. Occasionally, an advance payment for a portion of the consulting
services is required when a customer signs a particularly large contract to
engage Quattro for information flow, search and storage system design
consulting. No advance payments are required for Mobi services.
Susan
and Steven meet each morning at 7:30am at the office to listen to phone
messages and update the Appointment Spreadsheet. [Portions of the Appointment
Spreadsheet updated Monday, September 30th is included with the project
documents as a example.] While the Appointment Spreadsheet is maintained as an
Excel file on the office computer, a giant copy of the current month’s
Appointment Spreadsheet covers a whiteboard on one wall of the office: it
provides an instant picture of the business.
The
Appointment Spreadsheet has a row for each hour of each business day for the
next year, two columns each for quotation and consulting appointments (one column
for Susan’s appointments and one column for Steven’s appointments), and two
columns for Mobi bookings (one column for each Mobi). Customer names are
entered in the cells, as appointments are booked. Any day a Mobi is booked and
neither Susan nor Steven will be available to operate it, a check mark is put
in the far right column to remind Susan and Steven to let Stella or Stuart know
that Quattro will need to contract for temporary help from OfficeHelp that day
(OfficeHelp does not contract for partial days). Two checkmarks in the far
right column means Quattro will need to request two temporary people from
OfficeHelp to handle the scanning/shredding tasks.
The
spreadsheet is designed to count the number of cells filled in each column for
each month and put the number in the ‘Total Hours’ row for the month. Seeing
the ‘total hours’ number increase everyday as they schedule appointments makes
getting up early to pack a lunch (since there is never time for a long lunch
break) much easier to endure!
6
Appointment card
Each
morning, while Susan is updating the whiteboard, Stephen completes the
appointment cards for the day. He fills in the customer name, address, phone
number, and appointment time information for each customer scheduled for a
visit that day on one of the appointment cards he had had printed. [A sample
appointment card is included with the project documents]. The cards are given
to whoever is meeting with the customer – Susan, Steven or the person(s)
contracted by OfficeHelp as Mobi operator(s) for the day. When a job takes
several days, a separate appointment sheet is completed for each day.
Some
of the places on the appointment card were only relevant to Mobi services: the
spaces for Mobi mileage (the odometer reading at the beginning and end of Mobi
services), and the scanner and shredder meter readings (document count and time
respectively) are left blank when the appointment is to provide a quote or
consult on the document imaging system. Susan and Steven use public transport,
taxis or walk to quotation and consulting appointments. They claim the amounts
they pay personally for their monthly transit pass and taxis on expense reports
they submit to Quattro.
At
the end of the day, when everyone returns to Quattro’s office, Steven checks
that there is a completed appointment card for each appointment showing on the
whiteboard. Steven initials the cards once he reviews them, reads the comments
and makes sure the customer and Mobi operator signed the card. Then he gives
the cards to Susan so she can update the Appointment Spreadsheet (both on the
computer and on the whiteboard) so that the total hours reported on the
spreadsheet will equal the hours of service actually provided [Note: another
magical feature of this business is the transportation time to customers is
negligible, personnel never take breaks, and all job are accomplished in
multiples of 60 minutes.] Susan copies the cards and either Susan or Steven
(whoever has time first), files the copy of the card alphabetically in the
customer folders and files the cards chronologically (in date order).
Customer folders and invoices
With
their early training in office systems, it is second nature for Susan and
Steven to start a new file for each customer. Susan and Steven file all fee
quotes, copies of appointment cards, consulting notes, and system design
recommendation reports in the folders. They use the front cover of the folders
to keep track of how much customers owe: the customer balance is increased by
$100 multiplied by the number of hours of service provided whenever an
appointment card copy is filed in the folder. The balance is decreased whenever
the customer pays. If the customer pays in advance for consulting services, the
balance will be negative and represent the value of consulting services owed to
the customer.
7
Susan prepares customer invoices using
the information on the customer folder cover and on the appointment card copies
in the folder. [A sample invoice is included with the project documents.] She
numbers the invoices consecutively and prints three copies of each invoice: one
copy is mailed to the customer, the second copy is filed numerically in invoice
number order and the third copy is filed alphabetically, in the customer
folder. The invoice has a tear-off remittance advice portion at the bottom
which they ask customers to enclose with their payment.
When
invoices are prepared, the invoice number is recorded next to the billed
activities listed on the customer folder cover as shown below:
Date
Activity
Amount
Invoice
#
Balance
owed
Jan 5
shredding
500
1
500
Jan 15
payment
500
0
Jan 24
shredding
200
17
200
Jan 25
shredding
400
17
600
Susan
updates another computer spreadsheet, the Invoice/Payment Summary, with
customer invoice and payment information so they do not book appointment for
customers who are behind in their payments. [A copy of the Invoice/Payment
Summary Susan prepared on September 30th is included with the project documents.]
Susan and Steven are certain that Quattro will collect all amounts owed to it
by current customers.
The
one disadvantage Steven foresees in using folder covers as accounts receivable
records is covers are bulky to store. However, he remembers that Quattro is in
the document imaging business and they will eventually scan and shred the
covers when they convert to a computerized accounting system!
Bank deposits
Steven
opens the mail and prepares the bank deposits. The book of deposit forms supplied
by the bank provides for a duplicate copy which Steven keeps as part of the
business records. [A sample of a bank deposit form is included with the project
documents.] Susan uses this copy to update the Invoice/Payment Summary. As she
updates this Summary, she takes time to cross-reference the invoices and
payments by writing the number of the invoices being paid on the bank deposit
form and the bank deposit date on the invoice copies filed numerically.
