Last year, Jing, a senior high school student, started her own business. As a life-long cycling
enthusiast with an artistic touch, Jing had discovered a new passion while recovering from a
broken ankle. The pretty artwork on her cast from dozens of friends who had come to visit her at
home and in hospital had inspired Jing to return the favour. One by one, she convinced them to
bring their bikes over so she could decorate them with hand-painted designs.
Tom, her kid brother, had helped move the bikes around for her as she worked. He also had a
talent for painting, so he was a natural hire for Jing once her friends spread the word and cyclists
from miles around lined up to pay her. Jing also discovered that people wanted their accessories
painted, so she began to order bells, baskets, and water bottles online with her mom’s credit card.
Tom and Jing painted the accessories and they sold quickly as cyclists eagerly scooped up
goodies which matched their freshly painted bikes.
Recently, Jing realized she should keep track of how much money is coming in and going out.
She knows she has paid her mom $225 cash to cover the online orders, but she is still owing $70
for the most recent one. She has spent about $400 on paint supplies at the local hardware store
and paid Tom $2,200 to date. She is waiting for Tom to let her know how much she owes him
for the past couple of weeks- they have agreed on a rate of $12 per hour, but he keeps track of
the hours since Jing is often out with her friends while he paints.
Jing estimates that she has charged customers an average of $80 and there have been about 100
customers. She has a feeling that two or three customers have promised to pay later but haven’t
gotten back to her yet. She doesn’t keep contact information, since customers know where to
find her. However, she has been thinking about what would happen if she opened a store at some
point- perhaps collecting contact information from customers might be a good idea!
Jing is thinking about buying a car with her savings (estimated $4,000 cost) and wonders if that
might drop her to a net loss position. She is worried about having to pay taxes so a big expense
would help matters (by conversing with customers, Jing has learned she needs to file a tax return
as an 18-year old adult). Additionally, she plans to use the car for four years, at which point it
will have a fair market value of $0. Being able to visit homes of customers to paint their bikes
would be a huge plus! Several customers have mentioned they don’t have a car, so they had to
walk home or wait for a ride after dropping their bike off.
In addition to detailed business and accounting advice, Jing wants an idea of how her financial
statements look like (she isn’t too worried about accuracy but wants an explanation of major
accounts and balances). She also wants to know what needs to be done each December (she is
aware that it is now March and some actions will have to be completed retroactively). Finally,
she wants an explanation of how journal entries work, especially through the process of buying
inventory, modifying it, and selling it. You may format your paper as a letter to Jing or simply as
a generic report.