Here is a "before" and "after" of my small Fair Isle bag. The picture on the left is the bag before it was felted. I used perle cotton around the top of the bag to keep it from stretching out of shape while in the wash. The handle was made by casting on a pre-determined number of stitches (I used 150 because I knew about how long this would make my handle), then doing a row of garter stitch, and then binding off. Once I had bound off I noticed that my handle wanted to roll, so I took advantage of this and loosely stitched the sides together. Gave me a very nice round handle when it was felted.
The finished bag measures approximately 5 1/2" square. No, the sides aren't perfectly straight. Shows that my tension wasn't kept even through out the piece. Something more practice will help improve upon. The bag is lined and has a magnetic closure. I really prefer lining the bags I make. I think it gives the bag a bit more stability and seems to hinder the natural tendency for it to stretch from use. Plus it makes the inside look pretty and finished. Always a nice thing! :)