I've knit and felted bags for a few years now. I'm always trying to do the handles in a unique way.
Below is a picture of the bag before felting.
The basic design is:
Knit a rectangle, pick up stitches in the two short sides and the cast on side, then knit in the round working bottom up to shape the bag.
Decrease the front and back evenly, 2 or 3 times to bring the shape in on the sides. (Don't decrease the stitches preserved for the straps.
The strap is knit from one side full length the sewn with Kitchener stitch to the reserved stitches on the other side of the bag. The flap is knit on right side, purl on the wrong side and decreased on edges for the rounded effect.
See full pattern here
This is the brown and tan bag before felting.
This link is all about my knitting in a published article. Please LIKE it at the top left if you "like" it.