Manual Accounting Practice Set The Adrenaline Hut, Australasian Edition 3 Bookmark
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General instructions
Assume it is currently 1 June 2016. You are working for the temporary accounting employment agency known as Tempathy. Today you have been asked to work at The Adrenaline Hut, a small extreme sports store that operates in inner city Canberra and is owned by Helena Ginzburg. Your task here is to complete the accounting cycle for The Adrenaline Hut for the month of June 2016. To assist you in this task, Helena tells you to read the company's accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for The Adrenaline Hut.
Accounting policies a.Business operations: The Adrenaline Hut is set up as a private non-listed company based in Canberra with Helena Ginzburg as the sole shareholder. The company derives its main source of revenue from retail sales of sporting goods.
To assist in selling the products, The Adrenaline Hut rents a large showroom. Note that the business is required to pay for the rent for this premises in advance. The electricity and water expenses incurred during the month relate to the running of the showroom. Additional expenses include an insurance policy to protect the business against inventory items being damaged or lost during deliveries. All costs associated with the showroom are classified as selling and distribution expenses. All part-time employees in the business are sales staff who receive their wages on a weekly basis. Helena is the only full-time employee and her role is to handle all administrative tasks. Helena's salary is paid once at the end of each month. b.Accounting cycle: The business adopts a monthly accounting cycle. c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts and early payment discounts from some suppliers. d.Revenue recognition: The business recognises revenue when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering settlement discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, settlement discounts are not normally offered to credit customers except in exceptional circumstances. e.Sales returns: So that the business can easily track the level of sales returns in relation to overall sales, all sales returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded directly in the Sales Revenue account. f.Goods and services tax (GST): The company is a registered entity for GST purposes and accounts for GST on an accrual basis. As a small business, The Adrenaline Hut pays GST in quarterly instalments and no GST is due to be remitted in the month of June. In the transaction list, all prices of goods and services that are subject to GST are quoted inclusive of 10% GST unless specifically noted otherwise. In the list of adjusting entries, all prices are quoted exclusive of GST. Note that two separate accounts are maintained to record GST paid to suppliers and GST received from customers during the month. The net difference of these two accounts is reported as GST Payable in the financial statements when the business is required to pay the net amount to the Australian Taxation Office. If the business is entitled to receive the net difference from the Australian Taxation Office, this net amount is reported as GST Receivable. Further, GST does not apply to interest revenue, bank charges, salaries and wages but GST does apply to Tempathy' payments for rent and electricity. g.Cash: The business accepts cash and cheques and uses cheques to pay for the majority of its expenses. On the day cheques are received, Helena deposits them at the bank. It may take a number of days for the cheques to be cleared by the bank. The business holds its cheque account with BitiBank. h.Short-term investments: The business holds a six-month term deposit account with BitiBank at a simple interest rate of 6%. Interest is calculated on a monthly basis and received at the end of the deposit term. The monthly interest earned is calculated as the yearly interest divided by the number of months in a year. Note that when the deposit matures, Helena usually rolls over the principal and interest received at the end of the term. The term deposit account was rolled over on 1 June 2016. i.Inventories: The business uses the perpetual inventory system and applies the FIFO method to allocate costs to inventory and cost of sales. Note that the business maintains a set of inventory cards with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the Balance column, items with different unit costs are listed in separate lines with the items purchased earlier listed first in the pair of lines provided. j.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognise the expense incurred during the accounting period. k.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year. l.Long term liabilities: The business obtained an interest only loan of $44,000 from MRMC Bank on 1 May 2016 at a simple interest rate of 6% per year. The first interest payment is due at the end of July 2016 and the principal on the loan is due on 1 May 2020.
Accounting procedures
The Adrenaline Hut adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Helena Ginzburg has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, she advises you that the general principles of how to use special journals are followed in her business. The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals:
Journal
Code
Transaction type
General journal
GJ
All transactions that are not able to be recorded in the special journals below.
Sales journal
SJ
Credit sales of inventory
Purchases journal
PJ
Credit purchases of inventory
Cash receipts journal
CRJ
Cash inflows to the business
Cash payments journal
CPJ
Cash outflows from the business
To summarise the effects of transactions recorded in those journals, Helena maintains the general ledger and the following ledgers:
accounts receivable subsidiary ledger, accounts payable subsidiary ledger, and inventory cards. Helena then indicates that she is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in her business may be different to what you have seen before, she asks that you specifically follow her company's accounting procedures. The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts and inventory cards: Posting of entries recorded in the general journal All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers. Posting of entries recorded in the special journals When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly. a.Daily: If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis. In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily. If a transaction results in a change in the number of inventory items on hand, then the entry that affects inventory is to be posted to the appropriate inventory card on a daily basis. In this way, the business is able to track the balance of inventory on hand. b.Monthly:
At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the totals of the Other Accounts columns in the cash journals, are posted to the appropriate general ledger accounts at the end of the month.
Transactions for June You will use the following five weeks of transactions as you complete the books for June. Note that the transactions are divided into five separate weeks. This is because you will not enter this whole list of transactions on any one page. You will be given five separate pages in which to enter the transactions for each of the five weeks.
Dat e
Description
Week 1 1
Paid the full amount owing to Extreme Sports Inc, Cheque No. 634. Payment fell within discount period.
2
Purchased 18 Extreme GPS-enabled Helmets from Sport Borders for $264 each, terms net 30.
3
Paid the full amount owing to Addax Sports, Cheque No. 635. Payment fell within discount period.
3
Purchased 30 White Water Rafts with cash for $385 each, Cheque No. 636.
4
Made cash sale of 26 White Water Rafts for $715 each.
4
Paid sales staff wages of $1,741 for the week up to and including yesterday, Cheque No. 637. Note that $1,000 of this payment relates to the wages expense incurred during the last week of May.
5
Purchased 19 Tony Eagle Freestyle Skateboards from Hike for $176 each, terms 2/10, n/30
5
Sold 13 Extreme GPS-enabled Helmets to The Locker Room for $385 each, Invoice No. 389.
Week 2 8
Paid the full amount owing to J. J. Spud, Cheque No. 638.
11
Mick's Sporting Goods paid the full amount owing on their account. Since Mick's Sporting Goods has been a loyal customer from the day the business commenced, a 10% discount was given for this early repayment.
11
Made cash sale of 7 Pipe Dream Surfboards for $462 each.
11
Made payment of $1,397 to Integer Energy for 3 months of electricity up to and including 31 May, Cheque No. 639.
11
Paid sales staff wages of $2,115 for the week up to and including yesterday, Cheque No. 640.
12
The Locker Room returned 4 Extreme GPS-enabled Helmets that were originally sold for $385 each on 5 June. These items cost $200 each (excluding 10% GST) and were not faulty or damaged. Issued a Credit Note for $1,540.
13
Sold 32 Downhill Snowboards to Jump Around for $671 each, Invoice No. 390.
Week 3 15
Paid $2,200 for one month's rent of the show room (from 16 June to 15 July inclusive), Cheque No. 641.
16
Sold 57 Tony Eagle Freestyle Skateboards to Balls 'n All for $253 each, Invoice No. 391.
18
Jump Around paid $11,300 in partial payment of their account.
18
Made cash sale of 49 White Water Rafts for a list price of $715 each. A trade discount of 20% applies.
18
Paid sales staff wages of $1,997 for the week up to and including yesterday, Cheque No. 642.
19
The Locker Room paid the full amount owing on their account.
21
Returned 8 faulty White Water Rafts, originally purchased for $385 each, to Sport Borders. Received a Credit Note for $3,080.
21
Received a purchase order from Jump Around. Created a corresponding sales order to deliver 2 Downhill Snowboards to this customer for $671 each, Invoice No. 392.
Week 4 22
Paid the full amount owing to Sport Borders, Cheque No. 643.
24
Paid the full amount owing to Hike, Cheque No. 644.
24
Delivered 2 Downhill Snowboards to Jump Around for $671 each, Invoice No. 392, which was ordered on the 21st.
25
Made cash sale of 81 Extreme GPS-enabled Helmets for $385 each.
25
Paid sales staff wages of $2,042 for the week up to and including yesterday, Cheque No. 645.
26
Ordered 14 Tony Eagle Freestyle Skateboards from Addax Sports for $176 each, agreed terms with Addax Sports are 2/10, n/30.
Week 5 29
Received 14 Tony Eagle Freestyle Skateboards for $176 each, which were ordered on the 26th, agreed terms with Addax Sports are 2/10, n/30.
29
Croquet and Cricket paid the full amount owing on their account.
29
Made cash sale of 16 Pipe Dream Surfboards for $462 each.
29
Purchased 28 Downhill Snowboards with cash for a list price of $352 each. A trade discount of 25% applies, Cheque No. 646.
30
Paid monthly salary of $6,800 to Helena Ginzburg, Cheque No. 647.
Adjusting entries information Using the following information, you will record end of month adjustments:
Cash Registers owned by the business: original purchase price was $7,000, estimated useful life was 5 years, and estimated residual value was $1,500 at the end of the useful life. Depreciation is calculated on a monthly basis using the straight line method. The monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year. Store Fixtures owned by the business: original purchase price was $48,000, estimated useful life was 12 years, and estimated residual value was $3,000 at the end of the useful life. Depreciation is calculated on a monthly basis using the straight line method. The monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year. The water usage for the month of June is estimated to be $113. The estimated electricity payable as at the end of June is $451. Sales staff work every single day during the week including weekends and are paid on a weekly basis. Wages were last paid up to and including 24 June. Wages incurred after that day (from 25 June to 30 June inclusive) are estimated to have been $300 per day. Interest expense incurred during the month of June but not yet paid to MRMC Bank for the bank loan is $220. Interest earned from short-term investments in BitiBank for the month of June is $115. Office supplies totalling $3,045 are still on hand at 30 June. 15 days of rent remained pre-paid at the start of June. 3 months of advertising remained pre-paid at the start of June.
5 months of insurance remained pre-paid at the start of June. When calculating the portion of prepayments that expire during the month of June, you are asked to assume that an equal amount of expense is incurred per month. A stocktake revealed that the balance of inventory on hand as at 30 June is equal to the closing balance of the Inventory account. This means there is no adjusting entry required for inventory shrinkage. Continue Manual Accounting Practice Set The Adrenaline Hut, Australasian Edition 3 (VTA3q)
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Manual Accounting Practice Set The Adrenaline Hut, Australasian Edition 3 Bookmark
Previous pages
Being completed by: tranngthienanh
Further information Your progress
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The time frames we provide are a guide only. It may take you more or less time to complete each page.
Information from previous pages
General instructions Policies and procedures All transactions Adjusting entries information
This page introduces you to further information that you will need to complete the practice set.
The information on this page will continue to be made available to you through a link on each subsequent page of the practice set. However, it may be useful to print this page because you will be referring to it regularly. Click the Start question 1 button below to start recording transactions for The Adrenaline Hut.
Post-closing trial balance ~ May The Adrenaline Hut Post-closing trial balance As at 31/05/2016 Account No.
Name
Debit ($)
100 Cash at Bank
72,074
102 Short-term Investments
23,000
110 ARC - Accounts Receivable Control
67,872
Credit ($)
112 Interest Receivable 120 Inventory 130 Office Supplies
71,640 3,904
135 GST Outlays
19,866
140 Prepaid Rent
1,000
141 Prepaid Advertising
12,000
142 Prepaid Insurance
3,300
150 Cash Registers
7,000
151 Accum Depn: Cash Registers 160 Store Fixtures
2,017 48,000
161 Accum Depn: Store Fixtures
17,813
210 APC - Accounts Payable Control
76,414
220 Wages Payable
1,000
221 Electricity Payable
1,342
222 Water Payable
125
225 Interest Payable
220
240 GST Collections
12,178
250 Bank Loan Payable
44,000
300 Share Capital
55,000
301 Retained Earnings
119,547
310 Profit and Loss Summary 400 Sales Revenue 401 Sales Returns and Allowances 402 Discount Received 403 Interest Revenue 500 Cost of Sales 511 Advertising Expense 516 Wages Expense 540 Rent Expense 541 Electricity Expense 542 Water Expense 543 Insurance Expense 544 Office Supplies Expense 545 Salary Expense 560 Depn Expense: Cash Registers 561 Depn Expense: Store Fixtures 571 Interest Expense 572 Bank Charges 573 Discount Allowed Total
329,656
329,656
Debit ($)
Credit ($)
Schedule of accounts receivable ~ May The Adrenaline Hut Schedule of Accounts Receivable As at 31/05/2016 Account No.
Name
110-1 ARC - Mick's Sporting Goods
5,060
110-2 ARC - Great Sports
8,600
110-3 ARC - The Locker Room 110-4 ARC - Croquet and Cricket 110-5 ARC - Balls 'n All
44,733 9,479
110-6 ARC - Jump Around Total
67,872
Please note: The Adrenaline Hut does not generally give a discount for early payment except in exceptional circumstances. All debtors are on net 30 credit terms.
Schedule of accounts payable ~ May The Adrenaline Hut Schedule of Accounts Payable As at 31/05/2016 Account No.
Debit ($)
Name
Credit ($)
Terms
210-1 APC - Hike
5,676
2/10, n/30
210-2 APC - Extreme Sports Inc
6,600
1/15, n/30
210-3 APC - Sport Borders
47,588
net 30
210-4 APC - Addax Sports
9,350
2/10, n/30
210-5 APC - J. J. Spud
7,200
net 30
210-6 APC - Sports 'R Us
net 30
Total
76,414
Inventory cards ~ May Pipe Dream Surfboards
Purchases Date
Unit s
May
1
May
2
May
May
27
31
25
Unit Cost ($)
240
Cost of Sales Total Cost ($)
Unit s
Unit Cost ($)
Balance
Total Cost ($)
6000
13
13
190
190
2470
2470
Unit s
Unit Cost ($)
Total Cost ($)
40
190
7600
40
190
7600
25
240
6000
27
190
5130
25
240
6000
14
190
2660
25
240
6000
White Water Rafts
Purchases Date
May
May
May
May
Unit s
Unit Cost ($)
Cost of Sales Total Cost ($)
Unit s
Unit Cost ($)
Balance
Total Cost ($)
1
8
19
27
31
3
18
350
300
5700
300
900
6300
Unit s
Unit Cost ($)
Total Cost ($)
48
300
14400
42
350
14700
29
300
8700
42
350
14700
26
300
7800
42
350
14700
26
300
7800
60
350
21000
Extreme GPS-Enabled Helmets
Purchases Date
May
May
May
May
Unit s
Unit Cost ($)
Cost of Sales Total Cost ($)
Unit s
Unit Cost ($)
Balance
Total Cost ($)
1
5
21
200
4200
22
31
20
200
47
180
8460
5
200
1000
4000
Unit s
Unit Cost ($)
47
180
8460
42
200
8400
47
180
8460
63
200
12600
58
200
11600
78
200
15600
Downhill Snowboards
Date
Purchases
Cost of Sales
Total Cost ($)
Balance
Unit s
Unit Cost ($)
Total Cost ($)
Unit Cost ($)
Unit s
May
1
May
13
2
280
May
24
16
280
May
31
16
320
Total Cost ($)
Unit s
Unit Cost ($)
Total Cost ($)
41
280
11480
560
39
280
10920
4480
23
280
6440
23
280
6440
16
320
5120
5120
Tony Eagle Freestyle Skateboards
Purchases Date
May
May
May
Unit s
Unit Cost ($)
Cost of Sales Total Cost ($)
Unit s
Unit Cost ($)
Balance
Total Cost ($)
Unit s
1
3
19
16
130
45
100
4500
5
130
650
2080
Unit Cost ($)
Total Cost ($)
45
100
4500
43
130
5590
38
130
4940
54
130
7020
Bank reconciliation statement ~ May The Adrenaline Hut Bank Reconciliation Statement As at 31/05/2016 Balance as per bank statement:
56,450 CR
Add: deposit in transit from Croquet and Cricket
10,174
deposit in transit from Mick's Sporting Goods
11,890
22,06 4 78,514 CR
Less: unpresented cheque
No. 632
5,600
unpresented cheque
No. 633
840
6,440
Adjusted bank balance
72,074 CR
Balance as per ledger account
72,074 DR
Bank statement ~ June
Canberra branch Helena Ginzburg 968 Pearson Avenue Canberra, ACT 2600
Account No. 84347725 Page No. 1
The Adrenaline Hut
Date
Particulars
Debit
Credit
Balance
1 JUN
BALANCE BROUGHT FORWARD
$56,450 CR
1 JUN
DEPOSIT - Mick's Sporting Goods
1 JUN
633
2 JUN
DEPOSIT - Croquet and Cricket
3 JUN
632
$5,600
$72,074 CR
7 JUN
634
$6,534
$65,540 CR
7 JUN
637
$1,741
$63,799 CR
8 JUN
635
$9,163
$54,636 CR
9 JUN
DEPOSIT - Cash sales
$11,890 $840
$68,340 CR $67,500 CR
$10,174
$18,590
$77,674 CR
$73,226 CR
10 JUN
636
$11,550
$61,676 CR
12 JUN
639
$1,397
$60,279 CR
12 JUN
640
$2,115
$58,164 CR
14 JUN
638
$7,200
$50,964 CR
15 JUN
DEPOSIT - Cash sales
$3,234
$54,198 CR
17 JUN
DEPOSIT - Mick's Sporting Goods
$4,554
$58,752 CR
18 JUN
641
$2,200
$56,552 CR
20 JUN
642
$1,997
$54,555 CR
21 JUN
DEPOSIT - Jump Around
22 JUN
CHEQUE RETURNED - Jump Around
$11,300 $11,300
$65,855 CR $54,555 CR
22 JUN
DEPOSIT - Cash sales
24 JUN
643
$49,260
$33,323 CR
27 JUN
645
$2,042
$31,281 CR
28 JUN
DEPOSIT - Cash sales
30 JUN
DEPOSIT - Croquet and Cricket
30 JUN
646
30 JUN
TRANSACTION FEE
30 JUN
INTEREST
Last statement to 31/05/2016
$28,028
This statement to 30/06/2016
$82,583 CR
$31,185
$62,466 CR
$9,479
$71,945 CR
$7,392
$64,553 CR
$14
$64,539 CR
Total debits $120,345
$576
$65,115 CR
Total credits $129,010
Final balance $65,115 CR
Proceeds of cheques will not be available until cleared. All entries for the last business day are subject to verification and authorisation. Any items not paid, or withdrawn, will be adjusted by reversal entry on a later statement.
Start question 1 Manual Accounting Practice Set The Adrenaline Hut, Australasian Edition 3 (VTA3q)
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