ACC506 ATMC Task 2 – Semester 1, 2019
1. ChalkBoard supplies – Introduction
1.1 Introduction
B. Dusty is the sole proprietor of Chalkboard Supplies - a GST-registered independent office furniture supplies business that began operations on 1 July 2017. The business focuses mostly on supplying office and study desks to small businesses. It performs some additional services including deliveries.
Dusty is an astute business owner who prides herself on delivering an excellent service whilst aiming to grow a profitable and successful business. Towards the end of the financial year, Dusty employed some staff including a sales assistant and bookkeeper. Dusty is continuing with the MS Excel spreadsheet system that she has been using to record the accounting transactions and manage her accounts and financial reports.
1.2 Accounting policies and other details
Like all Australian businesses, Chalkboard Supplies uses the financial year: 1 July to 30 June, withholds PAYG for its employees, and pays GST on sales to the Australian Government. The business uses a GST paid (Asset account) and GST collected (Liability account) to record its GST. Unless otherwise stated, assume all transaction amounts are inclusive of GST (10%).
Dusty makes an annual withdrawal of funds from the business for private purposes.
Chalkboard Supplies uses the Accounts listed in the Chart of Accounts.
Chalkboard Supplies uses the accrual accounting method.
Chalkboard Supplies uses a perpetual inventory system with weighted average.
Chalkboard Supplies depreciates computer equipment using reducing balance method at the rate of 25%.
Chalkboard Supplies depreciates vehicles using straight line method, with a residual value of $7000 and the end of its effective life of 7 years.
Fortnightly wages, from June 2018, are paid on the Wednesday for the previous fortnight. Employees work Monday to Friday. (Eg wages paid on 20/6/18, are full fortnight’s pay for work 4/6/18 to 15/6/18.)
Doubtful debts are adjusted at 30 June each year, such that the provision equates to 5% of Accounts Receivable balance at the end of the year.
1.3 The business records the following transactions in the accounts:
TRANSACTIONS
Dat e Details
Jul-17 1 B Dusty contributes $67 000 to the business bank account to establish the business.
July 3 Purchase of a Toyota Landcruiser ute (asset) on credit for $48 510 (incl GST).
July 28 Purchased inventory: 12x Workmate desks for $585 each (not incl GST) and 8x Highrise swivel chairs for $175 each (not incl GST). Bought on credit from Homeworks.
Aug 1 Dusty takes a business loan from Trusty Bank for $42 000. Funds are deposited into the business bank account.
Aug 5 Sold 3x Workmate desks on credit to Ace Accountants for $3520 (gross total). Credit terms 6/15 n30.
Aug 12 Purchased inventory: 18x Workmate desks for $612 each (not incl GST) on credit from Homeworks.
Aug 19 Received full payment less discount from debtor of Aug 5.
Sept 1 Paid cash for insurance Invoice in the amount of $5500. (Invoice amount covers insurance for 12months - 1 Sept 17-30 Aug 18, and includes GST).
Sept 2 Paid Homeworks account in full for July/August purchases.
Sept 20 Sold 8x Workmate desks and 3x Highrise Chairs for a total of $16 456 on credit to a customer, Electrical Training. Credit terms 8/30 n60.
Oct 1 Purchase of a computer system (asset) on credit for $22 231 (incl GST).
Oct 4 Bought 10x Highrise Chairs for $262 each (not incl GST) on credit from Homeworks. A shortage of steel lead to this sharp increase in stock price.
Oct 9 Performed services (service revenue) including delivery and installation for $1991 (incl GST) on credit to customers.
Oct 17 Received full payment from Electrical Training for sale of 20 Sept (discount applies).
Nov 7 Sold 5x Highrise Chairs for $2 629 (incl GST) cash.
Jan 5 B Dusty withdrew 12 200 from the business.
Mar 12 Paid Homeworks account for purchases in October.
April 1 Purchase of a computer system (asset) on credit for $22 231 (incl GST).
April 23 Bought general supplies for the business. Paid $2640 (incl GST) cash.
June 6 Paid fortnightly wages: sales assistant, A Marker received $525 (net pay) (PAYG $55).
June 20 Paid fortnightly wages:Marker received $604 (net pay) (PAYG $76); and Staples received $448 (net pay) (PAYG amount $21).
1.4 Chart of Accounts:
Chart of Accounts
Account Name Account Type Usual Balance
Cash at Bank Asset Debit
Accounts Receivable Asset Debit
Provision for Doubtful Debts Contra - Asset Credit
Supplies Asset Debit
Inventory Asset Debit
Prepaid Insurance Asset Debit
GST Paid Asset Debit
Vehicles Asset Debit
Accum Dep - Vehicles Contra - Asset Debit
Computers Asset Debit
Accum Dep - Computers Contra - Asset Credit
Accounts Payable Liability Credit
GST Collected Liability Credit
Loan Payable Liability Credit
Interest Payable Liability Credit
PAYG Tax Payable Liability Credit
Wages Payable Liability Credit
B Dusty, Capital Equity Credit
B Dusty, Drawings Equity Debit
Sales Revenue Revenue Credit
Sales Discount Contra - Revenue Debit
Service revenue Revenue Credit
Cost of Goods Sold Expense Debit
Bad Debts expense Expense Debit
Depreciation Expense Expense Debit
Insurance Expense Expense Debit
Inventory Loss Expense Debit
Interest Expense Expense Debit
Supplies Expense Expense Debit
Wages Expense Expense Debit
Profit and Loss Closing Temporary only N/A
1.5 June & July 2018 calendar dates (for payroll):
1.6 Journals, Ledgers and other records
The business uses the following journals and ledgers:
General Journal
- to record all transactions (including Adjustments and Closing entries – use the hyperlinks to locate these in the template)
General Ledger
- all GJ entries are posted to the General Ledger (please refer to notes below regarding posting adjustments and closing entries
Trial Balance
- totals of all accounts – link from the General Ledger (please note, this is a Live Trial Balance and you must complete the Worksheet before journalising the adjustments)
Worksheet
- to record adjustments and changes to the accounts when preparing the Adjusted Trial Balance
Inventory Record - to record purchases, sales and inventory on hand for both stock items
1.7 Financial Reports
The business uses the following Financial Statements:
Balance Sheet - Assets, Liabilities, Owners’ Equity
Income Statement - Revenue, Expenses, Goss/Net Profit or Loss Statement of Changes in Equity - Capital, Drawings
1.8 Adjustments (to be completed at the end of the accounting cycle):
Chalkboard Supplies must record the following end of year adjustments:
a. Physical stocktake of supplies revealed Supplies used for the period: $180
b. Record accrued wages expense given wages earned by A Marker and B Staples for the fortnight 18/6/18 to 29/6/18 will be paid on 4/7/18. (The fortnightly earnings are: Marker - $634 gross and Staples - $520 gross. Use accounts: Wages Expense and Wages Payable only.)
c. Insurance paid on Sept 1 covers period 1 Sept 2017-31 Aug 2018. Adjust for the prepaid portion. (Note, insurance invoice total previously recorded as expense.)
d. Calculate the Provision for Doubtful Debts at the rate of 5% of Accounts Receivable balance.
e. Calculate and record the depreciation expense for: computers using the 25% reducing balance method and vehicles using straight line method (see 1.2 above).
f. End of year stocktake reveals $1200 worth of damaged stock. Record the adjustment to inventory (use the inventory loss account).
g. Record interest payable on the loan for the month of June given the business loan is 6% interest per annum.
2. Task 2 Requirements
(Use the Task 2 template. Make adjustments as required including using formulas and links.)
2.1 Prepare the General Journal entries for the Transactions that occurred July 2017June 2018. Transactions are listed above at 1.3. Use the accounts listed in the Chart of Accounts at 1.4. For inventory, all sales and purchases must be entered into Inventory Record as they occur. Use EXCEL formulas for calculations (eg GST) and linking as required. Check the journal is in balance.
2.2 Post the GJ entries to the General Ledger. Enter names for the ledger accounts and add accounts to the template as necessary. Use linking function in EXCEL to Link the transaction amounts from the to the GJ to the relevant GL account. (Please note, the template uses a running balance method. Create the formulas and links for these.)
2.3 Prepare a Trial Balance as at 30 June 2018 by linking from the ledger accounts to the trial balance. It will be a live Trial Balance but at this point it is unadjusted as it does not include the Adjustments which will be recorded in step 2.5 below. Check it is in balance before moving on. (If it is not in balance, try using sort & filter function to find errors in posting. Ask your tutor if you need assistance.)
2.4 Prepare the Worksheet by copying your Trial Balance figures into columns B and C. VERY IMPORTANT - copy these as VALUES (using Paste Special function in EXCEL).
2.5 Record the Adjustments in the General Journal. Adjustments are listed above at 1.8 (a. to g.). Enter these into both the Worksheet (in columns E and F) and the General Journal. Check the journal is in balance.
2.6 Post the adjustment journal entries (from the General Journal) to the General Ledger using new accounts as necessary. (This will change the figures in your Trial
Balance but not your Unadjusted Trial Balance in your Worksheet. Check this.)
2.7 Finalise the Worksheet – return to the Worksheet to calculate balances in the Adjusted Trial Balance (columns H and I), using EXCEL functions for additions and subtractions. (Check the Adj Trial Balance figures in these columns match the account balances in the Trial Balance – they should be the same.)
2.8 Prepare the Financial Statements – still in the Worksheet, copy or link the appropriate figures to the Income Statement columns and to the Balance Sheet columns. Then take these figures across to the Financial Statements sheet and create Financial Statements according to a standard format (refer to the textbook page 240). Identify Assets and Liabilities as ‘current’ or ‘non-current’ for the Balance Sheet (this was to be done in the Chart of Accounts).
2.9 Prepare the Closing General Journal entries but DO NOT post to the Ledger. Closing:
• debit revenue accounts and credit P& L Closing Account;
• credit all expense accounts and debit P& L Closing Account;
• debit P & L Closing Account (if a profit) and credit Capital account;
• credit Drawings and debit Capital account
2.10 EXCEL functions and Number formats – Basic EXCEL functions and formulas should be used as described in the instructions above. All amounts to be displayed to two decimal places but should not be rounded. Use $ only in Financial Statements.
Financial Report (900 words; Word document; structure below) Requirement - Prepare a brief report that summarises the financial position of Chalkboard Supplies, addressing the following considerations:
a. Financial Statements – include and summarise the Financial Statements from the Excel document (Income Statement, Balance Sheet, Statement of Changes in Equity)
b. Comment on the financial performance AND financial position of the business after its first year of operations. Refer to your included Financial Statements. Did the business make a profit or loss? What policies or strategies might the business consider changing or adopting to increase its future profits?
c. Chalkboard Supplies expects to invest in further assets in the coming year. Briefly describe the depreciation methods available and the main differences and benefits of each. Do you recommend they continue with their current depreciation methods? Explain why or why not.
d. The business used the weighted average Perpetual inventory method for FY 2018. What other methods could be used and how might they impact on the financial position of the business at the end of the period?
e. What internal control mechanisms do you recommend (eg Bank Reconciliation; cash controls)?
Report Structure:
Title Page
Table of Contents 1.0 Introduction
2.0 The Report (use subheadings)
3.0 Conclusion (including Recommendations)
4.0 List of References
Appendix (not included in word count)
3. Task 2 Submission & Marking
This is an individual assignment to be submitted via Safe Assign on the USC course Blackboard site. You are to submit an EXCEL document based on the provided template, showing the accounting cycle; and a Word document containing the report.
You have an opportunity to conduct a single (one) DRAFT Safe Assign to check for academic integrity issues. This function is available ONLY for the Word document report and is accessible up to two days before the due date. You must also submit a final assignment for marking. See Blackboard Assessment Task 2 for more details.
Further details relating to the assessment including late penalties, can be found in the Course Outline. For extension of submission dates, please refer to USC’s extension policies (see below), and get in contact with the Course Co-ordinator.
http://www.usc.edu.au/explore/policies-and-procedures/assessment-courses-and-courseworkprograms-procedures
Academic misconduct, including plagiarism is taken very seriously. Please refer to USC’s Academic Misconduct Policy, available on the website and contact the Course Co-ordinator if you have any queries:
http://www.usc.edu.au/explore/policies-and-procedures/student-academic-misconductprocedures
Task 2 is worth 35% of the course marks.