Question

In: Accounting

Skate ‘n’ Surf began operations on 1 June, buying and selling surfboards, skateboards, wetsuits and the...

Skate ‘n’ Surf began operations on 1 June, buying and selling surfboards, skateboards, wetsuits and the protective gear for skateboarding. The structure of the business is that of a sole trader.

The business employed a sales assistant during the month who is to be paid fortnightly. Tax is deducted from the employee’s wages (PAYG withholding tax) and remitted to the Australian Taxation Office (ATO) on a quarterly basis.

The business has not registered with the ATO for the goods and services tax (GST) and has elected to use the accrual basis of accounting.

Accounting records
The business records all transactions in the general journal. These transactions are then posted to the appropriate account(s) in the general ledger and the accounts receivable or accounts payable subsidiary ledgers, where separate accounts are maintained for each customer or supplier.

Chart of accounts
The chart of accounts for Skate ‘n’ Surf contains the accounts and account numbers below.
100 Cash at bank
110 Accounts receivable
120 Inventory
130 Prepaid insurance
171 Shop equipment (cost)
172 Accumulated depreciation - shop equipment
200 Accounts payable
210 PAYG withholding payable
220 Superannuation payable
230 Bank loan
300 Capital
310 Drawings
320 Profit or loss summary
400 Sales revenue
410 Sales returns and allowances
420 Discount received
500 Cost of sales
600 Advertising expense
610 Depreciation expense
620 Discount allowed
630 Electricity expense
640 Insurance expense
650 Interest expense
660 Postage and stationery expense
670 Superannuation expense
680 Telephone expense
690 Wages expense

Transactions
June 1 The owner opened a bank account for the business with a deposit of $36,000. This is capital provided by him.
1 Purchased display stands, shelving etc. (shop equipment) from Shop Displays Pty Ltd for $36,000 and computer equipment for the shop from Computer Wizards for $6,000. These were paid for with a loan of $38,000 from the bank and cheque for $4,000 from the business bank account. The bank loan is repayable over 4 years.
2 Paid $4,440 for a 1-year insurance policy covering fire, theft, and public liability.
2 Paid $1,080 to Local Newspapers for advertising for the shop for the month.
5 Purchased inventory (skateboards and protective gear) from Excitement Plus for $26,000 on terms on net 30.
7 Purchased surfboards and wetsuits from Surf Imports for $25,000 on terms of 10/10, n/30.
8 Credit sale to Serious Fun of skateboards and protective gear for $5,200 (cost of sales $2,000). This customer was given terms of 5/10, n/30.
8 Cash sale of a skateboard and protective gear for $570 (cost of sales $230).
11 Cash purchase of postage stamps and stationery from Australia Post for $120.
12 Credit sale to Surfing World of various inventory items for $7,950 (cost of sales $4,700). Terms net 30.
12 Returned some protective gear to Excitement Plus that was faulty and received an adjustment note (credit note) from them for $140.
13 Received a cheque from Serious Fun for the amount owing by them after deducting the prompt payment discount.
14 Paid Surf Imports the amount owing to them less the prompt payment discount.
17 Credit sale to Academy Diving School of 16 wetsuits at a discounted price of $400 each on terms of net 15. Cost of sales $5,600.
23 Paid Excitement Plus $3,700 of the amount owing to them.
24 Issued an adjustment note (credit note) to Academy Diving School for 1 wetsuit at $400 each that was not the size they required. The cost of the wetsuit to us was $350 and it was put back into inventory.
24 Purchased wetsuits from Surf Imports for $9,400 on terms of 10/10, n/30.
25 Credit sale to Serious Fun of skateboards for $7,800 (cost of sales $4,200). Terms 5/10, n/30.
27 Received and banked a cheque from Academy Diving School for the amount owing by them.
30 A repayment of $1,000 was made on the bank loan.
30 The owner cashed a cheque for $780 to pay wages to Scott Walker the sales assistant of $800 less PAYG Withholding of $20.

The end of month adjustments are below.
a. Depreciation on shop equipment for the month is 10% p.a. prime cost (straight line).
b. One-twelfth of the insurance expired.
c. Superannuation payable for the month is 10% of the gross wages paid.
d. Interest charged on the bank loan for the month was $150.

The transactions above have been journalised and posted. The statement or profit or loss for June is below.
Skate 'n' Surf
Statement of profit or loss
for the period 1 June to 30 June 20XX
Revenue
  Sales revenue
    Sales revenue 27,920
    Less: Sales returns and allowances 400
         Net sales revenue 27,520
  Less: Cost of sales 16,380
Gross profit 11,140
  Other revenue:
    Discount received 2,500
13,640
Expenses
    Advertising expense 1,080
    Depreciation expense 350
    Discount allowed 260
    Insurance expense 370
    Interest expense 150
    Postage and stationery expense 120
    Superannuation exepnse 76
    Wages expense 800
Total expenses 3,206
Net profit/(loss) $10,434

(a)

Journalise end-of-year closing entries

Date

Details

Post ref.

Debit

Credit

Solutions

Expert Solution

Date Account Titles and Explanation Post ref. Debit Credit
June 30 Sales Revenue       27,920
Discount received         2,500
Profit or loss summary       30,420
(To close revenue account)
June 30 Profit or loss summary       19,986
Sales Return and Allowances           400
Cost of Goods Sold       16,380
Advertising expense         1,080
Depreciation expense           350
Discount allowed           260
Insurance expense           370
Interest expense           150
Postage and stationery expense           120
Superannuation expense             76
Wages expense           800
(To close expense account)
June 30 Profit or loss summary       10,434
Capital       10,434
(To close net income)

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