Question

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

Answer 1

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)