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. The accounts receivable and accounts payable subsidiary ledgers are provided for information only, you are not required to post to these ledgers.

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 Stationery 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 $24,600. This is capital provided by him.

1 Purchased display stands, shelving etc. (shop equipment) from Shop Displays Pty Ltd for $32,100 and computer equipment for the shop from Computer Wizards for $3,700. These were paid for with a loan of $29,400 from the bank and cheque for $6,400 from the business bank account. The bank loan is repayable over 3 years.

1 Paid $4,560 for a 1-year insurance policy covering fire, theft, and public liability.

2 Purchased inventory (skateboards and protective gear) from Excitement Plus for $17,500 on terms on net 30.

5 Paid $1,300 to Local Newspapers for advertising for the shop for the month.

6 Cash sale of a skateboard and protective gear for $460 (cost of sales $185).

7 Purchased surfboards and wetsuits from Surf Imports for $16,200 on terms of 10/10, n/30.

8 Returned some protective gear to Excitement Plus that was faulty and received an adjustment note (credit note) from them for $110.

9 Credit sale to Serious Fun of skateboards and protective gear for $4,400 (cost of sales $1,760). This customer was given terms of 5/10, n/30.

11 Paid Surf Imports the amount owing to them less the prompt payment discount.

12 Credit sale to Surfing World of various inventory items for $6,760 (cost of sales $3,280). Terms net 30.

13 Cash purchase of stationery from Officeworks for $300.

14 Credit sale to Academy Diving School of 20 wetsuits at a discounted price of $240 each on terms of net

15. Cost of sales $2,260.

18 Received a cheque from Serious Fun for the amount owing by them after deducting the prompt payment discount.

19 Cash sale of inventory to the value of $860 (cost of sales $320).

20 Issued an adjustment note (credit note) to Academy Diving School for 1 wetsuit at $240 each that was not the size they required. The cost of the wetsuit to us was $110 and it was put back into inventory.

24 Paid Excitement Plus $5,200 of the amount owing to them.

25 Credit sale to Serious Fun of skateboards for $6,210 (cost of sales $3,000). Terms 5/10, n/30.

26 Purchased wetsuits from Surf Imports for $5,500 on terms of 10/10, n/30. 27 Received and banked a cheque from Academy Diving School for the amount owing by them.

30 The owner cashed a cheque for $1,740 to pay wages to Scott Walker the sales assistant of $850 less PAYG Withholding of $40, and $930 drawings for himself.

Journalise the June transactions.

Answer 1

Journal Entries

Ledgers

Cash balance is negative for some period of time this can be rectified by taking a temporary loan from banks (i.e overdraft)