In: Accounting
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 $35,000. This is capital provided by him. | |
1 | Purchased display stands, shelving etc. (shop equipment) from Shop Displays Pty Ltd for $35,000 and computer equipment for the shop from Computer Wizards for $5,000. These were paid for with a loan of $38,000 from the bank and cheque for $2,000 from the business bank account. The bank loan is repayable over 4 years. | ||
2 | Paid $5,040 for a 1-year insurance policy covering fire, theft, and public liability. | ||
2 | Paid $1,090 to Local Newspapers for advertising for the shop for the month. | ||
5 | Purchased inventory (skateboards and protective gear) from Excitement Plus for $24,000 on terms on net 30. | ||
7 | Purchased surfboards and wetsuits from Surf Imports for $21,000 on terms of 10/10, n/30. | ||
8 | Credit sale to Serious Fun of skateboards and protective gear for $5,500 (cost of sales $2,700). This customer was given terms of 5/10, n/30. | ||
8 | Cash sale of a skateboard and protective gear for $590 (cost of sales $220). | ||
11 | Cash purchase of postage stamps and stationery from Australia Post for $190. | ||
12 | Credit sale to Surfing World of various inventory items for $7,940 (cost of sales $4,900). Terms net 30. | ||
12 | Returned some protective gear to Excitement Plus that was faulty and received an adjustment note (credit note) from them for $180. | ||
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 15 wetsuits at a discounted price of $390 each on terms of net 15. Cost of sales $5,100. | ||
23 | Paid Excitement Plus $3,800 of the amount owing to them. | ||
24 | Issued an adjustment note (credit note) to Academy Diving School for 1 wetsuit at $390 each that was not the size they required. The cost of the wetsuit to us was $340 and it was put back into inventory. | ||
24 | Purchased wetsuits from Surf Imports for $8,600 on terms of 10/10, n/30. | ||
25 | Credit sale to Serious Fun of skateboards for $8,200 (cost of sales $4,100). 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 $550 to pay wages to Scott Walker the sales assistant of $600 less PAYG Withholding of $50. |
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 $160. |
Post end-of-year closing entries and complete the closing process in the general ledger.