Question

QUESTION 1: General Journal

Sahra Ong is the sole proprietor of ‘Vacation’ a beach clothing business. Sahra designs and sews fashionable beachwear that has a high SPF rating. Sahra launched a bespoke beachwear range twelve months ago, and thanks to a cover story of her business published in the inflight magazine of a large airline company, demand for her bespoke beachwear has increased significantly.

Sahra is so busy with the growth of the business that she has been unable to attend to the bookkeeping, so she has recently hired Stone & Co Accounting Specialists Pty Ltd to take over the accounting function. You are the graduate accountant working at Stones & Co Accounting Specialists Pty Ltd and are now responsible for preparing the monthly journals for ‘Vacation’.

The following is a list of transactions that took place during the month of July 2020 that need to be recorded in the General Journal.

July 1                    The business purchased a new sewing machine at a cost of $8,500. $2,500 was paid in cash and the remaining amount was paid using a loan from Wi Bank.

July 2                    The monthly shop & workshop rent of $2,500 was paid.

July 5                    A new range of SPF fabric was purchased from ‘World Fabrics Ltd’ on credit for $4,000.

July 11                  Sahra sold on credit 27 long sleeve Rashies for $58 each to ‘The Tornadoes’, a local beach volleyball club. The terms of the sale require full payment is made within 30 days.

July 18                 Sahra shut the shop at midday for an hour and paid $20 from the business bank account for lunch at ‘Waves’, a local beachside café.

July 27                 The first payment of $200 was paid off the loan that ‘Vacation’ borrowed from Wi Bank on July 1.

July 28   ‘The Tornadoes’ beach volleyball club paid $522 off the amount they owe ‘Vacation’ for the purchase of the Rashies on July 11.          

Answer 1

-For Rent, we can record it as Prepaid first, then on July 31, pass an adjusting entry
-Amount used to pay for lunch is a Drawing because it is not for business use, it is for personal use
-For Loan, the interest rate is not given, assuming the entire Loan payment is against Principal

Date	Accounts	Debit	Credit
July 1	Equipment (Sewing Machine / Machine)	$ 8,500
	Cash		$ 2,500
	Loan Payable (Note Payable)		$ 6,000
	(Purchase of sewing machine)
July 2	Rent	$ 2,500
	Cash		$ 2,500
	(Rent paid for July)
July 5	Raw Material	$ 4,000
	Account Payable - World Fabrics		$ 4,000
	(Fabric purchased from World Fabrics)
July 11	Account Receivable - Tornadoes	$ 1,566
	Revenue		$ 1,566
	(Revenue recorded)
July 18	Drawings	$ 20
	Cash		$ 20
	(Cash withdrawal for personal use)
July 27	Loan Payable (Note Payable)	$ 200
	Cash		$ 200
	(First instalment of loan paid)
July 28	Cash	$ 522
	Account Receivable - Tornadoes		$ 522
	(Cash received from debtors)