Practice Set

Concentrate on the way financial information is recorded using a manual accounting system.

The Perfect Brew

Background and Facts

Antonio de Pandi is the owner of The Perfect Brew, a specialty coffee machine business he started several years ago. The business is GST-registered.

Antonio sells 2 ranges of coffee machines at any time which he purchases from manufacturers. He operates the business himself and employs one person full-time to assist him. Antonio also provides consulting services to coffee shops designing floor plans for coffee shops and restaurants. The Perfect Brew uses a perpetual inventory system and uses FIFO (First In First Out).

The business is operated from a commercial building which the business purchased two years ago.

Antonio has a variety of clients with whom he has built up a strong relationship. He offers them terms of 30 days. Antonio submits his Business Activity Statements for GST quarterly to the Australia Taxation Office on an accruals basis.

Currently, the business uses a manual accounting system but plans to test a MYOB accounting system in August.

Accounting Information

The Perfect Brew uses the following specialised and general journals to record business transactions.

• Sales Journal - to record all invoices issued for sales of inventory
• Sales Returns Journal - to record all credit notes issued for returned inventory
• Purchases Journal - to record all credit purchases of inventory
• Cash Receipts Journal - to record all cash received
• Cash Payments Journal - to record all cash payments
• General Journal - to record all other transactions

The Perfect Brew uses a general ledger in the form of a 4 column running balance (as described on page 71 of Horngren Custom Text 4th edition). An Accounts Receivable and Accounts Payable subsidiary ledger is also used in this format.

Financial Statements are prepared at the end of each month. The accounts are closed off at the end of each month.

All necessary pro-formas are included and are to be used to complete the manual practice set for July. If you wish to use a T account format then you will need to generate your own forms to fill out. The assignment must be completed manually using the templates provided.

Chart of Accounts

Account Number Account Name Opening Balance
110 Cash at Bank 15,129
120 Accounts receivable 28,977
121 Allowance for Doubtful Debts 869
130 Prepaid Insurance
150 Office Supplies 945
160 Inventory 47,400
170 Office Equipment 15,280
171 Accumulated Depreciation – Office Equipment 5,195
180 Photocopier
181 Accumulated Depreciation – Photocopier
190 Premises 350,000
191 Accumulated Depreciation – Premises 35,000
200 Accounts Payable 34,100
210 Unearned Revenue
220 Wages Payable 308
230 GST Clearing 3,250
240 PAYG Payable 2,962
250 Superannuation Payable 530
280 Bank Loan – Non-current 300,000
300 Capital 75,517
310 Drawings
350 Income Summary

410 Sales Revenue
411 Sales Returns and Allowance
412 Discount Allowed
413 Discount Received
415 Consultation Revenue
420 Interest Revenue
500 Cost of Goods Sold
510 Advertising Expense
512 Bad and doubtful debts expense
515 Bank Charges
520 Depreciation Expense – Office Equipment
521 Depreciation expense – Photocopier
522 Depreciation Expense – Premises
530 Insurance Expense
531 Interest Expense
540 Office Supplies Expense
555 Postage
570 Superannuation expense
580 Telephone and Internet Expense
585 Travel
590 Wages Expense

All account balances at 30th June are normal in nature.
Bank Reconciliation

The bank reconciliation for 30 June is shown below.

Balance as per bank Statement 15,576
Add deposits not yet credited 1,230
16,806
Less Unpresented cheques
38 260
46 27
51 1,390
1,677
Balance as per Cash at Bank Ledger Account 15,129

Subsidiary Ledgers

Accounts Receivable Subsidiary Ledger
As at 1 July

J. Miles 3,200
P Forest 7,221
J. Smith 5,927
Smell the Aroma 12,629
$28,977
Note: All balances relate to June Invoices

Accounts Payable Subsidiary Ledger
As at 1 July

Coffee Machine Co 29,600
Espresso Inc 2,625
M. Hoath 1,875
$34,100
Note: All balances relate to June Invoices

Inventory on Hand
As at 1 July

Units on Hand Cost per Unit Total
Fast Espresso 52 400 20,800
Coffee Genius 38 700 26,600
$47,400

JULY TRANSACTIONS

The following transactions relate to the operations of The Perfect Brew during July:

Note: All amounts are GST-inclusive unless otherwise stated.
Credit sales are made on credit terms of 2/10, n30

Date Details
1. 1 July 1 Paid insurance for 6 months in advance - $6,600 by BPay

2. 2 July 1 Paid Coffee Machine Co in full for June inventory purchase taking advantage of the terms 3/10, n30– chq 52

3. July 3 Sold 20 “Fast Espresso” coffee machines for cash - $22,000

4. 4 July 3 Purchased inventory on credit from Espresso Inc - $49,500
60 Coffee Genius machines

5. July 4 Received amount owed by J. Smith for June invoices less applicable discounts

6. 5 July 5 Purchased office supplies for $550 – chq 53 (use a/c 150 Office Supplies)

7. July 5 Invoiced J. Smith for designs completed for a proposed coffee shop, Inv 4562 for $9,515

8. 6 July 5 Received partial payment from J Miles for June - $1,200
No discounts were applicable

9. 7 July 8 Sold 50 Coffee Genius machines to P. Forest on credit for $82,500 – Inv 4563

10. 8 July 8 Purchased inventory on credit from M. Hoath - $16,170(incl GST) -
35 Fast Espresso coffee machines at $420 each (excl GST)

11. July 9 Received amount owed by P. Forest for June invoices less applicable discount

12. 9 July 10 Received payment from Smell the Aroma for June balance - $12,629. They took advantage of the available discount

13. 1 July 15 Paid monthly wages of $3,076 – by Direct Debit
($2,768 relates to July wages; $308 relates to the wages accrued for June)
PAYG deducted from these wages amounted to $920

14. 1 July 15 Purchased photocopier for $2,761 from Printworld – chq 54
The printer has a life of 3 years with no residual value

15. 1 July 16 Purchased a new laptop computer for private use at home for Antonio for $1620 – chq 55

16. July 17 P Forest returned 2 Coffee Genius machines pots sent in excess of order. CRN 111 was issued. These coffee machines were from the inventory that cost $750

17. 1 July 18 Paid amount owing to M Hoath - $1,875 chq 56
No discounts were applicable

18. July 22 Paid Espresso Inc $20,000 as part payment for July invoice –BPay. No discounts were applicable

19. July 22 Received invoice and paid for advertising in Coffee Bean Magazine, $385 – chq 57

20. July 24 Paid PAYG tax payable for June of $2,962 with chq 58

21. July 24 Paid superannuation contributions owing from June of $530 – chq 59

22. July 26 Invoiced Smell the Aroma for further design work with Invoice totalling $15,510, Inv 4566
Design work - $15,510 incl GST

23. July 26 Purchased coffee machines from M. Hoath for $19,360
40 Fast Espresso machines at $440 each (excl GST)

24. July 26 Sold 15 Fast Espresso Machines for Cash - $18,876

25. July 29 Paid the monthly telephone account for $413 by BPay

26. July 29 Received remaining payment for J. Miles for June invoice - $2,000

27. July 30 Received payment in advance from J. Miles for design project to be undertaken in August - $5,500 (GST incl)

28. July 30 Antonio lodged his quarterly Business Activity Statement to the Australian Taxation Office for June together with the GST payable for the June quarter of $2,141 on chq 60

29. July 31 Paid interest on bank overdraft 23rd July - $31
This information was obtained by inspecting the Bank Statement

30. July 31 Made monthly repayment on bank loan of $3,450. The interest component of the loan is $1,250
This information was obtained by inspecting the Bank Statement

LOCAL BANK
BANK STATEMENT
JULY

Account Name: The Perfect Brew BSB: 026-391
Account number: 5421-6491
Date Particulars Debit Credit Balance
July 1 Balance brought forward 15576.00Cr
BPay 6600.00 8976.00Cr
2 38 260.00 8716.00Cr
3 1230.00 9946.00Cr
22000.00 31946.00Cr
4 5808.46 37754.46Cr
52 28712.00 9042.46Cr
7 1200.00 10242.46Cr
11 53 550.00 9692.46Cr
15 Direct Debit 3076.00 6616.46Cr
51 1390.00 5226.46Cr
7076.58 12303.04Cr
12376.42 24679.46Cr
20 54 2761.00 21918.46Cr
55 1620.00 20298.46Cr
22 56 1875.00 18423.46Cr
BPay 20000.00 1576.54Dr
27 18876.00 17299.46Cr
29 BPay 413.00 16886.46Cr
2000.00 18886.46Cr
31 Loan 3450.00 15436.46Cr
31 Interest OD 31.00 15405.46Cr
Bank fees 20.00 15385.46Cr
58 2962.00 12423.46Cr
59 530.00 11893.46Cr

Instructions for Completion of Practice Set

A. Open all general ledger accounts by inserting the opening balances at 1 July as shown in the Chart of Accounts above. For example, the balance of account 100 Cash at Bank is $15,129Dr, write opening balance in details and place $15,129 as the debit balance in the balance column.

B. Open all subsidiary ledger accounts for accounts receivable and accounts payable by inserting the opening balances as at 1 July as shown in the schedule of accounts receivable and accounts payable above.

Note: For the general ledger, accounts receivable subsidiary ledger and accounts payable subsidiary ledgers, all accounts have normal balances

C. Record the transactions for July noted above in the appropriate journals provided in the following pages (Narrations are not required)

D. Post daily to the accounts receivable and accounts payable subsidiary ledgers
Post daily from the general journal

Note: For posting reference purposes, use the journal page names and numbers. For example, when posting from the sales journal the reference will be SJ1

E. Prepare a bank reconciliation statement as at 31 July. Where possible clear the outstanding items from the June bank reconciliation and include any uncleared items in the July bank reconciliation. Prepare journal entries for any cashbook adjustments and post to the cash receipts and/or cash payments journal.

F. Total all columns of the special journals. Post from the special journals to the general ledger.

G. Prepare schedules of Accounts Receivable and Accounts Payable. Check that the total of the Schedule of Accounts Receivable equals the Accounts Receivable Control account in the general ledger and that the Schedule of Accounts Payable equals the Accounts Payable account in the general ledger.

H. Using the worksheet provided to prepare an unadjusted Trial Balance as at 31 July.

I. Using the information in A-G below, record the necessary adjusting journal entries at 31 July in the general journal. Post these to the general ledger.

J. Record these adjustments in the adjustments column of the worksheet.

K. Complete the worksheet.

Adjusting entry information as at 31 July

a) Unearned Revenue
On July 30, Antonio received payment from J. Miles for a design project to be undertaken in August. None of this is earned in July.

b) Insurance
Antonio paid 6 months of insurance as noted in transaction on July 1.

c) Depreciation
i. Office equipment is depreciated using the straight-line method.
ii. Existing office equipment has a useful life of 5 years with a residual value of $1,200.
iii. On July 15, Antonio purchased a photocopier. It has a useful life of 3 years and a residual value of zero.
iv. Premises were purchased 2 years ago. They are depreciated at 5% per annum using the straight-line method.
v. Note: depreciation is calculated for the month of July only. Round calculations to the nearest $.

d) Accrued Wages
Wages owing at July 31 totalled $891.

e) Superannuation
Superannuation contributions accrued for July total $412.

f) Office Supplies
A stocktake of office supplies was performed on July 31. It was noted that $590 of supplies remain.

g) Bad Debts
An assessment of bad and doubtful debts at July 31 showed a marked increase in the number of accounts falling into this category. Antonio has decided to increase the Allowance for Doubtful Debts to 4% of the accounts receivable balance at July 31.

Instructions for Completion of Practice Set continued
L. Record all closing entries in the general journal and post them to the general ledger.

M. Prepare a Post-closing Trial Balance as at 31 July

N. Prepare the Income Statement (Classified), Statement of changes in Equity, and Classified Balance Sheet.

Guidelines for the Timing of Completion

1. For Workshop 1 in Week 7 Students should read the Practice Set and all instructions carefully and bring all pages to the Workshop.

2. For Workshop 2 in Week 8 students should have completed Instructions A and B and have commenced recording and posting transactions (Instructions C and D).

3. For Workshop 3 in Week 9 Instructions C and D should be completed.

4. For Workshop 4 in Week 10 Instructions E, F and G should be completed.

5. After the Workshops have ended in Week 10 students should follow instructions in order to finish the Practice set by the due date of Monday 23rd May at 9.00am.

6. Complete Part B by due date of Monday 23rd May at 9.00am. Part B must be completed by each student individually.