Background and Facts

Background and Facts

Adam Lucio is the owner of Sipping Slurpees, a specialty slurpee machine business he started two years ago.  Adam sells 2 types of slurpee machines that he purchases from manufacturers. He operates the business himself and employs one person full-time as an assistant. Adam also provides specialty slurpee training services to private clients on how to make deliciously flavoured slurpees.

Sipping Slurpees is operated from a rented premise and the business pays rent quarterly in advance.

The business has a variety of clients with whom Adam has built up a strong relationship. He offers them terms of 2/10, net/30.

The business uses a FIFO perpetual inventory system (First In, First Out).

The business is registered for GST. Business Activity Statements (BAS) are submitted quarterly to the Australia Taxation Office on an accrual basis.

Currently, the business uses a manual accounting system but plans to test a Xero accounting system later in the year.

Accounting Information

Sipping Slurpees uses the following specialised and general journals to record business transactions.

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

Sipping Slurpees uses a general ledger in the form of a 4-column running balance. An Accounts Receivable and Accounts Payable subsidiary ledger is also used in this format.

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

All necessary pro-form as are included and are to be used to complete the manual practice set for April. The assignment can be completed using the templates provided in Excel.

Chart of Accounts and Opening Balances 1stApril

Account NumberAccount NameDebitCredit
110Cash at Bank18,385
120Accounts receivable16,140
121Allowance for Doubtful Debts646
130Prepaid Insurance
140Prepaid Rent3000
150Office Supplies950
160Inventory19,000
180Delivery Van
181Accumulated Depreciation – Delivery Van
200Accounts Payable16,995
220Wages Payable377
230GST Clearing1,045
250Superannuation Payable756
300Capital37,656
310Drawings
350Income Summary
410Sales Revenue
412Sales Discounts
415Services Revenue
420Interest Revenue
500Cost of Sales
512Bad debts expense
515Bank Charges
521Depreciation expense – Delivery Van
530Electricity and Gas Expense
540Insurance Expense
560Office Supplies Expense
565Rent Expense
570Superannuation expense
590Wages Expense

All account balances at 1stApril are normal in nature.

Subsidiary Ledgers

Accounts Receivable Subsidiary Ledger

As at 1 April

Beverley’s Beverage Bar4,000
J. Smith12,140
16,140

Accounts Payable Subsidiary Ledger

As at 1 April

Fantastic Flavours Pty Ltd6,765
Delicious Drinks Pty Ltd10,230
16,995

Inventory on Hand

As at 1 April

Units on Hand Cost per UnitTotal
Slurpee 30004032012,800
Super Slurpee106206,200
$19,000

APRIL TRANSACTIONS

The transactions for Sipping Slurpees during April are listed below.

Note: All amounts are GST-inclusive where applicable.

Credit sales are made on credit terms of 2/10, n/30

Round all amounts to the nearest dollar.

DateDetails
1.1-AprPurchased a delivery van for $33,000 from Howard Autos on credit.  Terms are n/60. Invoice number 15448.
2.1-AprPaid insurance for 5 months in advance – $2,200 – chq 41.
3.1-AprPaid Fantastic Flavours Pty Ltd in full for outstanding account balance at 1stApril– no discounts applicable- chq 42.
4.2-AprSold 10 Slurpee 3000machines for cash – $6,050.
5.6-AprPurchased office supplies for cash – $330- chq 43.
6.9-AprReceived amount owed by Beverley’s Beverage Bar for Marchinvoices less the discount.
7.9-AprPaid fortnightly wages of $1,760 – chq 44.
($1,383 relates to April wages; $377 relates to the wages accrued for March )
8.12-AprReceived payment from J. Smith for part of the April balance – $2,140. There was no discount allowed.
9.14-AprPurchased 15 Super Slurpee machines from Fantastic Flavours Pty Ltd for $10,395. Terms 3/10, n/30, Inv.5430.
10.15-AprSold 17 Slurpee 3000 machines to Beverley’s Beverage Bar for $10,285, Inv. 4564.
11.16-AprInvoiced Beverley’s Beverage Bar for slurpee training, Inv. 4565 for $3,300.
12.16-AprThe owner withdrew cash of$3,250 – chq 45.
13.20-AprPaid the 1stApril amount owing to Delicious Drinks Pty Ltd with chq 46. No discounts were applicable.
14.22-AprPaid electricity and gas bill, $390 – chq 47.
15.23-AprPaid fortnightly wages of $1,760 – chq 48.
16.23-AprPaid superannuation contributions owing from March of $756 – chq 49.
17.24-AprReceived payment from Beverley’s Beverage Bar for invoice 4564, less the applicable discount.
18.26-AprSold to J. Smith, 10 Super Slurpee machines – $9,350, inv. 4566.
19.26-AprPurchased 20 Slurpee 3000 slurpee machines from Delicious Drinks Pty Ltd for $7084.Terms 2/10, n/30, inv. 1389.
20.30-AprRecorded bank charges of $35 and interest earned of $22.

Instructions for Completion of Practice Set

A. Open all general ledger accounts by inserting the opening balances at 1 April as shown in the Chart of Accounts on page 3. For example, the balance of account 110 – Cash at Bank is $18,385 debit.  Write “Opening Balance” in the “Details” column, and place $18,385 in the “Debit” balance column.

B. Open all subsidiary ledger accounts for accounts receivable and accounts payable by inserting the opening balances as at 1 April as shown in the schedule of accounts receivable and accounts payable on page 4. Insert the opening inventory balances into the inventory cards.

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

C. Record the transactions for April in the appropriate journals provided (narrations are not required).

D. Post daily to the accounts receivable and accounts payable subsidiary ledgers. Post daily from the general journal. All other amounts will be posted at the end of the month.

Note: For posting reference purposes, use the journal page names and numbers. For example, when posting from the sales journal the reference will be “SJ9”.

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

F. 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.

G. Use the worksheet provided to prepare an Unadjusted Trial Balance as at 30April.

Check figures for this stage of the assignment are as follows:

  • Total of the Cash column in the Cash Receipts Journal – $22212
  • Cash at Bank account balance – Dr $13121
  • Inventory account balance –$20050.
  • GST Clearing account balance – Dr $1200
  • Unadjusted trial balance from worksheet – $115153

Note:If any of your figures do not match those above, you have made an error which you will need to find and correct.

H. Using the following information record the necessary adjusting journal entries at 30April in the general journal. Post these to the general ledger.

1. Insurance

Adampaid 5 months insurance in advance on April 1.

2. Depreciation

On April 1, the business purchased a delivery van.  It has a useful life of 10 years and a residual value of $6,000. The vehicle is depreciated using the straight-line method. Record depreciation for one month.

3. Accrued Wages

Wages owing at 30April totalled $880.

4. Superannuation

Superannuation contributions accrued for April total $871.

5. Office Supplies

A stock take of office supplies was performed on April 30.  It was noted that $650 of supplies remain.

6. Bad Debts

An assessment of bad and doubtful debts at April 30 showed an increase in the amount falling into this category. Adam has decided to increase the Allowance for Doubtful Debts to 6% of the accounts receivable balance at April 30.

7. Rent

Rent of $4,500 is paid every quarter, and was last paid on the 1st of March.

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

J. Complete the worksheet.

K. Record all closing entries in the general journal and post them to the general ledger.

L. Prepare a Post-closing Trial Balance as at 30April.

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