Manual Accounting Practice Set

The Adrenaline Hut, Australasian Edition 3

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Information from previous pages

 General instructions

Assume it is currently 1 June 2016.

You are working for the temporary accounting employment agency known as Tempathy. Today you have
been asked to work at The Adrenaline Hut, a small extreme sports store that operates in inner city
Canberra and is owned by Helena Ginzburg. Your task here is to complete the accounting cycle for The
Adrenaline Hut for the month of June 2016. To assist you in this task, Helena tells you to read the
company's accounting policies and procedures. Note that you will be required to follow these policies and
procedures when completing the accounts for The Adrenaline Hut.

Accounting policies
a.Business operations: The Adrenaline Hut is set up as a private non-listed company based in
Canberra with Helena Ginzburg as the sole shareholder. The company derives its main source of revenue
from retail sales of sporting goods.
To assist in selling the products, The Adrenaline Hut rents a large showroom. Note that the business is
required to pay for the rent for this premises in advance.

The electricity and water expenses incurred during the month relate to the running of the showroom.
Additional expenses include an insurance policy to protect the business against inventory items being
damaged or lost during deliveries.

All costs associated with the showroom are classified as selling and distribution expenses.

All part-time employees in the business are sales staff who receive their wages on a weekly basis.
Helena is the only full-time employee and her role is to handle all administrative tasks. Helena's salary is
paid once at the end of each month.

b.Accounting cycle: The business adopts a monthly accounting cycle.

c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are
received on the same day as recorded in the transaction list, except for purchase orders which are
received at a later date. Note that the business uses the gross method of recording purchases and
receives trade discounts and early payment discounts from some suppliers.
d.Revenue recognition: The business recognises revenue when goods sold are delivered to customers.
All items sold are delivered on the same day as recorded in the transaction list except for sales orders,
which are delivered at a later date as agreed with the customer. Note that the business uses the gross
method of recording sales and sometimes grants trade discounts to customers. Past experience has
shown that offering settlement discounts did not increase the likelihood of accounts receivable being
paid promptly. Therefore, settlement discounts are not normally offered to credit customers except in
exceptional circumstances.
e.Sales returns: So that the business can easily track the level of sales returns in relation to overall
sales, all sales returns are recorded using a contra revenue account (Sales Returns and Allowances)
rather than being recorded directly in the Sales Revenue account.
f.Goods and services tax (GST): The company is a registered entity for GST purposes and accounts
for GST on an accrual basis. As a small business, The Adrenaline Hut pays GST in quarterly instalments
and no GST is due to be remitted in the month of June. In the transaction list, all prices of goods and
services that are subject to GST are quoted inclusive of 10% GST unless specifically noted otherwise. In
the list of adjusting entries, all prices are quoted exclusive of GST.
Note that two separate accounts are maintained to record GST paid to suppliers and GST received from
customers during the month. The net difference of these two accounts is reported as GST Payable in the
financial statements when the business is required to pay the net amount to the Australian Taxation
Office. If the business is entitled to receive the net difference from the Australian Taxation Office, this
net amount is reported as GST Receivable. Further, GST does not apply to interest revenue, bank
charges, salaries and wages but GST does apply to Tempathy' payments for rent and electricity.

g.Cash: The business accepts cash and cheques and uses cheques to pay for the majority of its
expenses. On the day cheques are received, Helena deposits them at the bank. It may take a number of
days for the cheques to be cleared by the bank. The business holds its cheque account with BitiBank.
h.Short-term investments: The business holds a six-month term deposit account with BitiBank at a
simple interest rate of 6%. Interest is calculated on a monthly basis and received at the end of the
deposit term. The monthly interest earned is calculated as the yearly interest divided by the number of
months in a year. Note that when the deposit matures, Helena usually rolls over the principal and
interest received at the end of the term. The term deposit account was rolled over on 1 June 2016.
i.Inventories: The business uses the perpetual inventory system and applies the FIFO method to
allocate costs to inventory and cost of sales. Note that the business maintains a set of inventory cards
with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the
Balance column, items with different unit costs are listed in separate lines with the items purchased
earlier listed first in the pair of lines provided.
j.Prepayments: The business has a policy of recording prepayments, including office supplies, as
assets. At the end of the month, adjustments are made to the relevant accounts to recognise the
expense incurred during the accounting period.
k.Property, plant and equipment: Property, plant and equipment items are depreciated over their
estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is
allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly
depreciation expense divided by the number of months in a year.
l.Long term liabilities: The business obtained an interest only loan of $44,000 from MRMC Bank on 1
May 2016 at a simple interest rate of 6% per year. The first interest payment is due at the end of July
2016 and the principal on the loan is due on 1 May 2020.

Accounting procedures
 The Adrenaline Hut adopts a manual accounting system and uses the general journal and special
journals for the recording of individual transactions. Helena Ginzburg has tailored the design of those
journals to meet the specific needs of the business so the format of those journals may be slightly
different to those you have seen before. However, she advises you that the general principles of how to
use special journals are followed in her business.

The table below shows the journals used by the business and the types of transactions that can be
recorded in each of these journals:

Journal Code Transaction type

General journal GJ All transactions that are not able to be recorded in the special
journals below.
Sales journal SJ Credit sales of inventory
Purchases journal PJ Credit purchases of inventory
Cash receipts CRJ Cash inflows to the business
journal
Cash payments CPJ Cash outflows from the business
journal

To summarise the effects of transactions recorded in those journals, Helena maintains the general ledger
and the following ledgers:

 accounts receivable subsidiary ledger,

 accounts payable subsidiary ledger, and
 inventory cards.
Helena then indicates that she is aware other businesses using a manual accounting system may post
transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting
procedures used in her business may be different to what you have seen before, she asks that you
specifically follow her company's accounting procedures.

The information below explains when transactions are required to be posted from the journals to the
appropriate ledger accounts and inventory cards:

Posting of entries recorded in the general journal

All transactions that are entered in the general journal are posted on a daily basis. Note that if a
transaction recorded in the general journal involves both a control account and a subsidiary ledger
account, that journal entry will need to be posted to both ledgers.

Posting of entries recorded in the special journals

When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily
and part of that entry is to be posted monthly.

a.Daily:
 If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary
ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same
amount posted to the subsidiary ledger account is not posted to the related control ledger account
immediately. This procedure allows the business to keep track of supplier and customer balances
on a daily basis.
 In the cash receipts journal or the cash payments journal, if a transaction is recorded in the
Other Accounts column, then the amount recorded in the Other Accounts column is to be posted
to the appropriate general ledger account daily.
 If a transaction results in a change in the number of inventory items on hand, then the entry
that affects inventory is to be posted to the appropriate inventory card on a daily basis. In this
way, the business is able to track the balance of inventory on hand.
b.Monthly:
  At the end of the month, the totals of each column in the special journals are manually
calculated. Those totals, with the exception of the totals of the Other Accounts columns in the
cash journals, are posted to the appropriate general ledger accounts at the end of the month.

Transactions for June

You will use the following five weeks of transactions as you complete the books for June. Note that the
transactions are divided into five separate weeks. This is because you will not enter this whole list of
transactions on any one page. You will be given five separate pages in which to enter the transactions
for each of the five weeks.

Dat Description
e

Week 1
1 Paid the full amount owing to Extreme Sports Inc, Cheque No. 634. Payment fell within
discount period.
2 Purchased 18 Extreme GPS-enabled Helmets from Sport Borders for $264 each, terms net
30.
3 Paid the full amount owing to Addax Sports, Cheque No. 635. Payment fell within discount
period.
3 Purchased 30 White Water Rafts with cash for $385 each, Cheque No. 636.
4 Made cash sale of 26 White Water Rafts for $715 each.
4 Paid sales staff wages of $1,741 for the week up to and including yesterday, Cheque No.
637. Note that $1,000 of this payment relates to the wages expense incurred during the last
week of May.
5 Purchased 19 Tony Eagle Freestyle Skateboards from Hike for $176 each, terms 2/10, n/30
5 Sold 13 Extreme GPS-enabled Helmets to The Locker Room for $385 each, Invoice No.
389.

Week 2
8 Paid the full amount owing to J. J. Spud, Cheque No. 638.
11 Mick's Sporting Goods paid the full amount owing on their account. Since Mick's Sporting
Goods has been a loyal customer from the day the business commenced, a 10% discount
was given for this early repayment.
11 Made cash sale of 7 Pipe Dream Surfboards for $462 each.
11 Made payment of $1,397 to Integer Energy for 3 months of electricity up to and including 31
May, Cheque No. 639.
11 Paid sales staff wages of $2,115 for the week up to and including yesterday, Cheque No.
640.
12 The Locker Room returned 4 Extreme GPS-enabled Helmets that were originally sold for
$385 each on 5 June. These items cost $200 each (excluding 10% GST) and were not
faulty or damaged. Issued a Credit Note for $1,540.
13 Sold 32 Downhill Snowboards to Jump Around for $671 each, Invoice No. 390.

Week 3
15 Paid $2,200 for one month's rent of the show room (from 16 June to 15 July inclusive),
Cheque No. 641.
16 Sold 57 Tony Eagle Freestyle Skateboards to Balls 'n All for $253 each, Invoice No. 391.
18 Jump Around paid $11,300 in partial payment of their account.
 18 Made cash sale of 49 White Water Rafts for a list price of $715 each. A trade discount of
20% applies.
18 Paid sales staff wages of $1,997 for the week up to and including yesterday, Cheque No.
642.
19 The Locker Room paid the full amount owing on their account.
21 Returned 8 faulty White Water Rafts, originally purchased for $385 each, to Sport Borders.
Received a Credit Note for $3,080.
21 Received a purchase order from Jump Around. Created a corresponding sales order to
deliver 2 Downhill Snowboards to this customer for $671 each, Invoice No. 392.

Week 4
22 Paid the full amount owing to Sport Borders, Cheque No. 643.
24 Paid the full amount owing to Hike, Cheque No. 644.
24 Delivered 2 Downhill Snowboards to Jump Around for $671 each, Invoice No. 392, which
was ordered on the 21st.
25 Made cash sale of 81 Extreme GPS-enabled Helmets for $385 each.
25 Paid sales staff wages of $2,042 for the week up to and including yesterday, Cheque No.
645.
26 Ordered 14 Tony Eagle Freestyle Skateboards from Addax Sports for $176 each, agreed
terms with Addax Sports are 2/10, n/30.

Week 5
29 Received 14 Tony Eagle Freestyle Skateboards for $176 each, which were ordered on the
26th, agreed terms with Addax Sports are 2/10, n/30.
29 Croquet and Cricket paid the full amount owing on their account.
29 Made cash sale of 16 Pipe Dream Surfboards for $462 each.
29 Purchased 28 Downhill Snowboards with cash for a list price of $352 each. A trade discount
of 25% applies, Cheque No. 646.
30 Paid monthly salary of $6,800 to Helena Ginzburg, Cheque No. 647.

Adjusting entries information

Using the following information, you will record end of month adjustments:

 Cash Registers owned by the business: original purchase price was $7,000, estimated useful life
was 5 years, and estimated residual value was $1,500 at the end of the useful life. Depreciation is
calculated on a monthly basis using the straight line method. The monthly depreciation charge is
calculated as the yearly depreciation expense divided by the number of months in a year.
 Store Fixtures owned by the business: original purchase price was $48,000, estimated useful life
was 12 years, and estimated residual value was $3,000 at the end of the useful life. Depreciation is
calculated on a monthly basis using the straight line method. The monthly depreciation charge is
calculated as the yearly depreciation expense divided by the number of months in a year.
 The water usage for the month of June is estimated to be $113.
 The estimated electricity payable as at the end of June is $451.
 Sales staff work every single day during the week including weekends and are paid on a weekly
basis. Wages were last paid up to and including 24 June. Wages incurred after that day (from 25 June
to 30 June inclusive) are estimated to have been $300 per day.
 Interest expense incurred during the month of June but not yet paid to MRMC Bank for the bank
loan is $220.
 Interest earned from short-term investments in BitiBank for the month of June is $115.
 Office supplies totalling $3,045 are still on hand at 30 June.
 15 days of rent remained pre-paid at the start of June.
 3 months of advertising remained pre-paid at the start of June.
 5 months of insurance remained pre-paid at the start of June.
When calculating the portion of prepayments that expire during the month of June, you are asked to
assume that an equal amount of expense is incurred per month.

A stocktake revealed that the balance of inventory on hand as at 30 June is equal to the closing balance
of the Inventory account. This means there is no adjusting entry required for inventory shrinkage.

Continue
Manual Accounting Practice Set
The Adrenaline Hut, Australasian Edition 3 (VTA3q)

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Manual Accounting Practice Set

The Adrenaline Hut, Australasian Edition 3
Bookmark Previous pages Being completed by: tranngthienanh

Further information
Your progress

Completed: 1% (approximately)

This page will take: up to 0.25 hour

Remaining pages will take: up to 20.5 hours

The time frames we provide are a guide only. It may take you more or less time to complete each page.

Information from previous pages

 General instructions
 Policies and procedures
 All transactions
 Adjusting entries information

This page introduces you to further information that you will need to complete the practice set.
The information on this page will continue to be made available to you through a link on each
subsequent page of the practice set.

However, it may be useful to print this page because you will be referring to it regularly.

Click the Start question 1 button below to start recording transactions for The Adrenaline Hut.

Post-closing trial balance ~ May

The Adrenaline Hut
Post-closing trial balance
As at 31/05/2016

Account Debit Credit

Name
No. ($) ($)
100 Cash at Bank 72,074
102 Short-term Investments 23,000
110 ARC - Accounts Receivable Control 67,872
112 Interest Receivable
120 Inventory 71,640
130 Office Supplies 3,904
135 GST Outlays 19,866
140 Prepaid Rent 1,000
141 Prepaid Advertising 12,000
142 Prepaid Insurance 3,300
150 Cash Registers 7,000
151 Accum Depn: Cash Registers 2,017
160 Store Fixtures 48,000
161 Accum Depn: Store Fixtures 17,813
210 APC - Accounts Payable Control 76,414
220 Wages Payable 1,000
221 Electricity Payable 1,342
222 Water Payable 125
225 Interest Payable 220
240 GST Collections 12,178
250 Bank Loan Payable 44,000
300 Share Capital 55,000
301 Retained Earnings 119,547
 310 Profit and Loss Summary
400 Sales Revenue
401 Sales Returns and Allowances
402 Discount Received
403 Interest Revenue
500 Cost of Sales
511 Advertising Expense
516 Wages Expense
540 Rent Expense
541 Electricity Expense
542 Water Expense
543 Insurance Expense
544 Office Supplies Expense
545 Salary Expense
560 Depn Expense: Cash Registers
561 Depn Expense: Store Fixtures
571 Interest Expense
572 Bank Charges
573 Discount Allowed
Total 329,656 329,656

Schedule of accounts receivable ~ May

The Adrenaline Hut
Schedule of Accounts Receivable
As at 31/05/2016

Account Debit Credit

Name
No. ($) ($)
110-1 ARC - Mick's Sporting Goods 5,060
110-2 ARC - Great Sports 8,600
110-3 ARC - The Locker Room 44,733
110-4 ARC - Croquet and Cricket 9,479
110-5 ARC - Balls 'n All
 110-6 ARC - Jump Around
Total 67,872
Please note: The Adrenaline Hut does not generally give a discount for early payment except in
exceptional circumstances. All debtors are on net 30 credit terms.

Schedule of accounts payable ~ May

The Adrenaline Hut
Schedule of Accounts Payable
As at 31/05/2016

Account Debit Credit

Name Terms
No. ($) ($)
2/10,
210-1 APC - Hike 5,676
n/30
1/15,
210-2 APC - Extreme Sports Inc 6,600
n/30
210-3 APC - Sport Borders 47,588 net 30
2/10,
210-4 APC - Addax Sports 9,350
n/30
210-5 APC - J. J. Spud 7,200 net 30
210-6 APC - Sports 'R Us net 30
Total 76,414

Inventory cards ~ May

Pipe Dream Surfboards
Purchases Cost of Sales Balance

Date Unit Total Unit Total Unit Total

Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)

May 1 40 190 7600

May 2 25 240 6000 40 190 7600

25 240 6000

May 27 13 190 2470 27 190 5130

25 240 6000

May 31 13 190 2470 14 190 2660

 25 240 6000

White Water Rafts

Purchases Cost of Sales Balance

Date Unit Total Unit Total Unit Total

Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)

May 1 48 300 14400

42 350 14700

May 8 19 300 5700 29 300 8700

42 350 14700

May 27 3 300 900 26 300 7800

42 350 14700

May 31 18 350 6300 26 300 7800

60 350 21000

Extreme GPS-Enabled Helmets

Purchases Cost of Sales Balance

Date Unit Total Unit Total Unit Total

Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)

May 1 47 180 8460

42 200 8400

May 5 21 200 4200 47 180 8460

63 200 12600

May 22 47 180 8460 58 200 11600

5 200 1000

May 31 20 200 4000 78 200 15600

Downhill Snowboards
Date Purchases Cost of Sales Balance
 Unit Total Unit Total Unit Total
Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)

May 1 41 280 11480

May 13 2 280 560 39 280 10920

May 24 16 280 4480 23 280 6440

May 31 16 320 5120 23 280 6440

16 320 5120

Tony Eagle Freestyle Skateboards

Purchases Cost of Sales Balance

Date Unit Total Unit Total Unit Total

Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)

May 1 45 100 4500

43 130 5590

May 3 45 100 4500 38 130 4940

5 130 650

May 19 16 130 2080 54 130 7020

Bank reconciliation statement ~ May

The Adrenaline Hut
Bank Reconciliation Statement
As at 31/05/2016
Balance as per bank statement: 56,450 CR
Add:
deposit in transit from Croquet and Cricket 10,174
22,06
deposit in transit from Mick's Sporting Goods 11,890
4
78,514 CR
Less:
No.
unpresented cheque 5,600
632
No.
unpresented cheque 840 6,440
633
Adjusted bank balance 72,074 CR

Balance as per ledger account 72,074 DR

Bank statement ~ June

Canberra branch

Helena Ginzburg Account No.

968 Pearson Avenue 84347725
Canberra, ACT 2600 Page No.
1

The Adrenaline Hut

Date Particulars Debit Credit Balance

1 JUN BALANCE BROUGHT FORWARD $56,450 CR

1 JUN DEPOSIT - Mick's Sporting Goods $11,890 $68,340 CR

1 JUN 633 $840 $67,500 CR

2 JUN DEPOSIT - Croquet and Cricket $10,174 $77,674 CR

3 JUN 632 $5,600 $72,074 CR

7 JUN 634 $6,534 $65,540 CR

7 JUN 637 $1,741 $63,799 CR

8 JUN 635 $9,163 $54,636 CR

9 JUN DEPOSIT - Cash sales $18,590 $73,226 CR

10 JUN 636 $11,550 $61,676 CR

12 JUN 639 $1,397 $60,279 CR

12 JUN 640 $2,115 $58,164 CR

14 JUN 638 $7,200 $50,964 CR

15 JUN DEPOSIT - Cash sales $3,234 $54,198 CR

17 JUN DEPOSIT - Mick's Sporting Goods $4,554 $58,752 CR

18 JUN 641 $2,200 $56,552 CR

20 JUN 642 $1,997 $54,555 CR

21 JUN DEPOSIT - Jump Around $11,300 $65,855 CR

22 JUN CHEQUE RETURNED - Jump Around $11,300 $54,555 CR

 22 JUN DEPOSIT - Cash sales $28,028 $82,583 CR

24 JUN 643 $49,260 $33,323 CR

27 JUN 645 $2,042 $31,281 CR

28 JUN DEPOSIT - Cash sales $31,185 $62,466 CR

30 JUN DEPOSIT - Croquet and Cricket $9,479 $71,945 CR

30 JUN 646 $7,392 $64,553 CR

30 JUN TRANSACTION FEE $14 $64,539 CR

30 JUN INTEREST $576 $65,115 CR

Last statement to This statement to Total debits Total credits Final balance
$120,345 $129,010 $65,115 CR
31/05/2016 30/06/2016
Proceeds of cheques will not be available until cleared.
All entries for the last business day are subject to verification and authorisation.
Any items not paid, or withdrawn, will be adjusted by reversal entry on a later statement.

Start question 1
Manual Accounting Practice Set
The Adrenaline Hut, Australasian Edition 3 (VTA3q)

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Terms Of Use | Privacy Policy | Monday, September 19, 2016, 18:24