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Manual Accounting Practice Set
Manual Accounting Practice Set
Overview
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.
Once you have read this page, click the Continue button below to receive further information that you
will need to complete the practice set.
Background
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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.
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:
To summarise the effects of transactions recorded in those journals, Helena maintains the general ledger
and the following ledgers:
The information below explains when transactions are required to be posted from the journals to the
appropriate ledger accounts and inventory cards:
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.
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.
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.
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 $3,045 are still on hand at 30 June.
15 days of rent remained pre-paid at the start of June.
3 months of advertising remained pre-paid at the start of June.
5 months of insurance remained pre-paid at the start of June.
When calculating the portion of prepayments that expire during the month of June, you are asked to
assume that an equal amount of expense is incurred per month.
A stocktake revealed that the balance of inventory on hand as at 30 June is equal to the closing balance
of the Inventory account. This means there is no adjusting entry required for inventory shrinkage.
Continue
Manual Accounting Practice Set
The Adrenaline Hut, Australasian Edition 3 (VTA3q)
Further information
Your progress
Completed: 1% (approximately)
This page introduces you to further information that you will need to complete the practice set.
The information on this page will continue to be made available to you through a link on each
subsequent page of the practice set.
However, it may be useful to print this page because you will be referring to it regularly.
Click the Start question 1 button below to start recording transactions for The Adrenaline Hut.
Downhill Snowboards
Date Purchases Cost of Sales Balance
Unit Total Unit Total Unit Total
Unit Unit Unit
Cost Cost Cost Cost Cost Cost
s s s
($) ($) ($) ($) ($) ($)
Canberra branch
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)