Unit: CAFF001 Accounting Systems and Processes

Topic: 02 Accounting Principles and Elements

Document: Practice Questions & Activities

Topic 2: Accounting Principles and Elements

Introduction to the Shirt Shop Threaded Case Study
The main protagonist of our case study is called ‘David’. David graduated from his Bachelor of Commerce
degree many years ago and was fortunate enough to land his first job working for a start-up tech company
called Tees4You Limited (Tees4You), a company that retailed cheap customizable t-shirts. Life was good for
David, he was in a loving relationship with a girl called Emily whom he had met in an accounting class way
back while studying at University. If all went well, David was going to get promoted and he had planned to
then propose to Emily and start a family of his own.

But as tends to happen in life, things never go the way you planned. One evening while sitting at his
desk, David’s manager told him that the company was ‘restructuring’ and had decided to let David go. He
had lost his job of over 10 years which he had devoted all his time and energy into and so was absolutely
devastated.

Out of a job and out of motivation, David and Emily decided to take a trip to Europe to visit Emily’s
home town in Italy. While exploring the various towns and cities, David stumbled upon a small unadorned
boutique store out by the country-side. This store sold beautifully designed hand-made t-shirt that were
not only well crafted by the residents of the town, but were also sourced from environmentally friendly
materials. David knew right away that these t-shirts absolutely would have a market back in Australia and
so there and then decided to start his own business.

On the 1 December 2017, he set up a sole-trader business called ‘The Shirt Shop’. In starting up his
business, David contributed $40,000 of cash to the business. In addition, the business purchased items such
as inventory, office supplies, computer systems, shop fittings, and a delivery van with the assistance of a
$30,000 bank loan (8% interest per year). David managed to negotiate with the suppliers in Italy to supply
him with their t-shirts and even managed to get a 30-day credit term for the purchase of the inventories.
David also decided to offer the same credit terms to some of his credible customers. In terms of the
operating activities, David has hired over the years a team consisting of 3 general admin/office staff and 7
sales staff (with commission). To ensure that his business is reaching out to his target market, he pays
around $2,100 worth of advertising to an advertising agency each month.

Required: Identify a list of accounts that will be used in the Shirt Shop and classify them into Asset, Liability,
Equity, Revenue or Expense (ALORE).

1
Unit: CAFF001 Accounting Systems and Processes
Topic: 02 Accounting Principles and Elements
Document: Practice Questions & Activities

Accounts Classification (ALORE)

Owners equity OE
Cash Asset
Inventory Asset
Supplies Asset
PPE Asset
Loan Liability
Accounts payable Liability
Accounts receivable Asset
Employee expenses Liability
Advertising expense Liability
Interest expense Liability