1. MARVEL LANDSCAPING – Introduction
A Stanlee is the sole proprietor of Marvel Landscaping – a GST-registered independent landscaping materials business that began operations on 2 July 2017. The business focuses mostly on supplying garden features to small landscaping businesses. It performs some additional services including deliveries.
Stanlee is an astute business owner who prides herself on delivering an excellent service whilst aiming to grow a profitable and successful business. Towards the end of the financial year, Stanlee employed some staff including an office assistant and delivery driver. Stanlee is continuing with the MS Excel spreadsheet system that she has been using to record the accounting transactions and manage her accounts and financial reports.
1.2 Accounting policies and other details
Like all Australian businesses, Marvel Landscaping uses the financial year: 1 July to 30 June, withholds PAYG for its employees, and pays GST on sales to the Australian Government. The business uses a GST paid (Asset account) and GST collected (Liability account) to record its GST. Unless otherwise stated, assume all transaction amounts are inclusive of GST (10%).
Stanlee makes an annual withdrawal of funds from the business for private purposes.
Marvel Landscaping uses the Accounts listed in the Chart of Accounts.
Marvel Landscaping uses the accrual accounting method.
Marvel Landscaping uses a perpetual inventory system with weighted average.
Marvel Landscaping depreciates furniture using reducing balance method at the rate of 30%.
Marvel Landscaping depreciates vehicles using straight line method, with an effective life of 5 years.
Fortnightly wages, from June 2018, are paid on the Wednesday for the previous fortnight. Employees work Monday to Friday. (Eg wages paid on 20/6/18, are full fortnight’s pay for work 4/6/18 to 15/6/18.)
Doubtful debts are adjusted at 30 June each year, such that the provision equates to 2% of Accounts Receivable balance at the end of the year.
1.3 The business records the following transactions in the accounts:
|Jul-17||2||Business established with contribution from A Stanlee of $100,000 cash.|
|July||5||Purchased inventory on credit from SuperStock. Purchased 25x Mermaid Fountains for $349 each (not incl GST) and 12x Kingseat Garden Benches for $275 each (not incl GST).|
|Aug||2||Bought office furniture (asset) from Smart Mart, on credit, for $33 000 (incl GST).|
|Aug||18||Bought general supplies for the office for $665.50 (incl GST). Paid with cash.|
|Aug||29||Paid Super Stock account in full for July purchases.|
|Sept||4||Sold 10x Mermaid Fountains on credit to Garden Solutions for $10 516 (gross total). Credit terms 4/15 n60.|
|Sept||16||Received payment from debtor of Sept 4 (4% discount applies).|
|Sept||29||Sold 3x Kingseat Benches for $3 135 cash (incl GST).|
|Oct||2||Paid cash for insurance Invoice in the amount of $2750. (Invoice amount covers insurance for 12months – 1 Oct 17-30 Sept 18, and includes GST)|
|Oct||9||Performed services including delivery and installation for $1870 (incl GST) on credit to customers.|
|Oct||12||Purchased inventory from SuperStock: 10x Mermaid Fountains for $360 each (not incl GST). Paid with cash.|
|Nov||5||Paid Super Realty rent for July to October – paid cash $1232 (incl GST).|
|Nov||7||Sold 6x Mermaid Fountains on credit to Bank Botanicals for $6 479 (incl GST). Credit terms 3/30 n60|
|Dec||2||Received full payment from Bank Botanicals for sale of 7 Nov (3% discount applies).|
|Jan-18||1||Paid $27 500 (incl GST) on credit for a Toyota van (asset). The van will have a residual value of $6000 at the end of its effective life.|
|Feb||22||Purchased 4x Kingseat Benches for $1 200 total (not incl GST) on credit.|
|Mar||5||Paid Super Realty rent for November to February – paid cash $1232 (incl GST).|
|Mar||31||Sold inventory: 2x Mermaid Fountains and 6x Kingseat Benches for a total of $14,190 (incl GST) cash.|
|June||6||Paid fortnightly wages: office assistant, T Frankenstand received $970 (net pay) (PAYG $172).|
|June||20||Paid fortnightly wages: Frankenstand received $970 (net pay) (PAYG $172); and M Spiders received $448 (net pay) (PAYG amount $21).|
|June||27||A. Stanlee withdrew $4500 from the business for private travel.|
1.4 Chart of Accounts:
|Chart of Accounts|
|Account Name||Account Type||Usual Balance|
|Cash at Bank||Asset||Debit|
|Provision for Doubtful Debts||Contra – Asset||Credit|
|Accum Dep – Furniture||Contra – Asset||Credit|
|Accum Dep – Vehicles||Contra – Asset||Credit|
|PAYG Tax Payable||Liability||Credit|
|A Stanlee, Capital||Equity||Credit|
|A Stanlee, Drawings||Equity||Debit|
|Sales Discount||Contra – Revenue||Debit|
|Cost of Goods Sold||Expense||Debit|
|Bad Debts expense||Expense||Debit|
|Profit and Loss Closing||Temporary only||N/A|
1.5 June & July 2018 calendar dates (for payroll):
1.6 Journals, Ledgers and other records
The business uses the following journals and ledgers:
|–||to record all transactions (including Adjustments and Closing entries – use the hyperlinks to locate these in the template)|
|–||all GJ entries are posted to the General Ledger (please refer to notes below regarding posting adjustments and closing entries|
|–||totals of all accounts – link from the General Ledger (please note, this is a Live Trial Balance and you must complete the Worksheet before journalising the adjustments)|
|–||to record adjustments and changes to the accounts when preparing the Adjusted Trial Balance|
|Inventory Record||–||to record purchases, sales and inventory on hand for both stock items|
1.7 Financial Reports
The business uses the following Financial Statements:
Balance Sheet – Assets, Liabilities, Owners’ Equity
Income Statement – Revenue, Expenses, Goss/Net Profit or Loss
Statement of Changes in Equity – Capital, Drawings
1.8 Adjustments (to be completed at the end of the accounting cycle):
Marvel Landscaping must record the following end of year adjustments:
- Physical stocktake of supplies revealed Supplies used for the period: $365
- Wages earned by T Frankenstand and M Spiders for the fortnight 18/6/18 to 29/6/18 will be paid on 4/7/18. (The fortnightly earnings are: Frankenstand – $1142 gross and Spiders – $469 gross. Use accounts: Wages Expense and Wages Payable only.)
- Insurance paid on Oct 2 covers period 1 Oct 2017-30 Sept 2018. Adjust for the prepaid portion. (Note, insurance invoice total previously recorded as expense.)
- Calculate the Provision for Doubtful Debts at the rate of 2% of Accounts Receivable balance.
- Calculate and record the depreciation expense for: furniture using the 30% reducing balance method and vehicles using straightline method (see 1.2 above).
- End of year stocktake reveals $680 worth of damaged stock. Record the adjustment to inventory (use the inventory loss account).
- Record rent payable given the business has accrued rent expense for March to June that it has not yet paid. (Assume it is the same amount as the previous rent payment.)
2. Task 2 Requirements
(Use the Task 2 template. Make adjustments as required including using formulas and links as instructed.)
2.1 Prepare the General Journal entries for the Transactions that occurred July 2017June 2018. Transactions are listed above at 1.3. Use the accounts listed in the Chart of Accounts at 1.4. For inventory, all sales and purchases must be entered into Inventory Record as they occur. Use EXCEL formulas for calculations (eg GST) and linking as required. Check the journal is in balance.
2.2 Post the GJ entries to the General Ledger. Enter names for the ledger accounts and add accounts to the template as necessary. Use linking function in EXCEL to link the transaction amounts from the to the GJ to the relevant GL account. (Please note, the template uses a running balance method. Create the formulas and links for these.)
2.3 Prepare a Trial Balance as at 30 June 2018 by linking from the ledger accounts to the trial balance. It will be a live Trial Balance but at this point it is unadjusted as it does not include the Adjustments which will be recorded in step 2.5 below. Check it is in balance before moving on. (If it is not in balance, try using sort & filter function to find errors in posting. Ask your tutor if you need assistance.)
2.4 Prepare the Worksheet by copying your Trial Balance figures into columns B and C. VERY IMPORTANT – copy these as VALUES (using Paste Special function in EXCEL).
2.5 Record the Adjustments in the General Journal. Adjustments are listed above at 1.8 (a. to g.). Enter these into both the Worksheet (in columns E and F) and the General Journal. Check the journal is in balance.
2.6 Post the adjustment journal entries (from the General Journal) to the General Ledger using new accounts as necessary. (This will change the figures in your Trial
Balance but not your Unadjusted Trial Balance in your Worksheet. Check this.)
2.7 Finalise the Worksheet – return to the Worksheet to calculate balances in the Adjusted Trial Balance (columns H and I), using EXCEL functions for additions and subtractions. (Check the Adj Trial Balance figures in these columns match the account balances in the Trial Balance – they should be the same.)
2.8 Prepare the Financial Statements – still in the Worksheet, copy or link the appropriate figures to the Income Statement columns and to the Balance Sheet columns. Then take these figures across to the Financial Statements sheet and create Financial Statements according to a standard format (refer to the textbook page 240). Identify Assets and Liabilities as ‘current’ or ‘non-current’ for the Balance Sheet (this was to be done in the Chart of Accounts).
2.9 Prepare the Closing General Journal entries but DO NOT post to the Ledger. Closing:
- debit revenue accounts and credit P& L Closing Account;
- credit all expense accounts and debit P& L Closing Account;
- debit P & L Closing Account (if a profit) and credit Capital account;
- credit Drawings and debit Capital account
2.10 EXCEL functions and Number formats – Basic EXCEL functions and formulas should be used as described in the instructions above. All amounts to be displayed to two decimal places but should not be rounded. Use $ only in Financial Statements.
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