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INTRODUCTION
The objective of this Accounting practice set is to provide students with an insight into the process of recording transactions, completing adjusting and closing entries, and preparing financial statements for a retail business.
Company Background
Salzbruck Musical Instruments Pty Ltd has been in business in Sydney since July, 2012. The company was started by William Jacques and operates a shop which sells musical instruments on a wholesale basis to other businesses on credit and cash terms. The company’s share capital consists of 1,134,000 ordinary shares, issued at $1 each, that are owned by various members of the Jacques family. The company employs a combination of both sales and administration staff to operate the business.
Accounting System Information & Procedures
The company has a financial year end of 30 June and prepares adjusting entries at the end of the financial year. To ensure efficiency of its accounting procedures, the company uses the following Special Journals to maintain its accounting records:
- Sales Journal (SJ): to record all sales of inventory on credit
- Purchases Journal (PJ): to record all purchases of inventory on credit
- Cash Receipts Journal (CRJ): to record all cash receipts
- Cash Payments Journal (CPJ): to record all cash payments
- General Journal (GJ): to record all transactions other than the
Business transactions are recorded for Salzbruck Musical Instruments on a daily basis in one of these five journals in the accounts.
Additionally, the company maintains a general ledger to record postings from the journals. Subsidiary Ledgers are used to record the separate details of Accounts Receivable and Accounts Payable. Transactions are posted immediately to the relevant ledger account if they are entered into the general journal, the “other” column of the Cash Receipts Journal or Cash Payments Journal, or if they affect any of the Accounts Receivable or Accounts Payable subsidiary ledger accounts. Apart from these transactions, totals of the special journals are taken at the end of the month and then posted to the appropriate accounts. The company uses a periodic inventory system.
In practice, the company would be required to collect and pay Goods and Services Tax (GST) on its sales and purchases. However, for the purposes of this exercise, GST has been excluded.
Please Note: All amounts in this practice set should be rounded to the nearest dollar.
UNADJUSTED TRIAL BALANCE AND CHART OF ACCOUNTS
As at 31 May 2018
| Acc. No. | Account | Debit ($) | Credit ($) |
| 100 | Cash at Bank | 614,628 | |
| 101 | Accounts Receivable Control | 238,140 | |
| 102 | Store Supplies | 151,011 | |
| 103 | Inventory | 781,200 | |
| 104 | Prepaid Store Rent (paid 1 March 2018) | 739,620 | |
| 105 | Prepaid Insurance (paid 1 Nov. 2017) | 11,340 | |
| 150 | Showroom Fittings | 510,300 | |
| 151 | Accumulated Depreciation-Showroom Fittings | ||
| 160 | Equipment | 173,250 | |
| 161 | Accumulated Depreciation – Equipment | 85,050 | |
| 200 | Accounts Payable Control | 153,594 | |
| 201 | Interest Payable | ||
| 202 | Utilities Payable | ||
| 203 | Wages Payable | ||
| 204 | Salaries Payable | ||
| 205 | Tax Payable | ||
| 206 | Dividend Payable | ||
| 250 | Mortgage Loan (due 31 July 2042) | 606,942 | |
| 300 | Share Capital | 1,134,000 | |
| 301 | Retained Profits (1 July 2017) | 963,522 | |
| 302 | Dividends Declared | ||
| 303 | Profit and Loss Summary | ||
| 400 | Sales Revenue | 4,045,734 | |
| 401 | Sales Discounts (Discount Allowed) | 31,059 | |
| 402 | Sales Returns and Allowances | 8,757 | |
| 500 | Purchases | 1,926,855 | |
| 501 | Purchase Discounts (Discount Received) | 24,192 | |
| 502 | Purchase Returns and Allowances | 10,143 | |
| 600 | Freight-Out | 2,898 | |
| 601 | Wages Expense – Sales Staff | 968,121 | |
| 602 | Depreciation Expense – Showroom Fittings | ||
| 603 | Depreciation Expense – Equipment | ||
| 604 | Supplies Expense | ||
| 605 | Rent Expense | ||
| 606 | Insurance Expense | ||
| 607 | Advertising Expense | 43,848 | |
| 608 | Interest Expense | ||
| 609 | Utilities expense | 58,464 | |
| 610 | Tax Expense | ||
| 611 | Sundry Expenses | 3,024 | |
| 612 | Salaries Expense – Office Staff | 760,662 | |
| 613 | Bad Debts Expense | ||
| 7,023,177 | 7,023,177 |
SUBSIDIARY LEDGERS
Schedule of Accounts Receivable
As at 31 May 2018
Note: Salzbruck Musical Instruments offers all customers Credit Terms 2/10, n/30, unless otherwise stated
| Acc. No. | Account | Invoice date | Amount ($) |
| 101-1 | Amadeus Cellos | 27 May | 95,256 |
| 101-2 | Bach Guitars | 16 May | 48,132 |
| 101-3 | Chopin Pianos | 23 April | 65,142 |
| 101-4 | Ludwig Trumpets | 11 May | 29,610 |
| $238,140 |
Schedule of Accounts Payable
As at 31 May 2018
| Acc. No. | Account | Invoice date | Credit terms | Amount ($) |
| 200-1 | Schubert Synthesisers | 29 May | 2/10, n/60 | 43,470 |
| 200-2 | Wagner Violins | 22 May | 1/10, n/45 | 110,124 |
| $153,594 | ||||
TRANSACTIONS
For June 2018
| Date | Transaction |
| Week 1 | |
| June 1 | Amadeus Cellos paid the entire balance of its account that was still outstanding. |
| Delivered goods to Bach Guitars for $68,292 and issued invoice #910. Issued cheque #153 to pay $7,560 for delivery costs of inventory to their premises. | |
| June 3 | Paid the amount owing to Schubert Synthesisers. Cheque #154 was sent. |
| June 4 | Total Cash Sales for the week were $19,278. |
| Week 2 | |
| June 8 | Chopin Pianos Store paid $27,342 toward the amount it owes us. |
| June 9 | Made a purchase from Wagner Violins for $58,590 for boutique lighting: Terms are 1/10, n/45 and date of invoice was 8 June. |
| The firm issued cheque #155 for the purchase of store supplies amounting to $5,544. | |
| June 10 | Amadeus Cellos purchased inventory of $68,796. Invoice #911 was issued. |
| June 11 | Some of the boutique light fittings purchased on 7 June from Wagner Violins were the wrong design. Returned inventory in exchange for a Credit Note of $18,900. |
| June 12 | Total Cash Sales for the week were $26,334. |
| Week 3 | |
| June 15 | Purchased inventory from Schubert Synthesisers for $96,390. The invoice was dated 14 June. Credit terms are 2/10, n/30. |
| June 16 | Sold inventory to Chopin Pianos for $124,362 on invoice #912. Issued cheque #156 to pay for delivery costs of $9,450. |
| June 16 | Paid office staff salaries of $73,458. Cheque #157 was issued for payment. |
| Cheque #158 was issued to pay sales staff wages, $62,370. | |
| June 18 | The company issued cheque #159 to pay the amount still owing to Wagner Violins. |
| June 19 | Total Cash Sales for the week were $25,011. |
| Week 4 | |
| June 22 | Chopin Pianos returned $23,562 of inventory purchased on 14 June. Issued a Credit Note for the transaction. |
| June 23 | Issued cheque #160 for $12,600 to pay for the annual gift the company donates to the Smith Family Charity Fund. The gift is to be recorded as a sundry expense in the accounts. |
| June 24 | Purchased inventory from Wagner Violins, worth $93,870. The terms were 1/10, n/45. Date of the invoice was 22 June. |
| June 25 | Received the total amount owing from Chopin Pianos. |
| June 26 | Total Cash Sales for the week were $39,312. |
| Week 5 | |
| June 28 | Bach Guitars paid the entire balance of its still outstanding account. |
| June 29 | Reduced $75,600 of the amount owing to Wagner Violins and Cheque #161 was issued. |
| June 29 | A dividend of $177,100 was declared to the company shareholders. However, the dividend will not be paid until September 30, 2018. |
| Paid sales staff wages, $62,370 and Cheque #162 was issued to meet the payment. | |
| June 30 | Issued additional shares to the owners of the Company for cash, and $126,000 was received and banked. |
| Total Cash Sales for the week were $23,436. | |
INSTRUCTIONS
- Enter the transactions on pages 8-9 into the appropriate Journal for the month of June 2018, Remember to post Journal transactions to the ledger accounts as specified in the “Account System Information” section of the introduction.
- Total all Special Journal columns and post to the appropriate ledger account at the end of the month.
- Prepare the unadjusted Trial Balance as at 30 June on the worksheet provided.
- Prepare the adjusting entries shown on page10 in the General Journal and post to the relevant ledger accounts. The enter the adjustments in the relevant worksheet columns and prepare an adjusted Trial Balance.
- A stocktake on 30 June 2018 indicates that the balance of closing inventory is $1,416,492. Use this information to complete the remaining columns of the worksheet.
- Use the worksheet to prepare the Income Statement and Balance Sheet.
- Complete the Schedule of Accounts Receivable and Schedule of Accounts Payable. Ensure the balances agree with the totals in the control accounts.
- Prepare closing entries and post to the relevant general ledger accounts.
- Complete the post-closing Trial Balance as at June 2018.
ADJUSTING ENTRIES
a) The Showroom Fittings were installed on 1 July, 2017. They have a useful life of 9 years and no salvage value.
b) The Equipment was installed on 1 July, 2012. They have a useful life of 10 years and estimated salvage value of $3150.
c) Twelve months of store rent was prepaid on 1 March, Of the original prepaid amount, $246,537 worth of store rent has now expired.
d) A count of store supplies indicates that $85,365 remain on hand at year
e) A one-year insurance policy was purchased on 1 November 2017 for $11,340.
f) Interest on the ANZ Bank Loan is charged at 7% per annum and is paid annually on 1 August (the interest expense should be rounded off to the nearest dollar). The ANZ Bank Loan was originally taken out on the 1 August, 2017.
g) The company has been informed that Ludwig Trumpets has been declared bankrupt and Salzbruck Musical Instruments Pty Ltd has agreed to write off the amount owing as a bad The company uses the direct write-of method to account for any bad debts in the books.
h) A telephone bill for $6,426 for June was received on 4 July, 2018. The amount has not yet been recorded. The company records them as a utilities
i) Office Staff are paid once per month, $73,458. The Office Staff were last paid on the 15 June, Exactly half of one month Office Staff wages are still owing.
j) Sales Staff are paid fortnightly and work 7 days per week. The sales staff were last paid on the 29 June, One day of the wages bill is still owed to the Sales Staff.
k) The estimated Tax Payable for the year ended 30 June, 2018 is $86,400. This amount is to be paid on 31 October, 2018.
REQUIRED:
Complete the Salzbruck Musical Instruments Pty Ltd Accounting Practice Set.
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