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.
Luxe Leather Bags Pty Ltd has been operating in Toorak, Victoria, since July, 2013. The company was started by Kent Cognac and operates a business which sells luxury leather bags on a wholesale basis to other bag boutiques on both credit and cash terms. The company’s Share Capital consists of 810,000 ordinary shares, issued at $1 each, that are owned by various members of the Cognac family. The company employs a combination of sales and administration staff to operate the business.
Accounting System Information & Procedures
The company has a financial year end of 30 June and prepares adjusting entries at the end of the financial year.
To ensure efficiency of its accounting procedures, the company uses the following Special Journals to maintain its accounting records:
- Sales Journal (SJ): to record all sales of inventory on credit
- Purchases Journal (PJ): to record all purchases of inventory on credit
- Cash Receipts Journal (CRJ): to record all cash receipts
- Cash Payments Journal (CPJ): to record all cash payments
- General Journal (GJ): to record all transactions other than the
Business transactions are recorded for Luxe Leather Bags on a daily basis in one of these five journals in the accounts.
Additionally, the company maintains a general ledger to record postings from the journals. Subsidiary Ledgers are used to record the separate details of Accounts Receivable and Accounts Payable. Transactions are posted immediately to the relevant ledger account if they are entered into the general journal, the “other” column of the Cash Receipts Journal or Cash Payments Journal, or if they affect any of the Accounts Receivable or Accounts Payable subsidiary ledger accounts. Apart from these transactions, totals of the special journals are taken at the end of the month and then posted to the appropriate accounts. The company uses a periodic inventory system.
In practice, the company would be required to collect and pay Goods and Services Tax (GST) on its sales and purchases. However, for the purposes of this exercise, GST has been excluded.
Please Note: All amounts in this practice set should be rounded to the nearest dollar.
UNADJUSTED TRIAL BALANCE AND CHART OF ACCOUNTS
As at 31 May 2019
|Acc. No.||Account||Debit ($)||Credit ($)|
|100||Cash at Bank||439,020|
|101||Accounts Receivable Control||170,100|
|104||Prepaid Store Rent (paid 1 March 2019)||528,300|
|105||Prepaid Insurance (paid 1 Nov. 2018)||8,100|
|151||Accumulated Depreciation – Showroom Fittings|
|161||Accumulated Depreciation – Equipment||60,750|
|200||Accounts Payable Control||109,710|
|250||Mortgage Loan (due 31 July 2036)||433,530|
|301||Retained Profits (1 July 2018)||688,230|
|303||Profit and Loss Summary|
|401||Sales Discounts (Discount Allowed)||22,185|
|402||Sales Returns and Allowances||6,255|
|501||Purchase Discounts (Discount Received)||17,280|
|502||Purchase Returns and Allowances||7,245|
|601||Wages Expense – Sales Staff||691,515|
|602||Depreciation Expense – Showroom Fittings|
|603||Depreciation Expense – Equipment|
|612||Salaries Expense – Office Staff||543,330|
|613||Bad Debts Expense|
Schedule of Accounts Receivable
As at 31 May 2019
Note: Luxe Leather Bags offers all customers Credit Terms 2/10, n/30, unless otherwise stated.
|Acc. No.||Account||Invoice date||Amount ($)|
|101-1||College Park Bags||29 May||68,040|
|101-2||Dulwich Elite Bags||19 May||34,380|
|101-3||Gilberton Boutique Bags||26 April||46,530|
|101-4||Kensington Park Bags||13 May||21,150|
Schedule of Accounts Payable
As at 31 May 2019
|Acc. No.||Account||Invoice date||Credit terms||Amount ($)|
|200-1||Medindie Leather Co.||31 May||2/10, n/60||31,050|
|200-2||Walkerville Leather Co.||25 May||1/10, n/45||78,660|
For June 2019
|June 1||College Park Bags paid the entire balance of its account that was still outstanding.|
|Delivered goods to Dulwich Elite Bags for $48,780 and issued invoice #751. Issued cheque #249 to pay $5,400 for delivery costs of inventory to their premises.|
|June 4||Paid the amount owing to Medindie Leather Co. Cheque #250 was sent.|
|June 7||Total Cash Sales for the week were $13,770.|
|June 9||Gilberton Boutique Bags paid $19,530 toward the amount it owes us.|
|June 10||Made a purchase from Walkerville Leather Co. for $41,850 for inventory: Terms are 1/10, n/45 and
date of invoice was 10 June.
|The firm issued cheque #251 for the purchase of stationery supplies amounting to $3,960.|
|June 11||College Park Bags purchased inventory of $49,140. Invoice #752 was issued.|
|June 12||Some of the inventory purchased on 10 June from Walkerville Leather Co. were the incorrect
colour and design of bag. Returned inventory in exchange for a Credit Note of $13,500.
|June 14||Total Cash Sales for the week were $18,810.|
|June 15||Paid office staff salaries of $52,470. Cheque #252 was issued for payment.
Cheque #253 was issued to pay sales staff wages, $44,550.
|June 16||Purchased inventory from Medindie Leather Co. for $68,850. The invoice was dated 16 June. Credit terms are 2/10, n/30.|
|June 17||Sold inventory to Gilberton Boutique Bags for $88,830 on invoice #753. Issued cheque #254 to pay for delivery costs of $6,750.|
|June 19||The company issued cheque #255 to pay the amount still owing to Walkerville Leather Co.|
|June 21||Total Cash Sales for the week were $17,865.|
|June 23||Gilberton Boutique Bags returned $16,830 of inventory purchased on 17 June. Issued a Credit Note for the transaction.|
|June 24||Issued Cheque #256 for $9,000 to pay for the annual gift the company donates to the UNESCO Charity Fund. The gift is to be recorded as a sundry expense in the accounts.|
|June 25||Purchased inventory from Walkerville Leather Co., worth $13,410. The terms were 1/10, n/45. Date of the invoice was 25 June.|
|June 26||Received the total amount owing from Gilberton Boutique Bags.|
|June 28||Total Cash Sales for the week were $28,080.|
|June 29||Dulwich Elite Bags paid the entire balance of its still outstanding account.|
|June 29||Reduced $54,000 of the amount owing to Walkerville Leather Co. and Cheque #257 was issued.|
|June 29||A dividend of $126,500 was declared to the company shareholders. However, the dividend will not be paid until September 30, 2019.|
|Paid sales staff wages, $44,550 and Cheque #258 was issued to meet the payment.|
|June 30||Issued additional Shares to the owners of the Company for cash, and $90,000 was received and banked by the business.|
|Total Cash Sales for the week were $16,740.|
- Enter the transactions for Weeks 1 – 5 into the appropriate Journal for the month of June Next, post all the Journal transactions to the ledger accounts as specified in the “Account System Information & Procedures” section of the Introduction.
- Total all Special Journal columns and post to the appropriate ledger account at the end of the
- Prepare the unadjusted Trial Balance as at 30 June 2019 on the Worksheet
- Prepare the adjusting entries shown on page 10 in the General Journal and post to the relevant ledger accounts. Now enter the adjustments in the relevant worksheet columns and prepare an adjusted Trial
- A Stocktake on 30 June 2019 indicates that the balance of Closing Inventory is $1,011,780. Use this information to complete the remaining columns of the
- Use the worksheet to prepare the Income Statement and Balance
- Complete the Schedule of Accounts Receivable and Schedule of Accounts Payable. Ensure the balances agree with the totals in the control
- Prepare closing entries and post to the relevant general ledger
- Complete the post-closing Trial Balance as at June
- The Showroom Fittings were installed on 1 July, They have a useful life of 9 years and no salvage value.
- The Equipment was installed on 1 July, They have a useful life of 10 years and estimated salvage value of $2,250.
- Twelve months of store rent was prepaid on 1 March, Of the original prepaid amount, $176,100 worth of store rent has now expired.
- A count of Stationery Supplies indicates that $60,795 still remain on hand at year
- A one-year insurance policy was purchased on 1 November 2018 for $8,100.
- Interest on the ANZ Bank Mortgage Loan is charged at 7% per annum and is paid annually on 1 August (the interest expense should be rounded up to the nearest dollar). The ANZ Bank Mortgage Loan was originally taken out on the 1 August,
- The company has been informed that Kensington Park Bags has been declared bankrupt and Luxe Leather Bags Pty Ltd has agreed to write off the amount owing as a Bad Debt. The company uses the direct write-off method to account for any Bad Debts in the books.
- A telephone bill for $4,590 for June was received on 5 July, The amount has not yet been recorded. The company records them as a utilities expense.
- Office Staff are paid once per month, $52,470. The Office Staff were last paid on the 15 June, Exactly half of one month Office Staff wages are still owing.
- Sales Staff are paid fortnightly and work 7 days per The sales staff were last paid on the 29 June, 2019. One day of the wages bill is still owed to the Sales Staff.
- The estimated Tax Payable for the year ended 30 June, 2019 is $61,715. This amount is to be paid on 31 October,
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