Reference no: EM132311266

Business Scenario and Instructions

1 Stitches - Business Background

Accounting Policies

Stitches uses accrual accounting for recording transactions and adjustments.

Stitches uses a perpetual inventory system with weighted average.

Stitches prepares quarterly Business Activity Statements (BAS) and remits the net GST liability due to the ATO in the month following the end of each quarter. (Note: as this is a new business, A Hepburn has not yet prepared a BAS and has no liability at the start of June.)

Stitches has the following depreciation policies:
• Furniture: depreciated over 8 years using straight line method (residual value of $9 000)
• Technology Systems: depreciated using reducing balance method at the rate of 41.82% over 5 years ($2 000 residual value)

Stitches pays employee salaries on a weekly basis. Salaries are paid on the Thursday for the previous week. They both work Monday to Friday. The manager works on full time basis and the sales assistant is paid an hourly rate. PAYG tax is withheld from their gross pay, and A Suit also contributes a regular amount from her gross pay to a private health fund. Both employees receive employer superannuation contribution at the rate of 9.5% of gross salary (before deductions), on top of their pay.

[The employees are being paid into the same superannuation fund through an online portal (this means you can account for all superannuation together).]

Stitches records an allowance for doubtful debts that equates to 3% of Accounts Receivable balance at the end of the year.

Stitches records all prepaid expenses as assets (prepayments), and then expenses the portion used as end of year adjustments.

Accounting System

Journal and Ledgers

Stitches uses the following journals, ledgers & records:

Cash Receipts Journal - to record all cash receipts of the business including cash sales and cash received from debtors

Cash Payments Journal - to record all cash payments of the business including cash purchases, cash payments to creditors

Sales Journal - to record all credit sales of Inventory

Purchases Journal - to record all credit purchases of Inventory & other items

General Journal - to record all other transactions not recorded in other journals (eg adjusting entries & closing entries)

General Ledger - separate ledger accounts are maintained for each asset, liability, equity, revenue and expense account

Inventory Record - used for tracking purchases, sales, on hand stock of inventory

Subsidiary Ledgers - maintained for accounts receivable and accounts payable, then reconciled against relevant general ledger accounts

The business prepares the following Financial Statements:

Balance Sheet - Assets, Liabilities, Owners' Equity

Income Statement - Revenue, Expenses, Gross/Net profit or loss Statement of Changes in Equity - Capital, Drawings, Profit/Loss

3 Business Transactions for June 2018

Date	Transaction Details
1-Jun	Hepburn establishes the business by depositing $100 000 into the business bank account.
1-Jun	Purchased inventory on credit from Patton: 12x SWINGER Portable machines at $58 each (NOT incl GST.)
1-Jun	Purchase of furniture (non-current asset) with cash from a wholesaler: for $23 650 (incl GST). [Refer to Accounting Policies for depreciation details.]
2-Jun	Purchased general supplies on credit from Fabrics&More - total purchase was $3652 (incl GST).
2-Jun	Signs a lease agreement to rent a warehouse. The agreeement is for $572 (incl GST) per month, paid in advance. Paid first month with cash.
3-Jun	Purchased Technology Systmes for $33 000 (incl GST) on credit from ZMart. Payment terms are: twelve equal monthly payments due at the end of the calendar month.
3-Jun	Paid cash for advertising, three months in advance. Paid $693 (incl GST) for June, July, August.
4-Jun	Sold 7x SWINGER Portable machines for $1221 total (incl GST) on credit to The DressMaker. Credit terms are 3/7 n/15.
8-Jun	Hired two staff members to begin work on 11/06/18: A Suit to work as the manager, and P Tulle as a sales assistant. [See Accounting Policies for more information.]
8-Jun	Purchased inventory on credit from Fabrics&More: 5x AUDREY Vintage machines for $265 each (NOT incl GST).
9-Jun	Sold 1x AUDREY Vintage to a customer for cash: $816.20 (incl GST).
10-Jun	Purchased inventory from Patton: 9x SWINGER Portable for $62 each, 4x TAILOR Deluxe for $210 each. All prices are NOT incl GST.
11-Jun	Sold 6x SWINGER Portables on credit to School Locker Room for $1 197.90 (incl GST). Credit terms are 2/10 n/30.
13-Jun	Owner withdrew $9 000 from the business for personal expenses.
14-Jun	Received $2 200 cash (incl GST) for machine maintenance service (service revenue)
19-Jun	Sold 2x TAILOR Deluxe machines and 5x SWINGER portable machines for a total of $2 167 (incl GST) on credit to Lagerfield Remakes. Credit terms are 3/15 n/30.
21-Jun	Purchased 2x AUDREY Vintage machines for $257 each (NOT incl GST), on credit from Patton.
21-Jun	Paid wages: Weekly salary for A Suit & $425 in wages for P Tulle.
22-Jun	Provided machine maintenance service (service revenue) to Lagerfield Remakes and received cash. Total invoice amount (gross): $4 741.
22-Jun	Sold 1x AUDREY Vintage to The DressMaker on credit for $737 (incl GST).
23-Jun	Received full payment from School Locker Room for purchases in June.
24-Jun	Made a part payment of $1700 to Patton.
25-Jun	Performed machine maintenance service and received $1250 cash (incl GST).
26-Jun	Paid phone bill for June of $110 (incl GST).
28-Jun	Paid wages: Weekly salary for A Suit & $813 in wages to P Tulle.
29-Jun	Made first repayment to Zmart. Made partial payment of $1700 to Patton.
29-Jun	Received payment in full from Lagerfield Remakes, within discount terms.

4 Adjustments for end of financial year 2018

The stocktake on 30 June revealed $2 408 worth of supplies on hand.

The next wages payment will occur on Thursday 5 July for the employee earnings in the final week of June. P Tulle earned $375 between 25th and 29th June; A Suit worked a usual week.

Calculate the amounts for depreciation expense for each of the two types of non-current Assets: furniture and technology systems. (Estimate expense as though assets held for whole of month of June. You can use the depreciation schedule in the template or calculate manually.)

Calculate and record the adjusting entry for rent for the end of the month given that June rent paid in advance has been used up.

Calculate and record the adjusting entry for advertising for the end of the month given that June advertising paid in advance has been used up.

Calculate the Allowance for Doubtful Debts based on 3% of accounts receivable at the end of the year and make the necessary adjusting entry.

5 Accounting Requirements and Instructions

Spreadsheet software

The file on the course Blackboard site (ACC106 ATMC Task 2 Templates) contains a series of worksheets that you should use to complete the requirements below. Make changes as required including formulas and links.

Completing the Accounting Cycle

Record all the business transactions from section 3 above in the relevant special journals using EXCEL formulas as appropriate (eg for GST calculations), and linking as required. All transactions involving inventory, MUST be first entered in the Inventory Record, then linked to the relevant journals.

All transactions involving accounts receivable and accounts payable MUST be made in the schedules in the SubLedger AR AP, as well as the relevant journals.

Post the Account totals from each of the special journals to the relevant ledgers in the General Ledger, using EXCEL linking function. You will need to create additional accounts in the General Ledger. Use the accounts listed in the Chart of Accounts and enter names of the ledger accounts as required. In the ledger, use formulas to create running totals. DO NOT POST ADJUSTMENTS yet.

Use the Reconciliation tables in the Inventory Record and Sub Ledger AR AP to reconcile the totals from inventory, accounts receivable and accounts payable with the final balances from the General Ledger. Use the linking function to do this in the Record and Sub Ledger.

Prepare the Trial Balance as at 30 June 2018 by linking balances from the ledger accounts to the Trial Balance. By linking, it will be a ‘Live' Trial Balance but at this point it is an Unadjusted Trial Balance as the Adjustments have not yet been posted. When completed, check the debit and credit columns are equal in the Trial Balance. Then copy and special paste (as values only) the Trial Balance into the Worksheet columns ‘Unadj Trial Balance'. In the Worksheet, the figures in these columns should not change as they are raw figures. (Tip: Use Paste Special to paste in as values.)

Record the end of year Adjustments, (listed above at section 4), in the Worksheet and complete the Worksheet by calculating balances in the Adjusted Trial Balance columns. Use simple formulas in EXCEL to make these additions and subtractions. Then complete the Income Statement and Balance Sheet columns in the Worksheet.

Record the Adjustments in the General Journal and post these adjustments to the General Ledger using new accounts as necessary. (This will change the figures in your Live Trial Balance which should now match the Adjusted Trial Balance figures in the Worksheet. Check this.)

Prepare the closing entries in the General Journal, and post these to the General Ledger. (As with adjustments, this will change your Live Trial Balance figures if you have linked correctly. NOW, your Adjusted Trial Balance figures in the Worksheet will NOT match the Live Trial Balance figures for the Revenue and Expense accounts and totals. The Live Trial Balance is now a post-closing Trial Balance.)

Remember: for closing, close revenue and expense accounts to the Income Summary Account, then close Income Summary Account to the Capital account and finally, close drawings to the Capital account.

Finally, prepare the Financial Statements for 30 June 2018 by copying or linking the appropriate figures into your Financial Statements. Refer to your textbook or course Learning Materials for guidance on the format of these Statements. For Balance Sheet, use the Classified Balance Sheet in report form as demonstrated on p.184 of the text; and Income Statement and Statement of Changes in Equity as demonstrated on p.240 of the text. (Note, for the Income Statement, there will be three revenue streams including sales discount. You must show Gross Profit as well as Net profit or loss. For the Balance Sheet, you must show net accounts receivable and look carefully at how non-current assets are presented.)

6 Additional Information

Number formats
All amounts should be displayed as two decimal places but should not be rounded. Amounts can be displayed without $ sign. (Use $ sign for Financial Statements only).

Journals and Ledgers

Total columns in the special journals should be posted to the respective General Ledger accounts at June 30. Adjustment & closing entries should be posted from the General Journal to the respective General Ledger accounts at the end of the financial year (June 30).

Remember: When special journals are used, do NOT also use the General Journal for the same transaction. Also, the subledgers for inventory, AR and AP are not linked to the General ledger but the balances should be checked.

Inventory

Record Inventory purchases and sales in the Subsidiary Ledger Inventory AS THEY OCCUR. As well, record purchases and sales of inventory in the relevant journals (using figures in the Inventory record) and post from the journals to the General Ledger Inventory account.

Wages

There are two payroll worksheets that can be used to calculate wages. The ATO payroll is to be used to estimate weekly PAYG withholding tax for each employee. Use the table in the payroll template to calculate relevant amounts for each employee each week.

Depreciation

There is a depreciation worksheet with a table that can be used to calculate depreciation for the non-current assets. (Tip: depreciation expense is based on the net cost of the asset.)

EXCEL functions

Basic EXCEL functions and formulas should be used as described in the instructions. At a minimum, the following should be used: linking between respective worksheets; formulas for calculating eg GST, depreciation; formulas for total columns and rows; simple formatting including number formats and cell borders.

Presentation and customised features

The spreadsheet should be presented as per the template provided but there should be an attempt to customise it to show an individualised product. This may mean use of some additional functions such as a menu or use of colours and formatting to improve the functionality of the product.

Note: Please note the following correction to your Task 2 Assignment.

The transaction on the 29 June says:

Made first repayment to Zmart. Made partial payment of $1- Please ignore the part that says 'partial payment of $1700 to Patton'. Therefore the only payment that you should record to Patton is on 24 June.

Attachment:- Assignment Instructions.rar