Reference no: EM13500265
Establishing a new accounting system
Having successfully operated her business for 3 years using what she learned in the UniSA division core course Accounting, Decisions and Accountability Rita has decided it is time to develop a more productive accounting system. In order to do this Rita has been reviewing the notes she took when studying Financial Accounting 1. In her first week of FA 1 Rita discovered that it is important to establish an accounting system that is best suited to the needs of the business. Rita recalls that it was important to consider a number of factors including the current position of the business and where it may be headed in the future.
After some thorough investigation Rita has decided to establish a manual double entry accounting system which will employ specialised journals and control accounts (these will be discussed in detail in week 3). Rita's record keeping has not always been the best and as a result all Rita can provide you with is the unadjusted trial balance on the next page and the following additional information.
Additional Information:
The following adjustments were due to be made on balance day
Additional information known at June 30:
(a) Expecting that she may need some extra cash, Rita arranged a business overdraft facility with the bank manager on June 2.
(b) All depreciation is calculated by the straight-line method. The office equipment is expected to have a useful life of 5 years with no residual. The office furniture is expected to be useful for 10 years, after which it is expected to have a scrap value of $300. The printing equipment is should last 5 years and have a scrap value of $1000.
(c) $300 of the business' debtors relates to money owed by Trustus Insurers who are in liquidation after striking financial difficulty. It is unlikely that any of the money will be recovered. Liquidation proceedings are expected to finish in October of the current year.
(d) The prepaid insurance relates to professional negligence insurance that Rita took out for her own business. It is an annual policy that commenced on 1 May.
(e) The telephone account for the quarter ended June 30 arrives as you are preparing the worksheet. It reveals that $280 of telephone calls were made by the business that have not yet been paid for.
(f) The office/stationery supplies on hand at 30 June had cost $80.
(g) Rita is paid a wage of approximately $500 per month ($125 per week) and four weeks worth have not been paid or recorded as at balance day.
In addition Rita informs you that the amount owing from Trade Debtors is comprised of the following companies
Ian Sure Brokers - $400
International Mutual Ltd - $800
Peter PayzeInsurance - $1000
Trustus Insurers - $300
Rita's Trade Creditors are comprised of
Office Stuff - $270
Printing Suppliers - $630
At present Rita only has one type of inventory.
Required
1. You need to complete the adjustment provided in the additional information on the worksheet provided. Then give each account an appropriate chart of accounts number.
2. Calculate the profit for the previous period and then calculate the Capital figure as at 1 July (ready for the start of the next year).
3. Using the figures from the adjusted trial balance you must complete an opening entry to establish Rita's new accounting system in the General Journal and then post this entry to the appropriate ledger accounts.
4. Enter any required reversing entries in the general journal to prepare the new system for use and post these entries appropriately.