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Information from previous pages General instructions Assume it is currently June 1, 2018. You are working for the temporary accounting employment agency known as Accutemp.

Information from previous pages

General instructions

Assume it is currently June 1, 2018.

You are working for the temporary accounting employment agency known as Accutemp. Today you have been asked to work at Ball-Mart, a small general sports store that operates in inner city Miami and is owned by Margaret Downing. Your task here is to complete the accounting cycle for Ball-Mart for the month of June 2018. To assist you in this task, Margaret tells you to read the company's accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for Ball-Mart.

Accounting policies

a.Business operations: Ball-Mart is set up as a private non-listed corporation based in Miami with Margaret Downing as the sole stockholder. The business derives its main source of revenue from retail sales of sporting goods.

To assist in managing the business, Ball-Mart rents a small office space. Note that the business is required to pay for the rent for this premises in advance.

The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in the event of theft or fire.

All costs associated with the office are classified as general and administrative expenses.

Margaret is the only full-time employee and her role is to handle all administrative tasks. Margaret's salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages on a weekly basis.

b.Accounting cycle: The business adopts a monthly accounting cycle.

c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts from some suppliers.

d.Revenue recognition: The business recognizes revenue when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not offered to credit customers.

e.Sales tax: The business is a registered entity for sales tax purposes and collects 5% sales tax on all items sold to customers. Note that the business holds a reseller's certificate so it is not liable to pay sales tax on purchases of inventory. No sales tax is due to be remitted during the month of June.

f.Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day checks are received, Margaret deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with ZNZ Bank.

g.Inventories: The business uses the perpetual inventory system and applies the FIFO method to allocate costs to inventory and cost of goods sold. Note that the business maintains a set of inventory cards with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the Balance column, items with different unit costs are listed in separate lines with the items purchased earlier listed first in the pair of lines provided.

h.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognize the expense during the accounting period.

i.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

j.Long term liabilities: The business obtained an interest only loan from Earth Bank on June 1, 2018 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2018 and the principal on the loan is due on June 1, 2021.

Accounting procedures

Ball-Mart adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Margaret Downing has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, she advises you that the general principles of how to use special journals are followed in her business.

The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals:

Journal

Code

Transaction type

General journal

GJ

All transactions that are not able to be recorded in the special journals below.

Sales journal

SJ

Credit sales of inventory

Purchases journal

PJ

Credit purchases of inventory

Cash receipts journal

CRJ

Cash inflows to the business

Cash payments journal

CPJ

Cash outflows from the business

To summarize the effects of transactions recorded in those journals, Margaret maintains the general ledger and the following ledgers:

accounts receivable subsidiary ledger,

accounts payable subsidiary ledger, and

inventory cards.

Margaret then indicates that she is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in her business may be different to what you have seen before, she asks that you specifically follow her company's accounting procedures.

The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts and inventory cards:

Posting of entries recorded in the general journal

All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers.

Posting of entries recorded in the special journals

When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly.

a.Daily:

If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis.

In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily.

If a transaction results in a change in the number of inventory items on hand, then the entry that affects inventory is to be posted to the appropriate inventory card on a daily basis. In this way, the business is able to track the balance of inventory on hand.

b.Monthly:

At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the totals of the Other Accounts columns in the cash journals, are posted to the appropriate general ledger accounts at the end of the month.

Transactions for June

You will use the following five weeks of transactions as you complete the books for June. Note that the transactions are divided into five separate weeks. This is because you will not enter this whole list of transactions on any one page. You will be given five separate pages in which to enter the transactions for each of the five weeks.

Date

Description

Week 1

1

Obtained a loan of $44,000 from Earth Bank at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2018 and the principal of the loan is to be repaid on June 1, 2021.

3

Paid the full amount owing to Sports 'R Us, Check No. 655. Payment fell outside discount period.

3

Purchased 25 Boxes of Quidditch Bludgers with cash for $480 each, Check No. 656.

4

Purchased 14 pairs of Football Boots from Hike for $140 each, terms net 30.

5

Purchased 17 Quidditch Snitches from Extreme Sports Inc for $560 each, terms 2/10, n/30

5

Paid the full amount owing to J. J. Spud, Check No. 657. Payment fell outside discount period.

6

Made cash sale of 48 Boxes of Quidditch Bludgers for $960 each plus 5% sales tax.

6

Paid sales staff wages of $1,720 for the week up to and including yesterday, Check No. 658. Note that $1,000 of this payment relates to the wages expense incurred during the last week of May.

7

Sold 19 pairs of Football Boots to Great Sports for $200 each, plus 5% sales tax, Invoice No. 415.

Week 2

10

Paid the full amount owing to Addax Sports, Check No. 659.

11

Mick's Sporting Goods paid the full amount owing on their account.

12

Sold 40 Specialist Tennis Raquets to Jump Around for $320 each, plus 5% sales tax, Invoice No. 416.

13

Made cash sale of 20 GPS-enabled Football Jerseys for $280 each plus 5% sales tax.

13

Paid sales staff wages of $1,868 for the week up to and including yesterday, Check No. 660.

14

Made payment of $1,249 to Integer Energy for 3 months of electricity up to and including May 31, Check No. 661.

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