Question
Overview Background information Assume it is currently June 30, 20XX. You are working for the temporary accounting employment agency known as Tempters. Today you have
Overview
Background information
Assume it is currently June 30, 20XX.
You are working for the temporary accounting employment agency known as Tempters.
Today you have been asked to work at Moondollars, a small coffee supplies store that
operates in the city and is owned by Adrian Bartos. Your task here is to complete the
accounting cycle for Moondollars for the month of June 20XX. To assist you in this task,
Adrian 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 Moondollars.
Accounting policies
Business operations:
Moondollars is set up as a private non-listed corporation based in the city with
a.
Adrian Bartos as the sole stockholder. The business derives its main source of revenue from retail sales of coffee
supplies.
To assist in managing the business, Moondollars 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.
Adrian is the only full-time employee and his role is to handle all administrative tasks. Adrian'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 every two weeks.
Accounting cycle:
The business adopts a monthly accounting cycle.
b.
Purchases:
Purchases are recorded when the business receives the goods. All items purchased are received on the
c.
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 and early payment
discounts from some suppliers.
Purchase returns:
To allow Adrian to separately track and analyze the value of goods returned to suppliers, all
d.
purchase returns are recorded in the Purchase Returns and Allowances account rather than directly in the
Purchases account.
Revenue recognition:
The business recognizes revenues when goods sold are delivered to customers. All items
e.
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 normally offered to credit customers except in exceptional circumstances.
Sales returns:
So that the business can easily track the level of sales returns in relation to overall sales, all sales
f.
returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded
directly in the Sales Revenue account.
Sales tax:
Adrian has advised you to ignore the effect of sales tax. [ASIDE: This is an assumption to make the
g.
practice set easier for you to complete. In the real world, sales tax cannot be ignored.]
Cash:
The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day
h.
checks are received, Adrian 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 BitiBank.
Short-term investments:
The business holds a six-month term deposit account with BitiBank. Interest is
i.
calculated on a monthly basis and received at the end of the deposit term. Note that when the deposit matures,
Adrian usually rolls over the principal and interest received at the end of the term. The term deposit account was
rolled over on June 1, 20XX.
Inventories:
The business uses the periodic inventory system and and records all purchases of inventory in the
j.
Purchases account, rather than recording them directly in the Merchandise Inventory account. At the end of the
reporting period, the Purchases account and the opening balance of the Merchandise Inventory account are closed
to the Income Summary account and Merchandise Inventory is restated to its ending balance. Note that the
company does not use a Cost of Goods Sold account.
Prepayments:
The business has a policy of recording prepayments, including office supplies, as assets. At the end
k.
of the month, adjustments are made to the relevant accounts to recognize the expense incurred during the
accounting period.
Property, plant and equipment:
Property, plant and equipment items are depreciated over their estimated useful
l.
life using the straight line method to calculate the depreciation charge.
Long-term liabilities:
The business obtained an interest only loan from MRMC Bank on June 1, 20XX. The first
m.
interest payment is due at the end of August 20XX and the principal on the loan is due at the beginning of June
four years later.
Accounting procedures
Moondollars adopts a manual accounting system and uses the general journal and special journals for the recording of
individual transactions. Adrian Bartos 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, he advises
you that the general principles of how to use special journals are followed in his 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, Adrian maintains the general ledger and the
following subsidiary ledgers:
? accounts receivable subsidiary ledger, and
? accounts payable subsidiary ledger.
Adrian then indicates that he 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 his business may
be different to what you have seen before, he asks that you specifically follow his company's accounting policies and
procedures.
The information below explains when transactions are required to be posted from the journals to the appropriate
ledger accounts:
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.
Daily:
a.
? 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.
Monthly:
b.
? 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.
Instructions
Now that you have reviewed information about Moondollars, you are ready to complete the accounting cycle for
Moondollars for the month of June. To start with, Adrian gives you the transaction list for the month of June and all
the journals, ledgers and final statements you will need to complete this task.
He also mentions that you will be
required to record reversing entries at the beginning of July.
Adrian provides the following list of tasks you are required to perform for June and the beginning of July:
1. Transactions
Record all transactions in the relevant journals. Note that special journals must be used where applicable. Any
a.
transaction that cannot be recorded in a special journal should be recorded in the general journal.
Post entries recorded in the journals to the appropriate ledger accounts according to the company's accounting
b.
policies and procedures.
Remember to enter all answers to the nearest whole dollar. When calculating a discount, if a discount is not a whole
number, round the discount to the nearest whole dollar. Then, to calculate the Cash amount, subtract the discount
from the original amount.
2. End of month posting
Total the columns in the special journals.
a.
Post the totals of the columns in the special journals to their corresponding ledger accounts. To confirm that the
b.
posting has been performed, a posting reference is recorded in the last row of the special journals. If the total of a
column is not required to be posted (because the entries in that column have already been posted on a daily basis)
you need to record an
X
in the post reference field for that column.
3. Bank reconciliation
Prepare the bank reconciliation statement as at June 30.
a.
Identify and record the relevant reconciling items in the general journal, and post them to the relevant accounts.
b.
4. Unadjusted trial balance
Complete the unadjusted trial balance as at June 30 on the worksheet provided.
5. Worksheet
Use the following information to record adjustments in the Adjustments column of the worksheet:
a.
? furniture: Depreciation on the furniture owned by the business for the month of June is $156.
? equipment: Depreciation on the equipment owned by the business for the month of June is $366.
? Electricity expense for the month of June is estimated to be $874.
? The water usage for the month of June is estimated to be $235.
? The amount of wages incurred during the month of June but not yet paid to sales staff is $1,320.
? Interest expense incurred during the month of June but not yet paid to MRMC Bank for the bank loan is
$275.
? Interest earned from short-term investments in BitiBank for the month of June is $100.
? The value of office supplies used during the month of June is $4,037.
? $3,000 worth of prepaid rent expired during the month of June.
? $3,000 worth of prepaid advertising was used up in June.
? $590 worth of prepaid insurance expired during the month of June.
Complete the remaining columns of the worksheet. After taking a physical count of inventory, the balance of
b.
inventory on hand as at June 30 is
$60,857
. You will need to use this information to complete both the Income
Statement and the Balance Sheet columns of the worksheet. Note that Merchandise Inventory is recorded in the
Income Statement columns.
Hint:
This information will assist you in calculating cost of goods sold under the
periodic inventory system.
6. Adjusting entries
Use the worksheet to help journalize adjustments for June.
Record adjusting entries in the general journal.
a.
Post the adjusting entries from the general journal to the relevant ledgers.
b.
7. Schedules of accounts
Create a schedule of accounts receivable balances as at the end of
June.
a.
Create a schedule of accounts payable balances as at the end of June.
b.
8. Financial statements
Prepare an income statement for the month of June.
a.
Prepare a statement of stockholders' equity for the month of June.
b.
Prepare a balance sheet as at the end of June.
c.
9. Closing entries
Journalise closing entries in the general journal.
a.
Post the closing entries from the general journal to the relevant ledger accounts.
b.
10. Post-closing trial balance
Prepare a post-closing trial balance as at the end of June.
11. Reversing entries
On the first day of July, record in the general journal any entries that are required to reverse the following
a.
adjusting entries from the month of June:
? Water expense incurred but not paid
? Electricity expense incurred but not paid
? Wages owed to the employees but have not yet been paid in cash
? Interest expense incurred but not paid to the lender
? Interest earned but not received in cash
Post the reversing entries from the general journal to the relevant general ledger accounts.
b.
After completing the tasks for Moondollars, you should double check your work and ensure that you have completed
all of the accounting records before submitting them for review.
Further information
Chart of accounts
Account No.
Name
100 Cash
102 Short-term Investments
110 ARC - Accounts Receivable Control
112 Interest Receivable
120 Merchandise Inventory
130 Office Supplies
140 Prepaid Rent
141 Prepaid Advertising
142 Prepaid Insurance
150 Office Furniture
151 Accum Depn: Office Furniture
160 Office Equipment
161 Accum Depn: Office Equipment
210 APC - Accounts Payable Control
220 Wages Payable
221 Electricity Payable
222 Water Payable
225 Interest Payable
250 Bank Loan Payable
300 Common Stock
301 Retained Earnings
310 Income Summary
400 Sales Revenue
401 Sales Returns and Allowances
402 Sales Discounts
403 Interest Revenue
500 Purchases
501 Purchase Returns and Allowances
502 Purchase Discounts
511 Advertising Expense
516 Wages Expense
540 Rent Expense
541 Electricity Expense
542 Water Expense
543 Insurance Expense
544 Office Supplies Expense
545 Salary Expense
560 Depn Expense: Office Furniture
561 Depn Expense: Office Equipment
571 Interest Expense
572 Admin. Expense - Bank Charges
Schedule of accounts receivable ~ May
Moondollars
Schedule of Accounts Receivable
May 31, 20XX
Account No.
Name
Debit
($)
Credit
($)
110-1 ARC - Central Coffee
2,844
110-2 ARC - Con's Coffee
3,881
110-3 ARC - SloZone
2,144
110-4 ARC - Quick Bolt Coffee
3,701
110-5 ARC - Revamp Coffee Carts
110-6 ARC - Jandesh's Hot Spot
Total
12,570
Please note:
Moondollars does not generally give a discount for early payment except in exceptional circumstances.
All debtors are on net 30 credit terms.
Schedule of accounts payable ~ May
Moondollars
Schedule of Accounts Payable
May 31, 20XX
Account No.
Name
Debit
($)
Credit
($)
Terms
210-1 APC - Brazil Imports Group
3,432 2/10, n/30
210-2 APC - East Tangiers Co-op.
3,781 1/15, n/30
210-3 APC - Abejundio Coffee
4,668 net 30
210-4 APC - Buena Vista Coffee
1,413 2/10, n/30
210-5 APC - Klam Wholesalers
3,144 net 30
210-6 APC - Jordo Gourmet Coffee
net 30
Total
16,438
Post-closing trial balance ~ May
Moondollars - Post-closing trial balance, As at May 31, 20XX
Account No.
Name
Debit
($)
Credit
($)
100 Cash
29,477
102 Short-term Investments
20,000
110 ARC - Accounts Receivable Control
12,570
112 Interest Receivable
120 Merchandise Inventory
73,322
130 Office Supplies
7,083
140 Prepaid Rent
6,000
141 Prepaid Advertising
9,000
142 Prepaid Insurance
2,950
150 Office Furniture
9,000
151 Accum Depn: Office Furniture
2,031
160 Office Equipment
43,000
161 Accum Depn: Office Equipment
13,532
210 APC - Accounts Payable Control
16,438
220 Wages Payable
221 Electricity Payable
222 Water Payable
225 Interest Payable
250 Bank Loan Payable
300 Common Stock
80,000
301 Retained Earnings
100,401
Total
212,402 212,402
Bank reconciliation statement ~ May
Moondollars
Bank Reconciliation Statement
As at May 31, 20XX
Balance per bank:
$32,182
Add:
deposit in transit from Quick Bolt Coffee
$3,685
deposit in transit from Central Coffee
1,210 4,895
37,077
Deduct:
outstanding check
No. 901 $6,900
outstanding check
No. 902
700 7,600
Adjusted balance per bank
$29,477
Balance per book:
$29,348
Add:
interest earned
134
29,482
Deduct:
bank service charge
5
Adjusted balance per book
$29,477
Bank statement ~ June
Seattle branch
Adrian Bartos
102 Martin Road
Seattle, WA 98101
Account No.
69932616
Page No.
1
Moondollars
Date Particulars
Debit
Credit
Balance
JUN 1 BALANCE BROUGHT FORWARD
$32,182 CR
JUN 1 901
$6,900
$25,282 CR
JUN 2 902
$700
$24,582 CR
JUN 4 LOAN
$55,000
$79,582 CR
JUN 4 DEPOSIT - Quick Bolt Coffee
$3,685
$83,267 CR
JUN 5 903
$3,743
$79,524 CR
JUN 5 DEPOSIT - Central Coffee
$1,210
$80,734 CR
JUN 6 904
$1,385
$79,349 CR
JUN 6 DEPOSIT - Cash sales
$5,961
$85,310 CR
JUN 9 905
$220
$85,090 CR
JUN 10 DEPOSIT - Central Coffee
$2,560
$87,650 CR
JUN 14 906
$3,144
$84,506 CR
JUN 16 DEPOSIT - Cash sales
$10,081
$94,587 CR
JUN 20 DEPOSIT - Cash sales
$9,658
$104,245 CR
JUN 20 907
$5,103
$99,142 CR
JUN 23 DEPOSIT - Jandesh's Hot Spot
$300
$99,442 CR
JUN 26 NSF CHECK - Jandesh's Hot Spot
$300
$99,142 CR
JUN 26 DEPOSIT - Cash sales
$9,592
$108,734 CR
JUN 29 909
$3,425
$105,309 CR
JUN 30 DEPOSIT - Quick Bolt Coffee
$3,701
$109,010 CR
JUN 30 910
$5,582
$103,428 CR
JUN 30 INTEREST
$234
$103,662 CR
JUN 30 SERVICE CHARGE
$5
$103,657 CR
Last statement to
05/31/XX
This statement to
06/30/XX
Total debits
$30,507
Total credits
$101,982
Final balance
$103,657 CR
Proceeds of checks will not be available until cleared.
All entries for the last business day are subject to verification and authorization. Any items not paid, or withdrawn, will be adjusted by reversal entry on a later
statement.
NSF means Not-Sufficient-Funds
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 to help you break your study time into blocks.
Week 1
Date Transaction description
1
Purchased Coffee Cup Lids from Abejundio Coffee for $160, terms net 30.
1
Purchased Gourmet Cubed Sugar from Brazil Imports Group for $200, terms 2/10, n/30.
1
Obtained a loan of $55,000 from MRMC Bank at a simple interest rate of 6% per year. The first interest
payment is due at the end of August 20XX and the principal of the loan is to be repaid at the beginning
of June four years later.
2
Paid the full amount owing to East Tangiers Co-op., Check No. 903. Payment fell within discount period.
2
Paid the full amount owing to Buena Vista Coffee, Check No. 904. Payment fell within discount period.
3
Purchased Gourmet Cream with cash for $220, Check No. 905.
4
Made cash sales of $5,961 during the first 4 days of the month.
7
Sold 5 bags of Medium Roast Arabica Coffee Beans to SloZone for $287 each, Invoice No. 201.
Week 2
Date Transaction description
9
Central Coffee paid the full amount owing on their account. Since Central Coffee has been a loyal
customer from the day the business commenced, a 10% discount was given for this early repayment.
11
Made cash sales of $10,081 during the week.
11
SloZone returned $1,198 worth of product. Issued a Credit Memorandum for $1,198.
12
Sold Chocolate Sprinkles to Jandesh's Hot Spot for $484, Invoice No. 202.
13
Paid the full amount owing to Klam Wholesalers, Check No. 906.
Week 3
Date Transaction description
15
Paid sales staff wages of $5,103 for the two weeks up to and including yesterday, Check No. 907.
17
Sold 10 boxes of Plastic Condiment Containers to Revamp Coffee Carts for $206 each, Invoice No. 203.
18
Made cash sales of $9,658 during the week.
18
Returned $1,403 worth of faulty product to Abejundio Coffee. Received a Credit Memorandum for
$1,403.
19
Jandesh's Hot Spot paid $300 in partial payment of their account.
21
SloZone paid the full amount owing on their account.
21
Received a purchase order from Jandesh's Hot Spot. Created a corresponding sales order to deliver
Gourmet Cream to this customer for $470, Invoice No. 204.
Week 4
Date Transaction description
24
Delivered Gourmet Cream to Jandesh's Hot Spot for $470, Invoice No. 204, which was ordered on the
21
st
.
25
Made cash sales of $9,592 during the week.
26
Paid the full amount owing to Brazil Imports Group, Check No. 908.
27
Paid the full amount owing to Abejundio Coffee, Check No. 909.
28
Ordered Organic Chocolate Cream Liqueur from Buena Vista Coffee for $155, agreed terms with Buena
Vista Coffee are 2/10, n/30.
Week 5
Date Transaction description
29
Paid sales staff wages of $5,582 for the two weeks up to and including yesterday, Check No. 910.
30
Received Organic Chocolate Cream Liqueur for $155, which was ordered on the 28
th
, agreed terms with
Buena Vista Coffee are 2/10, n/30.
30
Quick Bolt Coffee paid the full amount owing on their account.
30
Made cash sales of $6,629 during the last 5 days of the month.
30
Paid monthly salary of $5,200 to Adrian Bartos, Check No. 911.
General journal
Date
Account and Explanation
Post
Ref.
Debit Credit
Record transaction entries below
Record bank reconciliation entries on the next page
General journal
Date
Account and Explanation
Post
Ref.
Debit Credit
Record bank reconciliation entries below
Record adjusting entries on the next page
General journal
Date
Account and Explanation
Post
Ref.
Debit Credit
Record adjusting entries below
Record closing entries on the next page
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