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