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THE BRIGHT SPOT AN ACCOUNTING PRACTICE SET Michael Gaffikin Parulian Silaen Kathy Rudkin Janet Moore Department of Accounting & Finance University of Wollongong 1998 THE BRIGHT SPOT TO THE STUDENT Although computers today undertake much of accounting work, there still exists a large role for the accountant. How you would set up a computerised accounting system and operate it still requires a detailed accounting knowledge of accounts and account classifications, transactions, transformations, adjustments to accounts, closing entries, financial reports etc. The best way to gain this knowledge and experience of accounting is to first identify the various elements of accounting and put them together using a manual system before progressing to a computerised system. This practice set will enable you to understand the various steps in the accounting cycle and give you a general understanding of the flow of business transactions through a simple set of accounting records. It will also give you the visual aids to help you understand the impact of transactions that, today, take place within the computer. The Bright Spot is a sole proprietorship that sells lamps and light fittings to tradespeople, on account; and to the general public on a cash basis. Owen Watt began the business in 1980 in Wollongong and it has been trading continuously ever since. You are temporarily filling the position of bookkeeper for The Bright Spot during August. Your responsibilities include making the necessary reversing entries, recording the month's transactions, posting, performing monthend procedures, and preparing the financial statements. The accounting records of The Bright Spot include four special journals, a general journal, a general ledger, and two subsidiary ledgers - accounts receivable and accounts payable. The company closes its books at the end of each month except the drawings account, which is only closed at the end of a major accounting period; its books are complete to the end of July. The 31 July account balances are recorded in the general ledger. Since the company maintains a periodic inventory system, a physical inventory is taken at the end of each month. Reversing entries are used, and customers' and creditors' accounts are posted daily. All cash receipts are banked daily and all cash payments are made by cheque. Credit sale terms are 2/10, n/30. The expense for delivering orders within Wollongong is charged to Delivery Expense. Sales to other areas are charged the freight expense C.O.D. Of course, freight charges are not discountable. The following chart of accounts indicates the 31 July account balances: Current Assets The Bright Spot Chart of Accounts 31 July, XXXX 100 101 102 103 104 105 106 107 Cash Notes Receivable Accounts Receivable Inventory Office Supplies on Hand Store Supplies on Hand Prepaid Rent Prepaid Insurance 111 112 113 114 115 116 Store Equipment Accum. Depreciation - Store Equipment Office Equipment Accum. Depreciation - Office Equipment Delivery Truck Accum. Depreciation - Delivery Truck 200 201 202 203 204 205 Notes Payable Accounts Payable Sales Salaries Payable Office Salaries Payable Telephone Payable Electricity Payable 300 301 302 O. Watt, Capital O. Watt, Drawings Income Summary 400 401 420 Sales Sales Returns & Allowances Discounts Received 500 501 503 Purchases Purchase Returns & Allowances Transportation In 600 601 602 603 604 605 606 Sales Salaries Expense Advertising Expense Store Supplies Expense Delivery Expense Electricity Expense Depreciation Expense - Store Equipment Depreciation Expense - Truck 608 609 610 611 612 613 614 615 Office Salaries Expense Rent Expense Office Supplies Expense Depreciation Expense - Office Equipment Telephone Expense Legal & Accounting Fees Expense Insurance Expense Discount Allowed Plant Assets Liabilities Debit 40,125 4,725 100,174 376 140 500 800 18,000 6,400 4,500 2,500 23,000 6,500 36,150 900 300 400 250 Owner's Equity Revenue Cost of Goods Sold Selling Expenses Administrative & Other Expenses Credit 154,940 16,000 TRANSACTIONS DURING THE MONTH August 1 Received purchase invoice from Aladdin Ltd for inventory, $8,500, terms 2/14, n/30, freight $150 C.O.D. Issued cheque no 451 to Fast Freight Ltd. for freight charges. 1 Received purchase invoice from The Rubber Barons for office supplies, $45.00, terms n/30. 1 Sales for the day were: Cash Sales Light Fantasy P. Hogan $1,200 $3,500 $650 1 Received cheque from A McConnell to settle account. 2 Received purchase invoice from Baker Supplies for inventory, $750, terms n/30. This was a rush order with freight charges of $50 C.O.D. Issued cheque no. 452 to Star Express. 2 Received cheques from W. Harrigan and B. Yang to settle their accounts. 2 Paid Beacon Ltd with cheque no. 453, and Cable Kings with cheque no. 454. 3 Purchased new office furniture from Rubber Barons for $3,000, terms n/30. 4 Sales for the day were: Cash Sales J Roberts P Tsu $2,330 $700 $3,000 including a $30 delivery charge. 4 Paid Aladdin Ltd with cheque no. 455 and Phullops Lamps with cheque no. 456 5 Received cheque from J Roberts for July account. 5 Issued cheque no. 457 to Olay Ltd for July 27 purchases. Freight of $150 was included on the invoice and prepaid by the seller. The amount of the purchase was $5,500 and the discount was $110. 5 Sales for the day were: Cash Sales N Smith 6 $2,450 $4,500 including a $45 delivery charge. Received a cheque from P Hogan for $2,450. 7 Paid Sales Salaries $1,800 and Office Salaries $700 with cheque no 458. 8 O Watt withdrew $600 cash using cheque no 459. 8 Paid Lights Galore's July account with cheque 460. 9 Received purchase invoice from Phullops Lamps for $4,500, terms 2/10, n/30. 9 Sales for the day were: Cash sales B Yang $3,200 $4,000 9 Paid Lamphouse's July account with cheque no 461. 9 Received cheque from P. Tsu for July account. 11 Sales for the day were Cash sales W Harrigan Light Fantasy $5,500 $3,200 including a $35 delivery charge. $5,000 11 Received cheques from Light Fantasy for $3,430 and from P Hogan for $637. 11 $250 worth of goods delivered by Phullops Lamps on 9 August were found to be defective and returned. 12 Received and paid electricity account for $525 with cheque no. 462. 13 Issued cheque no. 463 to Ezy Print for July printing account. 13 Received payments from N Smith and J Roberts, settling their accounts in full. 14 Issued cheque no's. 464 and 465 respectively to Baker Supplies and Rubber Barons for July accounts. 14 Paid Sales Salaries $1,800 and Office Salaries $700 with cheque no. 466. 14 Sales for the day were Cash sales A McConnell P Tsu 14 $8,320 $7,400 including a $55 delivery charge. $3,250 Received credit note from Phullops Lamps for defective goods returned on 11 August. 15 Issued cheque no. 467 for $780 to BNQ Insurance to cover insurance on O. Watt's residence. 15 Received bill from Rankins Garage for petrol and oil for delivery truck, $368. Issued cheque no. 468. 15 Paid Aladdin Ltd for August 1 invoice by cheque no. 469. 15 Received cheque from Light Fantasy for July account. 15 Received purchase invoice from Baker Supplies for stores inventory, $360, terms 2/5, n/30. Freight of $20 was prepaid by the seller. 15 Sales for the day were: Cash sales P Hogan J Roberts $3,200 $2,300 including a $35 delivery charge. $1,240 16 Cash sales of $4,250. 18 Received purchase invoice from Rubber Barons for office stationery, $350, terms n/30. 18 Paid Phullops Lamps by cheque no. 470 for August 9 invoice. 18 Received cheques from P Tsu for August 4 invoice and B Yang for August 9 invoice. 19 Sales for the day were: Cash Sales W Harrigan Light Fantasy $800 $650 $460 19 Received and paid telephone bill of $620 with cheque no. 471. 20 O Watt withdrew 3 lamps that cost $500 for personal use. 20 Received cheque for $3,136 from W Harrigan. 20 Sales for the day were: Cash sales $1,200 B Yang $3,500 including a $35 delivery charge. N Smith $4,680 including a $40 delivery charge. 21 Paid Baker Supplies for August 15 invoice with cheque no. 472. 21 Received purchase invoice from Lamphouse, $8,540, terms 2/10, n/30. Freight of $40 was prepaid by the seller. 21 Paid Sales Salaries $1,800 and Office Salaries $700 with cheque no. 473. 21 Received cheque from Light Fantasy to settle their invoice dated 11 August. 22 Received purchase invoice from Olay Ltd, $4,500, terms 2/10, n/30. 22 Received a cheque from A McConnell for $1,960 and a 60 day note at 8% for the balance of the invoice dated 14 August. (A McConnell takes a 2% discount on the $2,000 because it was paid within the discount period. Use the cash receipts journal to record the receipt of the cheque and the general journal to change the balance of the account receivable to a note receivable). 22 O Watt withdrew $800, cheque no. 474. 23 Cash Sales for the day were $8,000. 23 Received a cheque from P Tsu to pay invoice dated 14 August. 25 Received purchase invoice from Phullops Lamps, $5,200, terms 2/10, n/30. 25 Sales for the day were: Cash Sales A McConnell $2,300 $4,000 25 Received a cheque from P Hogan to pay invoice dated 15 August. 26 A McConnell returned $300 worth of goods purchased the previous day. Issued a credit note to A McConnell. 26 Received purchase invoice from Baker Supplies for inventory, $4,000, terms n/30. 27 O Watt visited Solomons & Morrison, solicitors, to discuss incorporation. Their fee was $350. Watt issued cheque no. 475 to settle this account. 27 Sales for the day were Cash sales P Tsu 28 Paid Rubber Barons with cheque 476 for August 1 and 3 purchases. $1,000 $3,000 including a $35 delivery charge. 28 Received merchandise C.O.D. from Sparkle Lighting for inventory, $5,000. Issued cheque no. 477 in full payment. 28 Paid Sales Salaries $1,800 and Office Salaries $700 with cheque no. 478 29 Tyler Motors made major improvements to the delivery truck. The bill came to $8,000. Issued cheque no. 479 for $3,000 and a 6 month note at 8% for the balance. (Use the cash payments journal to record the cheque and the general journal to record the note payable). 29 Received a cheque from W Harrigan for August 19 purchase. 29 Sales for the day were: Cash sales P Hogan J Roberts $ 800 $2,500 $1,200 including a $25 delivery charge. 30 Received purchase invoice from Cable Kings, $12,500, terms 2/10, n/30. 30 Issued cheque no. 480 to Baker Supplies for August 2 purchases, and cheque no. 481 to Lamphouse for August 21 purchases. 30 Received cheques from N Smith & B Yang to settle their August 20 purchases. Supplementary monthmonth-end information is as follows: 1. The 31 August physical inventory shows merchandise on hand to be $77,835. 2. Salaries for August 29, 30 and 31 incurred but not paid were Office Salaries $270 Sales Salaries $600 3. The depreciation expense for August is Office Equipment $200 Store Equipment $400 Delivery Truck $450 4. The following supplies were on hand at 31 August: Office Supplies $420 Store Supplies $ 80 5. Analysis of the Prepaid Insurance account reveals that $160 of insurance premiums expired during August. 6. $400 of the balance of the Prepaid Rent account has expired at the end of August. 7. Information extracted from the Accounts Receivable Ledger indicate the following balances outstanding at 31 July: No. 1 - W Harrigan (24 July) No. 2 - P Hogan (28 July) No. 3 - Light Fantasy (21 July) No. 4 - A McConnell (23 July) No. 5 - J Roberts (27 July) No. 6 - N Smith (14 July) No. 7 - P Tsu (30 July) No. 8 - B Yang (18 July) 8. $375.00 $2,500.00 $600.00 $255.00 $175.00 $250.00 $220.00 350.00 The Accounts Payable Ledger revealed the following balances (invoices and terms) outstanding at 31 July: No. 1 Aladdin Ltd 20 July (2/14, n/30) No. 2 Baker Supplies 14 July (n/30) No. 3 Beacon Ltd 28 July (2/5, n/30) No. 4 Cable Kings 24 July (2/10, n/30) No. 5 Ezy Print 13 July (n/30) No. 6 Lamphouse 30 July (2/10, n/30) No. 7 Lights Galore 27 July (2/12, n/30) No. 8 Olay Ltd. 27 July (2/10, n/30) No. 9 Phullops Lamps 26 July (2/10, n/30) No. 10 Rubber Barons 14 July (n/30) $4,500.00 $650.00 $2,000.00 $3,500.00 $650.00 $8,150.00 $8,000.00 $5,650.00 $3,000.00 $50.00 Required: 1. Make necessary reversing entries 2. Enter the August transactions in the appropriate journals, total the specific journals to prove they balance, and post the journals to the general ledger. 3. Take out a trial balance, and complete the worksheet using the above adjustments. 4. Journalise and post necessary adjusting entries 5. Journalise and post necessary closing entries 6. Prepare a classified income statement. Charge 70% of the insurance expense, rent expense, electricity expense, and telephone expense to selling expenses. Charge 30% of these expenses to other expenses. 7. Prepare a statement of owner's equity. 8. Prepare a classified balance sheet. 9. Prepare month-end schedules of accounts receivable and accounts payable. 10. Prepare a post-closing trial balance. Note: when freight is prepaid by the seller, Debit \"Transport In\" in the Purchase Journal for the amount of the freight. Debit \"Purchases\" for the amount of the purchase, and credit \"Accounts Payable\" for the total of the two. Name Student No Chun Wai Adrian Leung _______________________ _______________________ 5410307 General Journal Post Ref Date AUG 1 Invenrory 2/14,n/30 Debit 8500 8500 Account payable Freight Expenses 150 Cash Office supplies n/30 150 45 Account Payable Cash Credit 45 1200 Sales Account Receivable 1200 4150 Light fantasy 3500 P. Hogan 650 General Journal Date Post Ref Debit Credit General Journal Date Post Ref Debit Credit General Journal Date Post Ref Debit Credit Details Date Invoice No Sales Journal Post Sales Ref Delivery Expense Accounts Receivable Purchases Journal Date Account Terms Ref Other Accounts Purchases Acct Payable Cash Receipts Journal Date Account DEBITS Post Ref. Cash at Bank Cash Sales Discount Allowed CREDITS Accts Receivable Other Accounts Cash Receipts Journal (continued) Date Account DEBITS Post Ref. Cash at Bank Cash Sales Discount Allowed CREDITS Accts Receivable Other Accounts Cash Payments Journal Date Account/Details DEBITS Chq Post No ref Other Accounts Accounts Payable Purchases CREDITS Cash at Bank Discount Received Cash Payments Journal (Continued) Date Accounts Payable/Payee DEBITS Chq Post No ref Other Accounts Accounts Payable Purchases CREDITS Cash at Bank Discount Received Description Trial Balance Debit Credit The Bright Spot Worksheet for the Month Ended 31 August, XXXX Adjustments Adj. Trial Balance Income Statement Debit Credit Debit Credit Debit Credit Balance Sheet Debit Credit Description The Bright Spot Worksheet for the Month Ended 31 August, XXXX (continued) Trial Balance Adjustments Adj. Trial Balance Income Statement Debit Credit Debit Credit Debit Credit Debit Credit Balance Sheet Debit Credit General Ledger Date July 31 Date July 31 Description Notes Receivable Post Ref Description Accounts Receivable Post Ref Description Inventory Post Ref Account No. 100 Debit Credit Balance Date Date July 31 Description Cash Post Ref Account No. 101 Debit Credit Balance Account No. 102 Debit Credit Balance Balance Balance 4 0125 00 Balance 4 725 00 Account No. 103 Debit Credit Balance 10 0174 00 Date July 31 Date July 31 Date July 31 Date July 31 Office Supplies on Hand Post Description Ref Account No. 104 Debit Credit Balance Store Supplies on Hand Post Description Ref Account No. 105 Debit Credit Balance Description Prepaid Rent Post Ref Description Prepaid Insurance Post Ref Balance 140 00 Account No. 106 Debit Credit Balance Balance Balance 376 00 Balance 500 00 Account No. 107 Debit Credit Balance 800 00 Description Store Equipment Post Ref Date July 31 Balance Date July 31 Accumulated Depreciation - Store Equipment Post Description Ref Balance Description Office Equipment Post Ref Date July 31 Balance Date July 31 Accumulated Depreciation - Office Equipment Post Description Ref Balance Account No. 111 Debit Credit Balance 18 000 00 Account No. 112 Debit Credit Balance 6 400 00 Account No. 113 Debit Credit Balance 4 500 00 Account No. 114 Debit Credit Balance 2 500 00 Date July 31 Date July 31 Description Account No. 115 Debit Credit Balance Accumulated Depreciation - Delivery Truck Post Description Ref Balance Description Notes Payable Post Ref Description Accounts Payable Post Ref Balance 23 000 00 Account No. 116 Debit Credit Balance Date Date July 31 Delivery Truck Post Ref Balance 6 500 00 Account No. 200 Debit Credit Balance Account No. 201 Debit Credit Balance 36 150 00 Date July 31 Date July 31 Date July 31 Date July 31 Description Sales Salaries Payable Post Ref Description Office Salaries Payable Post Ref Description Telephone Payable Post Ref Description Electricity Payable Post Ref Account No. 202 Debit Credit Balance Account No. 203 Debit Credit Balance Balance 300 00 Account No. 204 Debit Credit Balance Balance Balance 900 00 Balance 400 00 Account No. 205 Debit Credit Balance 250 00 Date July 31 Date July 31 Date Date Description O. Watt - Capital Post Ref Description O. Watt - Drawings Post Ref Description Income Summary Post Ref Description Sales Post Ref Account No. 300 Debit Credit Balance Balance 154 940 00 Account No. 301 Debit Credit Balance Balance 16 000 00 Account No. 302 Debit Credit Balance Account No. 400 Debit Credit Balance Date Sales Returns & Allowances Post Description Ref Date Description Discounts Received Post Ref Date Description Purchases Post Ref Date Purchase Returns & Allowances Post Description Ref Account No. 401 Debit Credit Balance Account No. 420 Debit Credit Balance Account No. 500 Debit Credit Balance Account No. 501 Debit Credit Balance Transportation In Date Date Date Date Description Account No. 503 Post Ref Description Sales Salaries Expense Post Ref Description Advertising Expense Post Ref Description Store Supplies Expense Post Ref Debit Credit Balance Account No. 600 Debit Credit Balance Account No. 601 Debit Credit Balance Account No. 602 Debit Credit Balance Date Date Description Delivery Expense Post Ref Description Electricity Expense Post Ref Date Depreciation Expense - Store Equipment Post Description Ref Date Depreciation Expense - Truck Post Description Ref Account No. 603 Debit Credit Balance Account No. 604 Debit Credit Balance Account No. 605 Debit Credit Balance Account No. 606 Debit Credit Balance Date Office Salaries Expense Post Description Ref Date Description Rent Expense Post Ref Date Office Supplies Expense Post Description Ref Date Depreciation Expense - Office Equipment Post Description Ref Account No. 608 Debit Credit Balance Account No. 609 Debit Credit Balance Account No. 610 Debit Credit Balance Account No. 611 Debit Credit Balance Telephone Expense Post Ref Date Description Date Legal & Accounting Fees Expense Post Description Ref Date Description Insurance Expense Post Ref Description Discount Allowed Post Ref Date Account No. 612 Debit Credit Balance Account No. 613 Debit Credit Balance Account No. 614 Debit Credit Balance Account No. 615 Debit Credit Balance Accounts Receivable Ledger Date July 24 Date July 28 Date July 21 Date July 23 Description Terms 2/10, n/30 Description Terms 2/10, n/30 Description Terms 2/10, n/30 Description Terms 2/10, n/30 W Harrigan Post Ref P Hogan Post Ref Light Fantasy Post Ref A McConnell Post Ref No. 1 Debit 375 00 Credit Balance 375 00 No. 2 Debit 2500 00 Credit Balance 2 500 00 No. 3 Debit 600 00 Credit Balance 600 00 No. 4 Debit 255 00 Credit Balance 255 00 Date July 28 Date July 14 Date July 30 Date July 18 Description Terms 2/10, n/30 Description Terms 2/10, n/30 Description Terms 2/10, n/30 Description Terms 2/10, n/30 J Roberts Post Ref N Smith Post Ref P Tsu Post Ref B Yang Post Ref No. 5 Debit 175 00 Credit Balance 175 00 No. 6 Debit 250 00 Credit Balance 250 00 No. 7 Debit 220 00 Credit Balance 220 00 No. 8 Debit 350 00 Credit Balance 350 00 Accounts Payable Ledger Date July 21 Date July 14 Date July 28 Date July 24 Description Terms 2/14, n/30 Description Aladdin Ltd Post Ref Baker Supplies Post Ref No. 1 Debit Description Terms 2/5, n/30 Description Terms 2/10, n/30 Cable Kings Post Ref Balance 4 500 00 No. 2 Debit Terms n/30 Beacon Ltd Post Ref Credit 4 500 00 Credit 650 00 Balance 650 00 No. 3 Debit Credit 2 000 00 Balance 2 000 00 No. 4 Debit Credit 3 500 00 Balance 3 500 00 Date July 14 Date July 30 Date July 28 Date July 28 Description Ezy Print Post Ref No. 5 Debit Terms n/30 Description Terms 2/10, n/30 Description Terms 2/12, n/30 Description Terms 2/10, n/30 Lamphouse Post Ref Lights Galore Post Ref Olay Ltd Post Ref Credit 650 00 Balance 650 00 No. 6 Debit Credit 8 150 00 Balance 8 150 00 No. 7 Debit Credit 8 000 00 Balance 8 000 00 No. 9 Debit Credit 5 650 00 Balance 5 650 00 Date July 26 Date July 14 Description Terms 2/10, n/30 Description Terms n/30 Phullops Lamps Post Ref Debit Rubber Barons Post Ref No. 9 Credit 3 000 00 Balance 3 000 00 No. 10 Debit Credit 50 00 Balance 50 00 The Bright Spot Schedule of Accounts Payable 31 August, XXXX The Bright Spot Schedule of Accounts Receivable 31 August, XXXX The Bright Spot Income Statement for the Month Ended 31 July, XXXX The Bright Spot Statement of Owner's Equity for the Month Ended 31 July, XXXX The Bright Spot Balance Sheet as at 31 August, XXXX The Bright Spot Post Closing Trial Balance 31 August, XXXX Debit Credit