Question 8

Question 8

(Note: Although this question is based on the Skate 'n' Surf business the accounts, amounts and transactions involved may differ between questions. Please read each question separately.)

Skate 'n' Surf began operations on 1 June, buying and selling surfboards, skateboards, wetsuits and the protective gear for skateboarding. The structure of the business is that of a sole trader.

The business employed a sales assistant during the month who is to be paid fortnightly. Tax is deducted from the employee's wages (PAYG withholding tax) and remitted to the Australian Taxation Office (ATO) on a quarterly basis.

The business hasnotregistered with the ATO for the goods and services tax (GST) and has elected to use the accrual basis of accounting.

Accounting records

The business records all transactions in the general journal. These transactions are then posted to the appropriate account(s) in the general ledger and the accounts receivable or accounts payable subsidiary ledgers, where separate accounts are maintained for each customer or supplier.

Chart of accounts

The chart of accounts for Skate 'n' Surf contains the accounts and account numbers below.

100Cash at bank110Accounts receivable120Inventory130Prepaid insurance171Shop equipment (cost)172Accumulated depreciation - shop equipment200Accounts payable210PAYG withholding payable220Superannuation payable230Bank loan300Capital310Drawings320Profit or loss summary400Sales revenue410Sales returns and allowances420Discount received500Cost of sales600Advertising expense610Depreciation expense620Discount allowed630Electricity expense640Insurance expense650Interest expense660Postage and stationery expense670Superannuation expense680Telephone expense690Wages expense

Transactions

June1The owner opened a bank account for the business with a deposit of $31,000. This is capital provided by him.1Purchased display stands, shelving etc. (shop equipment) from Shop Displays Pty Ltd for $31,000 and computer equipment for the shop from Computer Wizards for $6,000. These were paid for with a loan of $34,500 from the bank and cheque for $2,500 from the business bank account. The bank loan is repayable over 4 years.2Paid $3,960 for a 1-year insurance policy covering fire, theft, and public liability.

2Paid $1,000 to Local Newspapers for advertising for the shop for the month.

5Purchased inventory (skateboards and protective gear) from Excitement Plus for $22,000 on terms on net 30.

7Purchased surfboards and wetsuits from Surf Imports for $19,000 on terms of 10/10, n/30.8Credit sale to Serious Fun of skateboards and protective gear for $5,400 (cost of sales $2,100). This customer was given terms of 5/10, n/30.8Cash sale of a skateboard and protective gear for $510 (cost of sales $300).11Cash purchase of postage stamps and stationery from Australia Post for $120.12Credit sale to Surfing World of various inventory items for $7,920 (cost of sales $4,200). Terms net 30.12Returned some protective gear to Excitement Plus that was faulty and received an adjustment note (credit note) from them for $160.13Received a cheque from Serious Fun for the amount owing by them after deducting the prompt payment discount.14Paid Surf Imports the amount owing to them less the prompt payment discount.17Credit sale to Academy Diving School of 16 wetsuits at a discounted price of $300 each on terms of net 15. Cost of sales $4,000.23Paid Excitement Plus $4,400 of the amount owing to them.24Issued an adjustment note (credit note) to Academy Diving School for 1 wetsuit at $300 each that was not the size they required. The cost of the wetsuit to us was $250 and it was put back into inventory.24Purchased wetsuits from Surf Imports for $9,100 on terms of 10/10, n/30.25Credit sale to Serious Fun of skateboards for $8,000 (cost of sales $3,800). Terms 5/10, n/30.27Received and banked a cheque from Academy Diving School for the amount owing by them.30A repayment of $1,100 was made on the bank loan.30The owner cashed a cheque for $750 to pay wages to Scott Walker the sales assistant of $800 less PAYG Withholding of $50.

The end of month adjustments are below.

a.Depreciation on shop equipment for the month is 20% p.a. prime cost (straight line).b.One-twelfth of the insurance expired.c.Superannuation payable for the month is 10% of the gross wages paid.d.Interest charged on the bank loan for the month was $158.

The transactions above have been journalised and posted. The statement or profit or loss for June is below.

Skate 'n' Surf

Statement of profit or loss

for the period 1 June to 30 June 20XXRevenueSales revenueSales revenue26,630Less: Sales returns and allowances300Net sales revenue26,330Less: Cost of sales14,150Gross profit12,180Other revenue:Discount received1,90014,080ExpensesAdvertising expense1,000Depreciation expense617Discount allowed270Insurance expense330Interest expense158Postage and stationery expense120Superannuation exepnse76Wages expense800Total expenses3,371Net profit/(loss)$10,709

(a)

Journalise end-of-year closing entries.

(Note: Enter debit entries first, followed by credit entries in the general journal. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Leave blank any answer fields that do not require an answer. Enter accounts following the order of accounts given in the statement of profit or loss.)