Financial accounting

General information
Al Wilson owns and runs a retail and wholesale surf shop, Surf Haven, in a sea side town The business is situated on a prominent corner of the town at 1 View Street, Bell’s Inlet. Its custom is mainly from young surf board, sailing and boogie board riders.

The shop has a nautical atmosphere and is very well organised. Products consist of surfboards, sailboards and boogie boards. Surf Haven also sells second-hand surfboards on commission.
Surf Haven also supplies many of the surf shops around the coast.
The business charges GST on all inventory sales and surfing lessons, and pays GST on inventory purchases and most business expenses.

Employees
Surf Haven employs two casual assistants, Brian Jardine, works as a surfing instructor with Al and Carl Holland who works in the shop selling stock, and taking bookings for surf lessons. Fred pays both Brian and Carl $30 per hour. Each employee works between 10 to 15 hours per week, depending on the season and demand. Payday is every second Wednesday.

At the end of February, Surf Haven owed 4 hours pay to both Brian and Carl.

Note: Do not use the payroll section of MYOB; record wages expense cash payment.

Goods and Services Tax
Surf Haven pays GST of 10% on all business expenses, except wages. Non-current asset acquisitions are also taxed at 10%.

Merchandise Inventory
The following is a list of closing inventory and the suppliers as at 28 February 2018.
Quantity on hand Item
Code Description Cost Price Sale
Price Supplier
20 SFB Surfboards $420 $750 Custom Surfboards
15 BBD Boogie Boards $120 $240 Wave Rider
30 SFM Surfing Manuals $10 $25 Seahorse Publishers

Each of the above items of inventory is quoted excluding GST.

The required inventory is purchased on credit under the terms of payment required by the suppliers.
Al has a good relationship with each of his suppliers. Once he places an order, the suppliers will deliver them free of charge the same day.

Lessons
All lessons are paid for at the time of the lesson and is recorded separately to the sale of inventory.

Supplier information
Suppliers account balances at 28 February 2018.
Name Address Account Balance
Custom Surfboards ABN 50 566 722 363 56 Main Street, Torquay $3,700
Wave Rider
ABN 20 888 566 222 2 Beach Road, Fairhaven $5,500
Seahorse Publishers 92 000 444 666 1B Carlton Parade, Geelong $2,300

Each of the above account balances represents deliveries of inventory received on 22 February 2018; all purchases are on terms 2/10, n30. All inventory items are delivered on the same day as they are ordered.

Customer information
Surf Haven sells most of its inventory strictly on a cash basis, but the business has three credit customers. Terms of payment for these customers are net 30 days.
Customer balances at 28 February 2018:
Name Address Date Last Invoice Account Balance
Sharkeys Wye River ABN 62 444 333 543 14 Bay Street
Wye River Feb 18 $2,400
Torquay Surf Shop ABN 50 596 794 363 47 Buckley Road,
Torquay Feb 20 $4,000
Aireys Surf Club ABN 877 475 200 3 Aireys Lane
Aireys Inlet Feb 22 $1,700
Terms of payment for customers is 2/10, n30. Freight of $50 (GST exclusive) is charged for all credit sales.

Trial Balance as at 28 February 2018
Account Debit ($) Credit ($)
1-1110 Bank 10,500
1-1200 Accounts Receivable 8,100
1-1300 Inventory 10,500
1-1400 Stationery supplies 650
1-3110 Shop Fittings & equipment (cost) 12,500
1-3120 Accumulated depreciation Shop fittings & equipment 1,450
1-3210 Motor vehicle (cost) 22,000
1-3220 Accumulated Depreciation – Motor Vehicle. 3,500
2-1200 Accounts Payable 11,500
2-1310 Net GST Payable 560
2-1350 Wages payable 240
2-2100 Loan – ANZ Bank, Bell’s Inlet 20,000
3-1200 Capital – Al Jardine 27,000
Total 64,250 64,250

Transactions: March 2018

1 Paid cash for printing expenses to Acorn Press– $594 (GST Inclusive).[chq 201]
1 Purchased a new cash register for $2,310 (GST inclusive) [chq 202].It is expected that the cash register will have an effective life of 6 years with a nil residual value.
2 Paid three month’s rent of $4,620 (GST inclusive) to Prime Real Estate. [chq 203].
3 Paid for two months (March & April) advertising in the Surfing Times – $286 (GST inclusive) [chq 204]
4 Credit sale to Airey’s Surf Club : inventory sold: 2 boogie boards, 2 surfboards, 3 surfing manuals (Invoice CR663)
5 Received payment of $4,000 from Torquay Surf Shop
8 Received $1,540 (GST inclusive) for surfing lessons.
8 Paid Seahorse Publishers for February account. [chq 205]
9 Paid cash to GMJ Autos for vehicle expenses- $297 – (Including GST) [chq 206]
9 Purchased inventory: 12 surfboards and 16 boogie boards. (P.O. 326, 327)
9 Received payment from Starkey’s Wye River for balance outstanding at 27 February.
10 Paid Wave Rider the balance outstanding at 28 February. [chq 207]
10 Purchased office supplies from Ace Office Supplies, $803 [chq 208]
11 Sales Invoice sent to Sharkeys Wye River for the following items:6 surfboards, 6 boogie boards, 10 surfing manuals (invoice CR664)
12 Received $3,410 (GST inclusive) from Point Hicks School for surfing lessons.
12 Pay day. Carl was paid for 28 hours and Brian was paid for 30 hours; the payments included wages owing from February. [Chqs 209 & 210]
12 Purchased inventory: 15 surfboards and 12 surfing manuals (P.O. 328)
14 Received payment from Airey’s Surf Club for February account.
15 Credit sale to Torquay Surf Club: 14 surfboards, 10 boogie boards and 15 surfing manuals (Invoice CR665)
16 Cash drawings – Cheque payable to Al Wilson of $2,000 [chq 211]
16 Paid cash for vehicle expenses – $220 (Including GST) [chq 212]
16 Purchased 12 boogie boards (P.O. 329)
17 Received payment from Airey’s Surf Club for 4 March sales.
17 Returned 2 boogie boards to Wave Rider. They were slightly damaged. A Credit Note was issued by the supplier. These items were from the purchase on 16 March
18 Received payment from Sharkey’s Wye River for inventory sold on 11 March.
18 Cash sales of 3 surfboards and 3 surfing manuals (Invoice CS754)
19 Purchased 10 surfing manuals (P.O. 330)
19 Paid Australian Taxation Office GST owing [Chq 213]
20 Paid Wave Rider for inventory purchased on 16 March [Chq 214]
21 Paid Custom Surfboards the balance outstanding on 28 February 2018[chq 215]
22 Credit sale to Aireys Surf Club: 5 surfboards and 5 boogie boards (Invoice CR666)
23 Purchased 12 surfboards and 15 surfing manuals (P.O. 331 & 332)
23 Al introduces a new product for sale. He purchased 20 sailboards from Wave Rider for $400 each (GST exclusive) (P.O. 333). Selling price of the sailboards is $640 each (GST exclusive).
24 Paid Custom Surfboards for inventory purchased on 12 March. [Chq 216]
24 Paid monthly repayment to ANZ for bank loan; $1,050 (includes $50 interest). GST is not payable on this transaction. Fred decided that the business would pay an additional $500 off the loan principal. [chq 217]
25 Paid Telstra Ltd for business phone accounts – $572 (GST Inclusive) [chq 218]
25 Credit sale to Sharkeys Wye River: 8 surfboards, 9 boogie boards and 7 sailboards. (Invoice CR667)
26 Pay day. Carl was paid for 30 hours and Brian was paid for 24 hours. [chqs 219 & 220]
26 Sharkeys Wye River returned 1 sailboard and received a credit note. The sailboard was undamaged and returned to inventory.
27 Received $2,695 cash (GST inclusive) for surfing lessons.
27
27 A customer purchased 3 surfboards for cash at a special price of $1,485 each (including GST). The customer also purchased 6 surfing manuals at the normal price. (Invoice CS755) ( This is not recorded as a trade discount.)
28 Received partial payment of $7,000 from Torquay Surf Club.
31 The ANZ Bank in Williamsville has sent a bank statement for the month of March 2018. The following items were noted from the bank statement:
• Bank fees of $35 were debited to the account on 30 March
• A credit for an electronic transfer of $1,200 was received for sale of second-hand surfboards on commission.

Adjustments at 31 March 2018

Some of the necessary adjustments are to be found in the transactions above. Other adjustments are listed below.
1. The physical stock take does not agree with the computer records and adjustments for inventory are required.
Physical stock-take as at 31 March 2018:
• Surfboards 18
• Sailboards 14
• Boogie boards 8
• Surfing manuals 28

2. A stock take of stationery supplies revealed $540 of stationery on hand at 31 March 2018.
3. The shop fittings are to be depreciated using the straight line method, at 15% per annum on cost. The motor vehicle is to be depreciated using the straight line method at 20% per annum on cost.
4. Accrued wages owing on 31 March 2018: Carl – 8 hours, and Brian – 10 hours.

Accounts List

Assets
1-1000 Current Assets
1-1110 Cash at Bank
1-1180 Undeposited funds
1-1190 Electronic clearing account
1-1200 Trade Accounts Receivable
1-1250 Other income receivable
1-1300 Inventory
1-1400 Stationery supplies
1-2200 Prepaid expenses
1-3100 Shop fittings
1-3110 Shop fittings at cost
1-3120 Shop fittings-accumulated depreciation
1-3200 Motor vehicle
1-3210 Motor vehicle at cost
1-3220 Motor vehicle-accumulated depreciation
1-3300 Cash register
1-3310 Cash register at cost
1-3320 Cash register-accumulated depreciation
Liabilities
2-1200 Accounts Payable
2-1300 GST Liabilities
2-1310 GST Collected/Payable
2-1330 GST Paid/Receivable
2-1350 Net GST Payable/Receivable (manual recording only)
2-1600 Customer deposits
2-1700 Wages payable
2-1750 Other expenses payable
2-2100 Loan-Eastern Bank
Equity
3-1000 Owners’ Equity
3-1100 Capital-Al Wilson
3-1200 Drawings-Al Wilson
3-8000 Retained Earnings
3-9500 Profit and Loss Summary (manual recording only)

Income
4-1100 Sales
4-1200 Sales returns (manual recording only)
4-1300 Lessons income
4-2000 Freight fees collected
Cost of sales
5-1100 Purchases(Cost of goods sold-manual recording)
5-1200 Inventory loss/gain
5-2000 Freight expense
Expenses
6-1000 Advertising expense
6-1210 Discount given
6-1220 Discount taken
6-1300 Depreciation-shop fittings
6-1400 Depreciation-motor vehicle
6-1500 Depreciation-cash register
6-1600 Motor vehicle expenses
6-1700 Printing
6-1800 Stationery supplies expense
6-1930 Wages and salaries
6-2100 Rent expense
6-2200 Telephone expenses
6-2300 Bank fees
Other expenses
8-1000 Interest expense
Other income
9-1000 Interest income
9-1100 Commission income

Note: Delete or hide accounts not required.
Accounts which are linked accounts cannot be deleted

Required:

Part A: Manual recording

1. Record the opening balances as at 1 March 2018 in the appropriate general ledger accounts and the opening balances of accounts receivable, accounts payable and inventory in the appropriate subsidiary ledgers.
2. Record the transactions in the appropriate general or special journal for March 2018. Post all transactions from journals to the general ledger in accordance with accounting procedures.
3. Prepare schedules of accounts receivable, accounts payable and inventory as at 31 March 2018 and reconcile these with the control accounts in the general ledger.
4. Record end of month adjustments in the general journal and post these to the general ledger.
5. Prepare a Trial Balance before and after end of month adjustments as at 31 March 2018 6. Prepare an Income Statement for March 2018 and a Balance Sheet as at 31March 2018.
7. Prepare closing entries for March 2018.
8. Prepare a Trial Balance after closing entries for March 2018.

Transactions must be recorded in the pro-forma journals, ledgers, worksheets and reports available in the assessment folder.

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