ACC106 ATMC Task 2 Assignment S1 2019

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ACC106 ATMC Task 2 Assignment Business Scenario and Instructions

1 Stitches - Business Background

1.1 Introduction

At 1st June 2018, A Hepburn established a new

proprietorship, Stitches, a GST-registered

business that sells sewing machines to the

general public. As well, the business provides a

machine maintenance service.

A Hepburn, sole proprietor, has quickly

established a reputable business and has

employed two staff members. A Hepburn is

using Microsoft EXCEL software to maintain the

accounting records of the business transactions

during the month of June 2018, the last month

of the Australian financial year.

The business sources its stock from a

number of suppliers.

It currently sells three sewing machines:

SWINGER Portable, TAILOR Deluxe,

AUDREY Vintage

ACC106 ATMC Task 2 Assignment S1 2019

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1.2 Accounting Policies

1.2.1 Stitches uses accrual accounting for recording transactions and adjustments.

1.2.2 Stitches uses a perpetual inventory system with weighted average.

1.2.3 Stitches prepares quarterly Business Activity Statements (BAS) and remits the net

GST liability due to the ATO in the month following the end of each quarter. (Note: as

this is a new business, A Hepburn has not yet prepared a BAS and has no liability at the

start of June.)

1.2.4 Stitches has the following depreciation policies:

• Furniture: depreciated over 8 years using straight line method (residual value

of $9 000)

• Technology Systems: depreciated using reducing balance method at the rate of

41.82% over 5 years ($2 000 residual value)

1.2.5 Stitches pays employee salaries on a weekly basis. Salaries are paid on the

Thursday for the previous week. They both work Monday to Friday. The manager

works on full time basis and the sales assistant is paid an hourly rate. PAYG tax is

withheld from their gross pay, and A Suit also contributes a regular amount from her

gross pay to a private health fund. Both employees receive employer superannuation

contribution at the rate of 9.5% of gross salary (before deductions), on top of their pay.

[The employees are being paid into the same superannuation fund through an online

portal (this means you can account for all superannuation together).]

1.2.6 Stitches records an allowance for doubtful debts that equates to 3% of Accounts

Receivable balance at the end of the year.

1.2.7 Stitches records all prepaid expenses as assets (prepayments), and then expenses

the portion used as end of year adjustments.

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2 Accounting System

2.1 Journal and Ledgers

Stitches uses the following journals, ledgers & records:

Cash Receipts Journal - to record all cash receipts of the business including cash

sales and cash received from debtors

Cash Payments Journal - to record all cash payments of the business including cash

purchases, cash payments to creditors

Sales Journal - to record all credit sales of Inventory

Purchases Journal - to record all credit purchases of Inventory & other items

General Journal - to record all other transactions not recorded in other

journals (eg adjusting entries & closing entries)

General Ledger - separate ledger accounts are maintained for each asset,

liability, equity, revenue and expense account

Inventory Record - used for tracking purchases, sales, on hand stock of

inventory

Subsidiary Ledgers - maintained for accounts receivable and accounts payable,

then reconciled against relevant general ledger accounts

2.2 The business prepares the following Financial Statements:

Balance Sheet – Assets, Liabilities, Owners’ Equity

Income Statement – Revenue, Expenses, Gross/Net profit or loss

Statement of Changes in Equity – Capital, Drawings, Profit/Loss

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2.3 Chart of Accounts

Stitches Chart of Accounts is shown below.

Account Name Account Type

Usual

Balance Account Type

Cash at Bank Asset Debit Current Asset

Accounts Receivable Asset Debit Current Asset

Allowance for Doubtful Debts Contra - Asset Credit Contra - Current Asset

Supplies Asset Debit Current Asset

Inventory Asset Debit Current Asset

Prepaid rent Asset Debit Current Asset

Prepaid advertising Asset Debit Current Asset

GST Paid Asset Debit Current Asset

Furniture Asset Debit Non Current Asset

Accum Dep - Furniture Contra - Asset Credit Contra - Non Current Asset

Technology Systems Asset Debit Non Current Asset

Accum Dep - Tech Sys Contra - Asset Credit Contra - Non Current Asset

Accounts Payable Liability Credit Current Liability

GST Collected Liability Credit Current Liability

PAYG Tax Payable Liability Credit Current Liability

Superannuation Payable Liability Credit Current Liability

Private health Payable Liability Credit Current Liability

Wages Payable Liability Credit Current Liability

Hepburn, Capital Equity Credit Equity

Hepburn, Drawings Equity Debit Equity

Sales Revenue Revenue Credit Revenue

Sales Discount Contra - RevenueCredit Contra - Revenue

Service Revenue Revenue Credit Revenue

Cost of Sales Expenses Debit Expenses

Phone Expense Expenses Debit Expenses

Rent Expense Expenses Debit Expenses

Advertising Expense Expenses Debit Expenses

Doubtful Debts expense Expenses Debit Expenses

Wage Expense Expenses Debit Expenses

Supplies Expense Expenses Debit Expenses

Depreciation Expense Expenses Debit Expenses

Income Summary Temporary only N/A Temporary only

Chart of Accounts

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2.4 Employee Payroll

The Schedule of Employees and their weekly gross pay rates are shown below along

with relevant deductions (eg private health and employer superannuation guarantee).

Staff ID Staff Name

Position Private Health

ESG Weekly salary

AA11 A Suit Manager $20/wk 9.5% $1 210

BB22 P Tulle Sales Assistant $0 9.5% varies

Calendar of relevant months for calculating payroll:

Assume all employees claim the Tax-free threshold and use the calculator included in

the EXCEL Student Templates file (Payroll calculator sheet) to calculate the withholding

tax. Note: employees began work on June 11.

This can also be found on the ATO site: https://www.ato.gov.au/Rates/Weekly-tax-

table/

Jun-18

Mon Tues Wed Thurs Fri Sat Sun

1 2 3

4 5 6 7 8 9 10

11 12 13 14 15 16 17

18 19 20 21 22 23 24

25 26 27 28 29 30

Jul-18

Mon Tues Wed Thurs Fri Sat Sun

2 3 4 5 6 7 8

9 10 11 12 13 14 15

16 17 18 19 20 21 22

23 24 25 26 27 28 29

30 31

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3 Business Transactions for June 2018

Date Transaction Details

1-Jun Hepburn establishes the business by depositing $100 000 into the business bank account.

1-Jun

Purchased inventory on credit from Patton: 12x SWINGER Portable machines at $58 each (NOT incl

GST.)

1-Jun

Purchase of furniture (non-current asset) with cash from a wholesaler:

for $23 650 (incl GST). [Refer to Accounting Policies for depreciation details.]

2-JunPurchased general supplies on credit from Fabrics&More - total purchase was $3652 (incl GST).

2-Jun

Signs a lease agreement to rent a warehouse. The agreeement is for $572 (incl GST) per month,

paid in advance. Paid first month with cash.

3-Jun

Purchased Technology Systmes for $33 000 (incl GST) on credit from ZMart. Payment terms are:

twelve equal monthly payments due at the end of the calendar month.

3-Jun Paid cash for advertising, three months in advance. Paid $693 (incl GST) for June, July, August.

4-Jun

Sold 7x SWINGER Portable machines for $1221 total (incl GST) on credit to The DressMaker. Credit

terms are 3/7 n/15.

8-Jun

Hired two staff members to begin work on 11/06/18: A Suit to work as the manager, and P Tulle as

a sales assistant. [See Accounting Policies for more information.]

8-Jun

Purchased inventory on credit from Fabrics&More: 5x AUDREY Vintage machines for $265 each

(NOT incl GST).

9-Jun Sold 1x AUDREY Vintage to a customer for cash: $816.20 (incl GST).

10-Jun

Purchased inventory from Patton: 9x SWINGER Portable for $62 each, 4x TAILOR Deluxe for $210

each. All prices are NOT incl GST.

11-Jun

Sold 6x SWINGER Portables on credit to School Locker Room for $1 197.90 (incl GST). Credit terms

are 2/10 n/30.

13-Jun Owner withdrew $9 000 from the business for personal expenses.

14-Jun Received $2 200 cash (incl GST) for machine maintenance service (service revenue)

19-Jun

Sold 2x TAILOR Deluxe machines and 5x SWINGER portable machines for a total of $2 167 (incl GST)

on credit to Lagerfield Remakes. Credit terms are 3/15 n/30.

21-Jun Purchased 2x AUDREY Vintage machines for $257 each (NOT incl GST), on credit from Patton.

21-Jun Paid wages: Weekly salary for A Suit & $425 in wages for P Tulle.

22-Jun

Provided machine maintenance service (service revenue) to Lagerfield Remakes and received cash.

Total invoice amount (gross): $4 741.

22-Jun Sold 1x AUDREY Vintage to The DressMaker on credit for $737 (incl GST).

23-Jun Received full payment from School Locker Room for purchases in June.

24-Jun Made a part payment of $1700 to Patton.

25-Jun Performed machine maintenance service and received $1250 cash (incl GST).

26-Jun Paid phone bill for June of $110 (incl GST).

28-Jun Paid wages: Weekly salary for A Suit & $813 in wages to P Tulle.

29-Jun Made first repayment to Zmart. Made partial payment of $1700 to Patton.

29-Jun Received payment in full from Lagerfield Remakes, within discount terms.

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4 Adjustments for end of financial year 2018

4.1 The stocktake on 30 June revealed $2 408 worth of supplies on hand.

4.2 The next wages payment will occur on Thursday 5 July for the employee earnings in the final

week of June. P Tulle earned $375 between 25th and 29th June; A Suit worked a usual week.

4.3 Calculate the amounts for depreciation expense for each of the two types of non-current

Assets: furniture and technology systems. (Estimate expense as though assets held for whole of

month of June. You can use the depreciation schedule in the template or calculate manually.)

4.4 Calculate and record the adjusting entry for rent for the end of the month given that June

rent paid in advance has been used up.

4.5 Calculate and record the adjusting entry for advertising for the end of the month given that

June advertising paid in advance has been used up.

4.6 Calculate the Allowance for Doubtful Debts based on 3% of accounts receivable at the end

of the year and make the necessary adjusting entry.

5 Accounting Requirements and Instructions

5.1 Spreadsheet software

The file on the course Blackboard site (ACC106 ATMC Task 2 Templates) contains a series

of worksheets that you should use to complete the requirements below. Make changes as

required including formulas and links.

5.2 Completing the Accounting Cycle

5.2.1 Record all the business transactions from section 3 above in the relevant special

journals using EXCEL formulas as appropriate (eg for GST calculations), and linking as

required. All transactions involving inventory, MUST be first entered in the Inventory

Record, then linked to the relevant journals.

5.2.2 All transactions involving accounts receivable and accounts payable MUST be made

in the schedules in the SubLedger AR AP, as well as the relevant journals.

5.2.3 Post the Account totals from each of the special journals to the relevant ledgers in

the General Ledger, using EXCEL linking function. You will need to create additional

accounts in the General Ledger. Use the accounts listed in the Chart of Accounts and

enter names of the ledger accounts as required. In the ledger, use formulas to create

running totals. DO NOT POST ADJUSTMENTS yet.

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5.2.4 Use the Reconciliation tables in the Inventory Record and Sub Ledger AR AP to

reconcile the totals from inventory, accounts receivable and accounts payable with the

final balances from the General Ledger. Use the linking function to do this in the Record

and Sub Ledger.

5.2.5 Prepare the Trial Balance as at 30 June 2018 by linking balances from the ledger

accounts to the Trial Balance. By linking, it will be a ‘Live’ Trial Balance but at this point it

is an Unadjusted Trial Balance as the Adjustments have not yet been posted. When

completed, check the debit and credit columns are equal in the Trial Balance. Then copy

and special paste (as values only) the Trial Balance into the Worksheet columns ‘Unadj

Trial Balance’. In the Worksheet, the figures in these columns should not change as they

are raw figures. (Tip: Use Paste Special to paste in as values.)

5.2.6 Record the end of year Adjustments, (listed above at section 4), in the Worksheet

and complete the Worksheet by calculating balances in the Adjusted Trial Balance

columns. Use simple formulas in EXCEL to make these additions and subtractions. Then

complete the Income Statement and Balance Sheet columns in the Worksheet.

5.2.7 Record the Adjustments in the General Journal and post these adjustments to the

General Ledger using new accounts as necessary. (This will change the figures in your

Live Trial Balance which should now match the Adjusted Trial Balance figures in the

Worksheet. Check this.)

5.2.8 Prepare the closing entries in the General Journal, and post these to the General

Ledger. (As with adjustments, this will change your Live Trial Balance figures if you have

linked correctly. NOW, your Adjusted Trial Balance figures in the Worksheet will NOT

match the Live Trial Balance figures for the Revenue and Expense accounts and totals.

The Live Trial Balance is now a post-closing Trial Balance.)

Remember: for closing, close revenue and expense accounts to the Income Summary

Account, then close Income Summary Account to the Capital account and finally, close

drawings to the Capital account.

5.2.9 Finally, prepare the Financial Statements for 30 June 2018 by copying or linking the

appropriate figures into your Financial Statements. Refer to your textbook or course

Learning Materials for guidance on the format of these Statements. For Balance Sheet,

use the Classified Balance Sheet in report form as demonstrated on p.184 of the text;

and Income Statement and Statement of Changes in Equity as demonstrated on p.240 of

the text. (Note, for the Income Statement, there will be three revenue streams including

sales discount. You must show Gross Profit as well as Net profit or loss. For the Balance

Sheet, you must show net accounts receivable and look carefully at how non-current

assets are presented.)

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6 Additional Information

6.1 Number formats

All amounts should be displayed as two decimal places but should not be rounded. Amounts

can be displayed without $ sign. (Use $ sign for Financial Statements only).

6.2 Journals and Ledgers

Total columns in the special journals should be posted to the respective General Ledger

accounts at June 30. Adjustment & closing entries should be posted from the General

Journal to the respective General Ledger accounts at the end of the financial year (June 30).

Remember: When special journals are used, do NOT also use the General Journal for the

same transaction. Also, the subledgers for inventory, AR and AP are not linked to the General

ledger but the balances should be checked.

6.3 Inventory

Record Inventory purchases and sales in the Subsidiary Ledger Inventory AS THEY OCCUR. As

well, record purchases and sales of inventory in the relevant journals (using figures in the

Inventory record) and post from the journals to the General Ledger Inventory account.

6.4 Wages

There are two payroll worksheets that can be used to calculate wages. The ATO payroll is to

be used to estimate weekly PAYG withholding tax for each employee. Use the table in the

payroll template to calculate relevant amounts for each employee each week.

6.5 Depreciation

There is a depreciation worksheet with a table that can be used to calculate depreciation for

the non-current assets. (Tip: depreciation expense is based on the net cost of the asset.)

6.6 EXCEL functions

Basic EXCEL functions and formulas should be used as described in the instructions. At a

minimum, the following should be used: linking between respective worksheets; formulas

for calculating eg GST, depreciation; formulas for total columns and rows; simple formatting

including number formats and cell borders.

6.7 Presentation and customised features

The spreadsheet should be presented as per the template provided but there should be an

attempt to customise it to show an individualised product. This may mean use of some

additional functions such as a menu or use of colours and formatting to improve the

functionality of the product.