ACC106 ATMC Task 2 Assignment Business Scenario and Instructions

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ACC106 ATMC Task 2 Assignment Business Scenario and Instructions 1 Nelly s Saddlery - Business Background 1.

Nelly s Saddlery is a GST-registered horse tack and supplies business that is beginning with just a small range of saddles

The business sources its products from a number of suppliers.

DELUXE Rug Nelly Gee, sole proprietor, has established a reputable and growing business with and has employed two staff

1 ACC106 ATMC Task 2 Assignment Business Scenario and Instructions 1 Nelly s Saddlery - Business Background 1.1 Introduction Nelly s Saddlery is a proprietorship of Ms Nelly Gee who established this new business on 1 st June Nelly s Saddlery is a GST-registered horse tack and supplies business that is beginning with just a small range of saddles and horse rugs. The business also provides some basic saddlery repairs and maintenance services. The business sources its products from a number of suppliers. The business currently sells two types of saddles: All Purpose Saddles, Suede Seat Saddles, and one type of rug: Top Tack DELUXE Rug Nelly Gee, sole proprietor, has established a reputable and growing business with and has employed two staff members. Being an astute businessperson, Nelly is using Microsoft EXCEL software to maintain the accounting records of the business transactions during the month of June 2018, which is the last month of the Australian financial year.

2 1.2 Accounting Policies Nelly s Saddlery uses accrual accounting for recording transactions and adjustments Nelly s Saddlery uses a perpetual inventory system with weighted average Nelly s Saddlery 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, Nelly has not yet prepared a BAS and has no liability at the start of June.) Nelly s Saddlery has the following depreciation policies: Office Equipment: depreciated over 10 years using reducing balance method at rate of 20% ($2 200 residual value) Computer systems: depreciated over 4 years using straight line method (no residual value) Motor vehicles: depreciated using reducing balance method at the rate of 23% over 8 years ($3 000 residual value) Nelly s Saddlery pays employee wages on a weekly basis. Wages are paid on the Thursday for the previous week. The sales assistant is full time and earns a weekly wage and works Tuesday to Saturday. The saddler is employed on a casual basis and is paid hourly. All employees are paid employer superannuation contribution to their nominated superannuation funds at the rate of 9.5% of gross salary (before deductions). The employees are being paid into the same superannuation fund through an online portal (this means you can account for all superannuation together) Nelly s Saddlery records an allowance for doubtful debts that equates to 5% of Accounts Receivable balance at the end of the year Nelly s Saddlery records all prepaid expenses as assets (prepayments), and then expenses the portion used as end of year adjustments. 2

3 2 Accounting System 2.1 Journal and Ledgers Nelly s Saddlery uses the following journals and ledgers: Cash Receipts Journal Cash Payments Journal Sales Journal Purchases Journal General Journal General Ledger Subsidiary Ledgers - to record all cash receipts of the business including cash sales and cash received from debtors - to record all cash payments of the business including cash purchases, cash payments to creditors - to record all credit sales of Inventory - to record all credit purchases of Inventory & other items - to record all other transactions not recorded in other journals (eg adjusting entries & closing entries) - separate ledger accounts are maintained for each asset, liability, equity, revenue and expense account - maintained for accounts receivable and accounts payable, and for inventory, then reconciled against relevant general ledger accounts 2.2 The business prepares the following Financial Statements: Balance Sheet Income Statement Assets, Liabilities, Owners Equity Revenue, Expenses, Gross/Net profit or loss Statement of Changes in Equity Capital, Drawings 3

4 2.3 Chart of Accounts Nelly s Saddlery Chart of Accounts is shown below. 4

5 2.4 Employee Payroll The Schedule of Employees and their 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 Hourly rate EMP001 B Gee Sales Assistant $22/wk 9.5% $990 EMP002 N Rider Saddler $0 9.5% $38 Calendar of relevant months for calculating payroll: Jun-18 Mon Tues Wed Thurs Fri Sat Sun Jul-18 Mon Tues Wed Thurs Fri Sat Sun 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 in the second week of June (5 June). This can also be found on the ATO site: 5

6 3 Business Transactions for June 2018 Date Transaction Details 1-Jun Nelly Gee establishes the business and contibutes $ into the business bank account. Purchase of office equipment (non-current assets) on credit from TMart: 1-Jun total amount for $ (incl GST), estimated residual value of $ Stock bought from SaddleSeat Traders: four (4) All Purpose Saddles in brown for $891 each (incl 2-Jun GST) and three Suede Seat Saddles in black for $1100 each (incl GST). Purchased on credit. 2-Jun Paid cash for quarterly rent in advance (for June - Sept) of $2 860 (incl GST). 2-Jun 3-Jun 5-Jun Purchase of following non-current asset on credit from TechTime: Computer systems for $ (incl GST), no residual value. To be repaid in twelve equal montly payments. Purchased utility from Mitsubishi (non-current asset) on credit for $ (incl GST), $3000 residual value. Sold one Suede Seat Saddle for $3 520 (incl GST) on credit to Clancey's Pony Club. Discount terms 2/10, n/30. 5-Jun Paid $2 200 (incl GST) cash for saddlery maintenance supplies from FarmPlus. 7-Jun Sold one All Purpose Saddle and one Suede Seat Saddle for $6 732 (incl GST) cash. Purchased saddles (Inventory) on credit from SaddleSeat Traders: 7-Jun 3x All Purpose Saddles ($858/unit) (incl GST). 8-Jun Sold one All Purpose Saddle for $2 684 (incl GST) on credit to Mr Banjo. 9-Jun Sold two All Purpose Saddles to Clancey's Pony Club, on credit for $5368 (incl GST). Discount terms. 9-Jun Received $2 541 cash (incl GST) service revenue for saddlery maintenance work. Purchased stock from a Farm expo: twenty (20) Top Tack Rugs for $44 each (incl GST), and six (6) 10-Jun Suede Seat Saddles for $880 each (incl GST). Purchases made with cash. 11-Jun Paid ImagePrint for advertisng, $1650 cash (incl GST). 12-Jun Received payment in full from Clancey's Pony club. 13-Jun Sold eight (8) Top Tack rugs for $99 each (incl GST), for cash. Paid wages: Weekly salary for B Gee & 18 hours for N Rider. (Total wages can be recorded in single 14-Jun entry.) 19-Jun Nelly Gee withdrew $1300 cash from the business. 20-Jun Sold 2x Suede Seat Saddles to Mr Banjo for $3 190 on credit (incl GST). Sold 1x All Purpose Saddle for $2684 (incl GST) & 1 x Top Tack Rug for $99 (incl GST) on credit to 21-Jun Miss Sunshine. 21-Jun Received $3 740 cash (incl GST) service revenue for saddlery maintenance work. 21-Jun Paid wages: Weekly salary for B Gee & 23 hours for N Rider. Received payment of $8690 in advance for saddlery work for Paynter's Pony Club. Work is to be 21-Jun completed over the next month. 25-Jun Mr Banjo made a part payment on his account, paid $ Jun Paid electricity invoice for June of $290 (incl GST). 27-Jun Made first month's payment of the twelve month payment plan for Computer Sys purchase. Received 3% discount for paying on time. 28-Jun Paid wages: Weekly salary for B Gee & 21 hours for N Rider. 6

7 4 Adjustments for end of financial year The stocktake on 30 June revealed $668 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. N Rider worked for 20 hours between 26 th and 30 th June; B Gee worked a usual week. 4.3 Calculate the amounts for depreciation expense for each of the three types of non-current Assets: office equipment; computer systems; vehicles (Estimate expense as though assets held for whole of month of June.) 4.4 Calculate and record the adjusting entry for rent for the end of the month given that June rent has been used up. 4.5 During the last week of June, Nelly s Saddlery earned one third of the advance payment for the Paynter s Pony Club saddlery work. 4.6 Calculate the Allowance for Doubtful Debts based on 5% 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 Task 2 Student 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 Record all the business transactions from section 3 above in the relevant special journals and post the Account totals to the relevant ledgers using EXCEL linking function. Use the accounts listed in the Chart of Accounts and enter names of the ledger accounts as required. In the ledgers, use formulas to create running totals. DO NOT POST ADJUSTMENTS yet Prepare an Unadjusted Trial Balance as at 30 June 2018 by linking balances in the ledger accounts to the Trial Balance. It will be a Live Trial Balance but at this point it is unadjusted as the Adjustments have not yet been posted. When completed, check the 7

8 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. These should not change now as they are raw figures. (Tip: Use Paste Special to paste in as values.) 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. Then complete the Income Statement and Balance Sheet columns in the Worksheet 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 Trial Balance which should now match the Adjusted Trial Balance figures in the Worksheet.) Prepare the closing entries in the General Journal, and post these to the General Ledger. (As with adjustments, this will change your Trial Balance figures if you have linked correctly. NOW, your Adjusted Trial Balance figures in the Worksheet will NOT match the Trial Balance figures for the Revenue and Expense accounts and totals.) 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 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 discount received.) 8

9 6 Additional Information 6.1 Number formats All amounts should be rounded/truncated to two decimal places. Amounts can be displayed without $ sign. (Use $ sign for Financial Statements only). 6.2 Journals and Ledgers 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) Total columns in the special journals should be posted to the respective General Ledger accounts at June 30. Note: In the special journals, all entries that do not belong in one of the account columns as listed in the template, should be included in the Other Accounts columns. These should then be posted on an individual basis to the respective ledger accounts. (Hint: the journal templates contain all the account columns as required for this business. However, not all accounts have been included in the general ledger template please add as required.) 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 the Inventory totals from these journals to the General Ledger Inventory account at June Wages There are two payroll worksheets that can be used to calculate wages. The payroll calculator from the ATO should 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.) 9

ACC100 Introduction to Accounting

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