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Overview

ManualAccountingPracticeSet
HiFiWay,AustralasianEdition3

Overview
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Background
Assumeitiscurrently1June2015.
Youareworkingforthetemporaryaccountingemploymentagencyknownas
Acctempo.TodayyouhavebeenaskedtoworkatHiFiWay,asmallelectronics
storethatoperatesininnercityHobartandisownedbyIsabellaDavisson.Yourtask
hereistocompletetheaccountingcycleforHiFiWayforthemonthofJune2015.
Toassistyouinthistask,Isabellatellsyoutoreadthecompany'saccounting
policiesandprocedures.Notethatyouwillberequiredtofollowthesepoliciesand
procedureswhencompletingtheaccountsforHiFiWay.

Accountingpolicies
a. Businessoperations:HiFiWayissetupasaprivatenonlistedcompanybasedinHobartwith
IsabellaDavissonasthesoleshareholder.Thecompanyderivesitsmainsourceofrevenuefromretailsales
ofelectronicgoods.
Toassistinsellingtheproducts,Isabellarentsalargeshowroom.Notethatthebusinessisrequiredtopay
fortherentforthispremisesinadvance.
Theelectricityandwaterexpensesincurredduringthemonthrelatetotherunningoftheshowroom.
Additionalexpensesincludeaninsurancepolicytoprotectthebusinessagainstinventoryitemsbeing
damagedorlostduringdeliveries.
Allcostsassociatedwiththeshowroomareclassifiedassellinganddistributionexpenses.
Allparttimeemployeesinthebusinessaresalesstaffwhoreceivetheirwagesonaweeklybasis.Isabellais
theonlyfulltimeemployeeandherroleistohandlealladministrativetasks.Isabella'ssalaryispaidonceat
theendofeachmonth.
b. Accountingcycle:Thebusinessadoptsamonthlyaccountingcycle.
c. Purchases:Purchasesarerecordedwhenthebusinessreceivesthegoods.Allitemspurchasedarereceived
onthesamedayasrecordedinthetransactionlist,exceptforpurchaseorderswhicharereceivedatalater
date.Notethatthebusinessusesthegrossmethodofrecordingpurchasesandreceivestradediscountsand
earlypaymentdiscountsfromsomesuppliers.
d. Revenuerecognition:Thebusinessrecognisesrevenuewhengoodssoldaredeliveredtocustomers.All
itemssoldaredeliveredonthesamedayasrecordedinthetransactionlistexceptforsalesorders,which
aredeliveredatalaterdateasagreedwiththecustomer.Notethatthebusinessusesthegrossmethodof
recordingsalesandsometimesgrantstradediscountstocustomers.Pastexperiencehasshownthatoffering
settlementdiscountsdidnotincreasethelikelihoodofaccountsreceivablebeingpaidpromptly.Therefore,
settlementdiscountsarenotnormallyofferedtocreditcustomersexceptinexceptionalcircumstances.
e. Salesreturns:Sothatthebusinesscaneasilytrackthelevelofsalesreturnsinrelationtooverallsales,all
salesreturnsarerecordedusingacontrarevenueaccount(SalesReturnsandAllowances)ratherthanbeing
recordeddirectlyintheSalesRevenueaccount.
f.

Goodsandservicestax(GST):IsabellahasadvisedyoutoignoretheeffectoftheGoodsandServices
Tax(GST).[ASIDE:Thisisanassumptiontomakethepracticeseteasierforyoutocomplete.Inthereal
world,GSTcannotbeignored.]

g. Cash:Thebusinessacceptscashandchequesanduseschequestopayforthemajorityofitsexpenses.On
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thedaychequesarereceived,Isabelladepositsthematthebank.Itmaytakeanumberofdaysforthe
chequestobeclearedbythebank.ThebusinessholdsitschequeaccountwithEastPacBank.
h. Inventories:ThebusinessusestheperpetualinventorysystemandappliestheFIFOmethodtoallocate
coststoinventoryandcostofsales.Notethatthebusinessmaintainsasetofinventorycardswithmultiple
pairsoflinestokeeptrackofchangesininventory.IneachinventorycardundertheBalancecolumn,items
withdifferentunitcostsarelistedinseparatelineswiththeitemspurchasedearlierlistedfirstinthepairof
linesprovided.
i.

Prepayments:Thebusinesshasapolicyofrecordingprepayments,includingofficesupplies,asassets.At
theendofthemonth,adjustmentsaremadetotherelevantaccountstorecognisetheexpenseduringthe
accountingperiod.

j.

Property,plantandequipment:Property,plantandequipmentitemsaredepreciatedovertheir
estimatedusefullifeusingthestraightlinemethodtocalculatethedepreciationcharge.Depreciationis
allocatedonamonthlybasisandthemonthlydepreciationchargeiscalculatedastheyearlydepreciation
expensedividedbythenumberofmonthsinayear.

k. Longtermliabilities:Thebusinessobtainedaninterestonlyloanof$47,000fromZNZBankon1May
2015atasimpleinterestrateof6%peryear.ThefirstinterestpaymentisdueattheendofJuly2015and
theprincipalontheloanisdueon1May2019.

Accountingprocedures
HiFiWayadoptsamanualaccountingsystemandusesthegeneraljournalandspecialjournalsforthe
recordingofindividualtransactions.IsabellaDavissonhastailoredthedesignofthosejournalstomeetthe
specificneedsofthebusinesssotheformatofthosejournalsmaybeslightlydifferenttothoseyouhaveseen
before.However,sheadvisesyouthatthegeneralprinciplesofhowtousespecialjournalsarefollowedinher
business.
Thetablebelowshowsthejournalsusedbythebusinessandthetypesoftransactionsthatcanberecordedin
eachofthesejournals:

Journal

Code

Transactiontype

Generaljournal

GJ

Alltransactionsthatarenotabletoberecordedinthe
specialjournalsbelow.

Salesjournal

SJ

Creditsalesofinventory

Purchasesjournal

PJ

Creditpurchasesofinventory

Cashreceiptsjournal

CRJ

Cashinflowstothebusiness

Cashpaymentsjournal

CPJ

Cashoutflowsfromthebusiness

Tosummarisetheeffectsoftransactionsrecordedinthosejournals,Isabellamaintainsthegeneralledgerand
thefollowingledgers:
accountsreceivablesubsidiaryledger,
accountspayablesubsidiaryledger,and
inventorycards.
Isabellathenindicatesthatsheisawareotherbusinessesusingamanualaccountingsystemmaypost
transactionsfromjournalstoledgersatdifferenttimes(i.e.dailyormonthly).Althoughthepostingprocedures
usedinherbusinessmaybedifferenttowhatyouhaveseenbefore,sheasksthatyouspecificallyfollowher
company'saccountingprocedures.
Theinformationbelowexplainswhentransactionsarerequiredtobepostedfromthejournalstotheappropriate
ledgeraccountsandinventorycards:
Postingofentriesrecordedinthegeneraljournal
Alltransactionsthatareenteredinthegeneraljournalarepostedonadailybasis.Notethatifatransaction
recordedinthegeneraljournalinvolvesbothacontrolaccountandasubsidiaryledgeraccount,thatjournal
entrywillneedtobepostedtobothledgers.
Postingofentriesrecordedinthespecialjournals
Whenatransactionisrecordedinaspecialjournal,partofthejournalentrymayneedtobeposteddailyand
partofthatentryistobepostedmonthly.
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a. Daily:
Ifatransactionaffectsasubsidiaryledgeraccount,thentheentrythatinvolvesasubsidiaryledger
accountistobepostedtothatsubsidiaryledgeronadailybasis.However,thesameamountposted
tothesubsidiaryledgeraccountisnotpostedtotherelatedcontrolledgeraccountimmediately.This
procedureallowsthebusinesstokeeptrackofsupplierandcustomerbalancesonadailybasis.
Inthecashreceiptsjournalorthecashpaymentsjournal,ifatransactionisrecordedintheOther
Accountscolumn,thentheamountrecordedintheOtherAccountscolumnistobepostedtothe
appropriategeneralledgeraccountdaily.
Ifatransactionresultsinachangeinthenumberofinventoryitemsonhand,thentheentrythat
affectsinventoryistobepostedtotheappropriateinventorycardonadailybasis.Inthisway,the
businessisabletotrackthebalanceofinventoryonhand.
b. Monthly:
Attheendofthemonth,thetotalsofeachcolumninthespecialjournalsaremanuallycalculated.
Thosetotals,withtheexceptionofthetotalsoftheOtherAccountscolumnsinthecashjournals,are
postedtotheappropriategeneralledgeraccountsattheendofthemonth.

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TransactionsforJune
YouwillusethefollowingfiveweeksoftransactionsasyoucompletethebooksforJune.Notethatthe
transactionsaredividedintofiveseparateweeks.Thisisbecauseyouwillnotenterthiswholelistof
transactionsonanyonepage.Youwillbegivenfiveseparatepagesinwhichtoenterthetransactionsforeach
ofthefiveweeks.

Date Description

Week1
1
PaidthefullamountowingtoPony,ChequeNo.856.
1
IssuedChequeNo.857for$9,900topayZNGPropertyGroupfortwomonth'sworthofrentin
advance.
3
IssuedChequeNo.858toOfficeSuppliesWarehouseforthepurchaseof$594worthofoffice
supplies.
4
Madepaymentof$766toEnrofffor3monthsofelectricityuptoandincluding31May,ChequeNo.
859.
4
Paidsalesstaffwagesof$12,599fortheweekuptoandincludingyesterday,ChequeNo.860.Note
that$7,429ofthispaymentrelatestothewagesexpenseincurredduringthelastweekofMay.
5
RadioHutpaidthefullamountowingontheiraccount.

Week2
8
Purchased19SwishPhonesfromPonyfor$392each,termsnet30.
10
JerryTechnologypaidthefullamountowingontheiraccount.SinceJerryTechnologyhasbeena
loyalcustomerfromthedaythebusinesscommenced,a10%discountwasgivenforthisearly
repayment.
11
PaidthefullamountowingtoPearTechnology,ChequeNo.861.Paymentfellwithindiscountperiod.
11
Sold19DK800DesktopComputerstoHypertronicsfor$1,160each,InvoiceNo.496.
11
Paidsalesstaffwagesof$13,115fortheweekuptoandincludingyesterday,ChequeNo.862.
12
PaidthefullamountowingtoMoonMegasystems,ChequeNo.863.
12
Madecashsaleof4BlueBerryPhonesfor$832each.
13
PaidthefullamountowingtoJCNElectrical,ChequeNo.864.

Week3
16
Purchased20SwishPhonesfromJCNElectricalfor$488each,terms2/10,n/30.
17
Purchased13BlueBerryPhonesfromMoonMegasystemsfor$472each,termsnet30.
17
Sold5TonyZIOMLPProjectorstoRadioHutfor$776each,InvoiceNo.497.
18
Paidsalesstaffwagesof$13,480fortheweekuptoandincludingyesterday,ChequeNo.865.
18
ReceivedapurchaseorderfromPikea.Createdacorrespondingsalesordertodeliver18TonyZIO
MLPProjectorstothiscustomerfor$776each,InvoiceNo.499.
19
Madecashsaleof22MePodMultimediaPlayersforalistpriceof$736each.Atradediscountof25%
applies.
20
Hypertronicsreturned4DK800DesktopComputersthatwereoriginallysoldfor$1,160eachon11
June.Theseitemscost$656eachandwerenotfaultyordamaged.IssuedaCreditNotefor$4,640.
21
Pikeapaid$900inpartialpaymentoftheiraccount.

Week4
22
PaidthefullamountowingtoJCNElectrical,ChequeNo.866.Thispaymentrelatestothecredit
purchasethatwasmadeinthepreviousweek.
24
Sold81SwishPhonestoRadioHutfor$688each,InvoiceNo.498.
24
Hypertronicspaidthefullamountowingontheiraccount.
25
Paidsalesstaffwagesof$13,226fortheweekuptoandincludingyesterday,ChequeNo.867.
26
Madecashsaleof17DK800DesktopComputersfor$1,160each.
27
Ordered11SwishPhonesfromBigTelcofor$488each.AgreedtermswithBigTelcoare2/10,n/30.
28
Delivered18TonyZIOMLPProjectorstoPikeafor$776each,InvoiceNo.499.Theseitemswere
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orderedonthe18th.
Returned8faultyBlueBerryPhones,originallypurchasedfor$472each,toMoonMegasystems.
ReceivedaCreditNotefor$3,776.

Week5
29
Madecashsaleof12BlueBerryPhonesfor$832each.
29
Purchased16MePodMultimediaPlayerswithcashforalistpriceof$416each.Atradediscountof
25%applies,ChequeNo.868.
30
Received11SwishPhonesfor$488each,whichwereorderedonthe27th.AgreedtermswithBig
Telcoare2/10,n/30.
30
HandysElectronicspaidthefullamountowingontheiraccount.
30
Paidmonthlysalaryof$4,700toIsabellaDavisson,ChequeNo.869.

Adjustingentriesinformation
Usingthefollowinginformation,youwillrecordendofmonthadjustments:
CashRegistersownedbythebusiness:originalpurchasepricewas$9,000,estimatedusefullifewas5
years,andestimatedresidualvaluewas$1,500attheendoftheusefullife.Depreciationiscalculatedon
amonthlybasisusingthestraightlinemethod.Themonthlydepreciationchargeiscalculatedasthe
yearlydepreciationexpensedividedbythenumberofmonthsinayear.
StoreFixturesownedbythebusiness:originalpurchasepricewas$45,000,estimatedusefullifewas9
years,andestimatedresidualvaluewas$5,500attheendoftheusefullife.Depreciationiscalculatedon
amonthlybasisusingthestraightlinemethod.Themonthlydepreciationchargeiscalculatedasthe
yearlydepreciationexpensedividedbythenumberofmonthsinayear.
ThewaterusageforthemonthofJuneisestimatedtobe$110.
TheestimatedelectricitypayableasattheendofJuneis$280.
Salesstaffworkeverysingledayduringtheweekincludingweekendsandarepaidonaweeklybasis.
Wageswerelastpaiduptoandincluding24June.Wagesincurredafterthatday(from25Juneto30
Juneinclusive)areestimatedtohavebeen$1,890perday.
InterestexpenseincurredduringthemonthofJunebutnotyetpaidtoZNZBankforthebankloanis
$235.
Officesuppliestotalling$672arestillonhandat30June.
OnemonthofprepaidrentexpiredduringJune.RememberthatatthebeginningofJune,thebusiness
paidtwomonth'sworthofrentinadvance.
3monthsofadvertisingremainedprepaidatthestartofJune.
5monthsofinsuranceremainedprepaidatthestartofJune.
WhencalculatingtheportionofprepaymentsthatexpireduringthemonthofJune,youareaskedtoassume
thatanequalamountofexpenseisincurredpermonth.
Astocktakerevealedthatthebalanceofinventoryonhandasat30Juneisequaltotheclosingbalanceofthe
Inventoryaccount.Thismeansthereisnoadjustingentryrequiredforinventoryshrinkage.

ManualAccountingPracticeSet
HiFiWay,AustralasianEdition3(VSA3q)
20092014Perdisco/latin/.v.,learnthoroughly
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