ACC106 Business Scenario and Instructions

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.  Since 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

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.  The manager works on full time basis and the sales assistant is paid an hourly rate. PAYG tax is withheld from their gross pay.

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) therefore then expenses the portion used as end of year adjustments.

ACC106 Business Scenario and Instructions2.1 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

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.

2.3 Chart of Accounts

Stitches Chart of Accounts is shown below.

Chart of Accounts

2.4 Employee Payroll

This can also be found on the ATO site: 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.Calendar of relevant months for calculating payroll:

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.

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.

  • 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

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.

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.

Therefore prepare the Trial Balance as at 30 June 2018 by linking balances from the ledger accounts to the Trial Balance. therefore  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.)

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.

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.)

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.

Hence 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.

  • Additional Information

6.1 Number formats

Hence all amounts should be displayed as two decimal places but should not be rounded. Amounts can be displayed without $ sign.

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).

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

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.

6.6 EXCEL functions

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

Since this may mean use of some additional functions such as menu or use  colours

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