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Complete Accounting Cycle


Train Hard Gym Background and Facts Duke Harrison is the owner of Train Hard Gym a gym and fitness business he started several years ago. The business is GST-registered. Duke provides personal training services, gym memberships and sells to members and other Gyms, protein concentrate products, energy drinks and T-Shirts, that he purchases from manufacturers. He operates the business himself and employs one person full-time to assist him. Train Hard Gym uses a perpetual inventory system and uses FIFO (First In First Out). The business is operated from a commercial building which was purchased two years ago. Duke has a variety of clients with whom he has built up a strong relationship. He offers them terms of 30 days in some cases and other clients pay in advance or by direct debit. All memberships of the gym are paid by direct debit. Duke submits his Business Activity Statements (BAS) for GST quarterly to the Australia Taxation Office on an accruals basis. Currently, the business uses a manual accounting system but plans to test a MYOB accounting system in July. Accounting Information Train Hard Gym uses the following specialised[1] and general journals to record business transactions. Sales Journal - to record all invoices issued for sales of inventory Sales Returns Journal - to record all credit notes issued for returned inventory Purchases Journal - to record all credit purchases of inventory Cash Receipts Journal - to record all cash received Cash Payments Journal - to record all cash payments General Journal - to record all other transactions Train Hard Gym uses a general ledger in the form of a 4 column running balance (as described on page 79 Exhibit 2-13 of Custom Text 3rd Ed). An Accounts Receivable and Accounts Payable subsidiary[2] ledger is also used in this format. Financial Statements are prepared at the end of each month. The accounts are closed off at the end of the each month. All necessary pro-formas are included and are to be used to complete the manual practice set for June 2014. If you wish to use a T account format then you will need to generate your own forms to fill out. The assignment can be completed either manually using the Excel templates provided or by computer in Excel. Chart of Accounts Account Number Account Name Opening Balance 110 Cash at Bank 25,129 120 Accounts receivable 13,797 121 Allowance for Doubtful Debts 869 130 Prepaid Insurance 150 Office Supplies 945 160 Inventory 17,302 170 Gym Equipment 1,20,000 171 Accumulated Deprecation – Gym Equipment 15,000 172 Office Equipment 5,280 173 Accumulated Depreciation – Office Equipment 1,195 180 Computer 181 Accumulated Depreciation – Computer 190 Premises 4,50,000 191 Accumulated Depreciation – Premises 45,000 200 Accounts Payable 9175 210 Unearned Revenue 5,000 220 Wages Payable 241 230 GST Clearing 1,065 240 PAYG Payable[3] 962 250 Superannuation Payable 168.75 280 Bank Loan – Non-current 3,00,000 300 Capital 2,53,777.25 310 Drawings 350 Income Summary 410 Sales Revenue 411 Sales Returns and Allowance 412 Sales Discount 413 Discount Received 414 Personal Training Fees 416 Membership Fees 420 Interest Revenue 500 Cost of Sales 510 Advertising Expense 512 Bad and doubtful debts expense 515 Bank Charges 520 Depreciation Expense – Gym Equipment 521 Depreciation Expense – Office Equipment 522 Depreciation expense – Computer 523 Depreciation Expense – Premises 540 Insurance Expense 550 Interest Expense 560 Office Supplies Expense 570 Superannuation expense 580 Telephone and Internet Expense 590 Wages Expense All account balances at 31st May are normal in nature. Bank Reconciliation[4] The bank reconciliation for 31st May is shown below. Balance as per bank Statement 24,812 Add deposits not yet credited 3,123 27,935 Less Unpresented cheques 38 2,610 46 57 51 139 2,806 Balance as per Cash at Bank Ledger Account 25,129 Subsidiary Ledgers Accounts Receivable Subsidiary Ledger As at 1 June (all balances relate to May credit sales) Atlas 24 Hour Gym 1,200 AllSports Football Club 3,520 J. Smith – Personal Trainer 5,927 A. Godfrey 3,150 $13,797 Accounts Payable Subsidiary Ledger As at 1 June (all balances relate to May credit purchases) Protein & Fitness Supplies Ltd 8,515 T-Shirts by Design 660 $9,175 Inventory on Hand As at 1 June Units on Hand Cost per Unit Total Train Hard Protein Blend 2.3kgs Pack 252 56 14,112 Train Hard Energy Drink 138 15 2,070 (sold as a pack of 6) Train Hard T-Shirts 56 20 1,120 $17,302 JUNE TRANSACTIONS The following transactions relate to the operations of Train Hard Gym during June: Note: All amounts are GST-inclusive unless otherwise stated. Credit sales are made on credit terms of 2/10, n30 Date Details 1.    1 Jun-01 Received in the bank account by Direct Debit the membership fees for June, $22,400. 2.    2 Jun-01 Paid by EFT insurance for 12 months, $2,500.00 3.      Jun-03 Sold 5 Train Hard Protein Blend Packs for cash - $467.50 4.    4 Jun-03 Purchased inventory on credit from Protein and Fitness Supplies - $8,800 120 Units of Train Hard Protein Blend Packs 5.      Jun-04 Received amount owed by J. Smith for May invoices less applicable discounts as it was received within the relevant discount period. 6.    5 Jun-05 Purchased office supplies for $550 – cheque 55 (use Chart of Account number 150 Office Supplies) 7.      Jun-05 Received $1790 cash from clients for Personal Training services 8.    6 Jun-05 Received partial payment from A. Godfrey for May sales - $1,500 No discounts were applicable. 9.    7 Jun-08 Sold 15 T-Shirts to J. Smith on credit for $495 – Invoice # 5112 10. 8 Jun-08 Purchased inventory on credit from T-Shirts by Design - $3,300 (including GST) - 120 Train Hard T-Shirts at $25 each (excluding GST) 11 Jun-09 Received amount owed by Allsports Football Club for May invoices less applicable discount as it was received within the relevant discount period. 12. 1 Jun-10 Paid fortnightly wages of $2,116 – EFT ($1,875 relates to June wages; $241 relates to the wages accrued for May) PAYG deducted from these wages amounted to $375. 13. 1 Jun-12 Paid FabAb Magazine Ltd for advertising for June $425– cheque 56 14. 1 Jun-15 Purchased Computer for $2,761 from JBHI – cheque 57. The computer has a life of 3 years with no residual value. 15.   Jun-15 Sold on account to A Godfrey $ 11,583 120 Train Hard Protein Blend Packs $11,220 15 Train Hard Energy Drink Packs $363 – Invoice 5113 16. 1 Jun-15 Banked the takings from cash sales for the last fortnight – $ 5,236. Items sold 4 T-Shirts $132 52 Train Hard Protein Blend Packs $4,862 10 Train Hard Energy Drink Packs $242 17. 1 Jun-16 Duke Harrison withdraw $500 cash – cheque 58 18.   Jun-17 J Smith returned 5 Train Hard T-Shirts which were faulty. CRN (Credit Note) 111 was issued. These T-shirts were from the inventory that cost $20. 19. 1 Jun-18 Paid amount owing from May to Protein and Fitness Supplies - $8,515 cheque 59 No discounts were applicable. 20.   Jun-24 Paid fortnightly wages of $1,875 – by EFT PAYG tax deducted from theses wages amounted to $375. 21.   Jun-24 Paid PAYG tax payable for May of $962 by cheque 60 22.   Jun-24 Paid superannuation contributions owing from May of $168.75 by BPAY. 23.   Jun-29 Paid the monthly telephone account for $768 using BPAY 24.   Jun-29 Invoiced Allsports Football Club for June services $10,175 Personal training $5,500 Train Hard Protein Blend Packs $4,675 25.   Jun-30 Duke received $1450 from a client in advance for personal training services to be conducted in August. 26.   Jun-30 Banked the takings from cash sales for the last fortnight - $2382.60. Items sold 25 T-Shirts $ 825.00 12 Train Hard Protein Blend Packs $1,122 18 Train Hard Energy Drink Packs $435.60 27.   Jun-30 Duke lodged his quarterly Business Activity Statement to the Australian Taxation Office for May together with the GST payable for the May quarter of $1,065 with cheque 61 28.   Jun-30 Received interest on bank deposit - $101 This information was obtained by inspecting the Bank Statement 29.   Jun-30 Made monthly repayment on bank loan of $2,300. The interest component of the loan is $1,250. This information was obtained by inspecting the Bank Statement. XYZ BANK BANK STATEMENT June Account Name: Train Hard Gym BSB: 026-391 Account number: 5421-6491 Date Particulars Debit Credit Balance June 1 Balance brought forward 24812Cr Direct Debit 22400 47212Cr 2 EFT Payless Insurance 2500 44712Cr 3 3123 47835Cr 3 467.5 48302.50Cr 4 5808.46 54110.96Cr 5 1790 55900.96Cr 6 1500 57400.96Cr 8 38 2610 54790.96Cr 10 3449.6 58240.56Cr 10 55 550 57690.56Cr 10 EFT 2116 55574.56Cr 56 425 55149.56Cr 46 57 55092.56Cr 15 5236 60328.56Cr 16 57 2761 57567.56Cr 20 58 500 57067.56Cr 59 8515 48552.56Cr 24 EFT 1875 46677.56Cr 24 BPAY – SuperFund 168.75 46508.81Cr 29 EFT – Teleco 768 45740.81Cr 29 60 962 44778.81Cr 30 Loan 2300 42478.81Cr 30 Interest 101 42579.81Cr Bank fees 27 42552.81Cr Instructions for Completion of Practice Set A.          Open all general ledger accounts by inserting the opening balances at 1 June as shown in the Chart of Accounts on page 2. For example, the balance of account 110 - Cash at Bank is $25,129Dr. Write “Opening Balance” in the “Details” column, and place $25,129 in the “Debit” balance column. B.           Open all subsidiary ledger accounts for accounts receivable and accounts payable by inserting the opening balances as at 1 June as shown in the schedule of accounts receivable and accounts payable on page 3. Insert the opening inventory balances into the inventory cards. Note: For the general ledger, accounts receivable subsidiary ledger and accounts payable subsidiary ledgers, all accounts have normal balances C.          Record the transactions for June noted on page 4 - 5 in the appropriate journals (for general journals explanations/narrations are not required). The journals are provided in the Excel spreadsheet with the file name “Pro Formas TrainHardGym.xlsx” D.           All receipts received by direct credit or EFT are recorded in the Cash Receipts Journal on the day they are received. E.            Payments made by EFT or BPAY are recorded in the Cash Payment journal on the day the payment is made. F.            Use the treatment for Sales Discounts and Discount Received as illustrated in Chapter 7 Accounting Information Systems in the Cash Receipts and Cash Payments Journal. G.          Post entries daily to the accounts receivable and accounts payable subsidiary ledgers and inventory cards. Post entries daily from the general journal Note: For posting reference purposes, use the journal page names and numbers. For example, when posting from the sales journal the reference will be SJ1 H.                Prepare a bank reconciliation statement as at 30 June. Where possible, clear the outstanding items from the May bank reconciliation and include any uncleared items in the June bank reconciliation. Prepare journal entries for any cashbook adjustments and post to the cash receipts and/or cash payments journal. I.                   Total all columns of the special journals. Post from the special journals to the general ledger. J.                  Prepare schedules of Accounts Receivable and Accounts Payable. Check that the total of the Schedule of Accounts Receivable equals the Accounts Receivable Control account in the general ledger and that the Schedule of Accounts Payable equals the Accounts Payable account in the general ledger. K.               Using the worksheet provided in the excel spreadsheet, prepare an unadjusted Trial Balance as at 30 June. L.                Using the information in 1-7 below, record the necessary adjusting journal entries at 30 June in the general journal. Post these to the general ledger. M.              Record these adjustments in the adjustments column of the worksheet. N.                Complete the worksheet. Adjusting entry information as at 30 June 1.      Unearned Revenue On June 30, Duke received payment from client for personal training services to be undertaken in August as noted in the transaction # 25 2.      Insurance Duke paid 12 months of insurance as noted in the transaction # 2 on June 1. 3.      Depreciation Gym equipment is depreciated using the straight-line method. Existing Gym equipment has a useful life of 10 years with a residual value of $5,000. Office equipment is depreciated using the straight-line method. Existing office equipment has a useful life of 5 years with a residual value of $1,200. On March 15, Duke purchased a computer. It has a useful life of 3 years and a residual value of zero and will be depreciated using the reducing balance method using 3 times the straight line rate. Premises were purchased 2 years ago. They are depreciated at 5% per annum using the straight-line method. Note: depreciation is calculated for the month of June only and is to commence from the day after installation of the asset. Round calculations to the nearest dollar. 4.      Accrued Wages Wages owing at 30 June totalled $958. 5.      Superannuation Superannuation contributions accrued for June total $90. 6.      Office Supplies A stocktake of office supplies was performed on 30 June. It was noted that $860 of supplies remain. 7.      Bad Debts An assessment of bad and doubtful debts[5] at 30 June showed a marked increase in the number of accounts falling into this category. Duke has decided to increase the Allowance for Doubtful Debts to 4% of the accounts receivable balance at June 30. Instructions for Completion of Practice Set continued O.                Record all closing entries in the general journal and post them to the general ledger. P.                 Prepare a Post-closing Trial Balance as at 30 June. Q.                Prepare the Income Statement (functional format), Statement of changes in Equity, and Classified Balance Sheet. Guidelines for the Timing of Completion For Seminar 1 in Week 7 students should read the Practice Set and all instructions carefully and bring all pages to the Seminar. For Seminar 2 in Week 8 students should have completed Instructions A and B and have commenced recording and posting transactions (Instructions C, D, E, F and G). For Seminar 3 in Week 9 instructions C to J should been completed. For Seminar 4 in Week 10 Bank Reconciliation and any other outstanding items After the four Seminars are over, students should follow instructions in order to finish the Practice set by the due date. Check Figures to help complete the Practice Set Assignment will be released at the end of Week 8. [1] Specialised journals will be covered in Lecture 7 [2] Specialised ledgers will be covered in Lecture 7 [3] PAYG will be covered in Workshop 2 [4] Bank reconciliations will be covered in Lecture 8 [5] Bad and Doubtful debts & Allowance for Doubtful debts will be covered in Lecture 9