Control account, Subsidiary ledgers, Closing entries, Inventory system


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Unit: ACC101 – Fundamentals of Accounting I

Control account, Subsidiary ledgers, Closing entries, Inventory systems

Submission Date: 19-Aug-2016 before 5.00 pm Weighting:

The assignment is worth 30% of the total unit weight. Instructions: 1. Students are required to cover all stated requirements. 2. Your answer must be uploaded to Moodle in word file with your full name and student ID number. 3. You need to support your answers with appropriate Harvard style references where necessary. 4. Only include information in your appendixes that has been directly referred to in the body of your document. 5. Include a title/cover page containing the subject title and code and the name, student id number and name. 6. Please save the document as ACC101_B1T22016_first name_Surename_Student Number Eg:ACC101_B1T22016_John_Smith_20160000 2 Question 1: Control Account and Subsidiary ledgers The post-closing trial balance of Pollack Ltd as at I November 2012 contained the following normal balances: Account no. Account title Account balance 1100 Cash at Bank $120 000 1120 Accounts Receivable 14 540 1130 Bills Receivable 1 500 1140 Inventory 160 000 1150 Prepaid Insurance 1160 GST Outlays 4 000 1210 Delivery Vehicle 80 000 1215 Accumulated Depreciation – Delivery Vehicle 8 000 1220 Office Equipment 48 000 1225 Accumulated Depreciation – Office Equipment 8 000 2110 Accounts Payable 11 560 2120 Bills Payable 2150 GST Collections 7 000 3110 Share Capital 384 000 3120 Retained Earnings 9 480 4110 Sales 4115 Sales Returns and Allowances 4120 Discount Received 5110 Purchases 5115 Purchases Returns and Allowances 5120 Discount Allowed 5130 Rent Expense 5140 Electricity Expense 5150 Salaries Expense Subsidiary ledger balances at 31 October 2012 were: Accounts Receivable Customer Date of sale Terms Amount D. Draper 28 October 2/10, n/30 $4 200 C. Hand 30 October 2/10, n/30 4 620 T. Tremble 18 October 2/10, n/30 5 720 Accounts Payable Creditor Date of purchase Terms Amount Laws Ltd 19 October 1/30, n/60 $3 280 M. Merlow 10 October n/30 5 300 Lenny Ltd 23 October 1/15, n/30 2 980 Nov. 1 Bought inventory from M. Merlow on credit, $4800 plus GST; terms n/30. Purchased 1 year’s insurance cover for $1800 plus GST, cheque no. 400. 3 Inventory sold to C. Hand last month was returned. Issued an adjustment note for the amount of $110 (including GST). Received a cheque from D. Draper to cover the sale made on 28 October. 4 Paid Lenny Ltd cheque no. 401 for purchase of 23 October. Purchased inventory from Laws Ltd on credit, $4800 plus GST; terms 1/10, n/60. 5 Issued cheque no. 402 for $3300 to M. Merlow on account, and issued a 60-day 10% bill 3 payable for the balance due on the purchase of 10 October 8 Paid November rent of premises $1080 plus GST, cheque no. 403. Paid Laws Ltd for the purchase of 19 October, cheque no. 404. 10 Sold inventory on account to A. Arnott, $9000 plus GST; terms 2/10, n/30. Received cash for the issue of additional share capital, $60 000 (GST-free). 11 Received cheque for $2860 from T. Tremble in part payment of the sale made on 18 October, together with a bill receivable for the balance due. 12 Sold merchandise to D. Draper on account, $9600 plus GST; terms 2/10, n/30. 13 Purchased goods on credit from Lenny Ltd, $7920; terms 1/15, n/30 (including GST). 14 Paid fortnightly salaries by cheque no. 405, $2400. Cash sales from 1 November to 14 November, $18 400 plus GST. 18 Sold goods to T. Tremble on account, $9300 plus GST; terms 2/10, n/30. Received an adjustment note from Lenny Ltd for $154 for defective goods returned (includes GST). 19 Forwarded cheque no. 406 to ATO to cover GST owing from previous month, $3000. 20 A. Arnott forwarded a cheque for $2640 on account; no discount was allowed. Purchased goods for cash. Issued cheque no. 407 for $10 800 plus GST. 21 Received a cheque from D. Draper for $1320 and a promissory note (bill receivable) for the balance of his account; no discount was allowed. 26 T. Tremble forwarded a cheque for the goods sold on 18 November. 27 Paid Lenny Ltd for the purchase made on 13 November, cheque no. 408. 28 Paid fortnightly salaries with cheque no. 409, $2400 (GST-free). 30 Electricity account paid by cheque no. 410, $420 plus GST. Cash sales from 15 November to 30 November, $18 000 plus GST. Purchased inventory on credit from Lenny Ltd, $7260; terms 1/15, n/30 (includes GST). Required A.Record the November transactions (round amounts to the nearest dollar) in appropriate special journals and the general journal. B. Open running balance accounts in the subsidiary ledgers and their control accounts in the general ledger, and enter the opening details of these accounts. C.Post relevant data from the journals to the appropriate running balance subsidiary ledger accounts. D.Prepare schedules of accounts receivable and accounts payable as at 30 November 2012, and reconcile to the appropriate subsidiary ledger control accounts in the general ledger. E. Prepare the GST Collections and GST Outlays accounts as they would appear at 30 November 2012. 4 Question 2: Journal Entries, Discounts, Closing Entries and Income Statement- Both Perpetual and Periodic Inventory Systems Starbright Lighting buys lamps for $40 each and sells them for $70 each. On 1April 2013, 24 lamps were in inventory. Starbright Lighting completed the transactions below during April. April 3 Purchased 40 lamps on account. Terms: 2/10, n/30, EXW supplier’s warehouse. 4 Paid freight cost of $60 on 3 April purchase. 5 Sold 22 lamps on account. Terms: 3/10, n/30, DDP acquirer’s warehouse. Paid freight cost of $30. 9 Returned 10 of the lamps purchased on 3 April and paid the amount due on the lamps retained in stock. 10 A customer returned 3 of the lamps sold on 5 April. The lamps were not defective and were returned to stock. 13 Purchased 20 lamps on credit. Terms: 2/10, n/30, EXW supplier’s warehouse. 14 Received payment from customer for the amount due on 5 April sale. 19 Sold 39 lamps for cash at $60 each. 20 Four of the lamps sold on 19 April were returned by the customer for a cash refund. The lamps were not defective. 22 Paid the supplier the amount owed for the 13 April purchase. A physical inventory count taken on 30 April 2013 showed 20 lamps in stock. Required A. In two columns and ignoring GST, prepare general journal entries to record the transactions assuming: 1. a perpetual inventory system is used 2. a periodic inventory system is used. Narrations are not required. B. Repeat requirement A but assume the business is registered for the GST. C. Assuming Starbright closes its accounts at month-end, prepare relevant entries to close the accounts under both inventory systems. D. Prepare two separate income statements showing gross profit and profit for April, assuming that: 1. the perpetual inventory system was used. 2. the periodic inventory system was used.

 

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Assignment Question 2 Sample

Assume that Musonda’s Markets had an inventory balance of $13 860 at the close of the last accounting period. The following sales and purchase transactions are for the current period:

  1. Purchased goods on account for $11 570.
  2. Returned part of the above purchase that had an original purchase price of $670.
  3. Paid for the balance of the purchase in time to receive a discount of 1% of the purchase price.
  4. Sold goods costing $10 600 for $21 200. Cash of $9800 was received, with the balance due on account.
  5. Goods sold on credit for $860 (cost $430) were returned.

 

Required

  1. In two columns, prepare general journal entries (ignoring GST) assuming:
  2. a periodic inventory system is used
  3. a perpetual inventory system is used.
  4. Same as for requirement A, except that GST is to be added to the figures where appropriate.
  5. Suppose that a physical count of the inventory at the end of the current period shows inventory of $13 200 to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy.
  6. Comment on which system would best disclose any discrepancy.

 

 

Solution   Journal entries – perpetual and periodic inventory systems

 

MUSONDA’S MARKETS

Required:

  1. In two columns, prepare general journal entries assuming:
  2. a periodic inventory system is used.
  3. a perpetual inventory system is used.
  4. Repeat requirement A assuming GST is to be added to the figures where appropriate.
  5. Suppose that a physical count of the inventory at the end of the current period shows inventory of $13 200 to be on hand. Present the entries (if any) required under each inventory system to adjust for any discrepancy.
  6. Comment on which system would best disclose any discrepancy.

 

 

  1. (without GST)
MUSONDA’S MARKETS
Periodic   Perpetual
1. Purchases 11 570     Inventory 11 570  
     Accounts Payable   11 570      Accounts Payable   11 570
               
2. Accounts Payable 670     Accounts Payable 670  
     Purchases Returns & Allows.   670      Inventory   670
               
3. Accounts Payable 10 900     Accounts Payable 10 900  
     Discount Received   109      Discount Received   109
     Cash at Bank   10 791      Cash at Bank   10791
               
4. Cash 9 800     Cash 9 800  
  Accounts Receivable 11 400     Accounts Receivable 11 400  
     Sales   21 200      Sales   21 200
               
          Cost of Sales 10 600  
             Inventory   10 600
               
5. Sales Returns & Allows 860     Sales Returns & Allows 860  
     Accounts Receivable   860      Accounts Receivable   860
               
          Inventory 430  
             Cost of Sales   430

 

 

 

  1. (with GST)
MUSONDA’S MARKETS
Periodic   Perpetual
1. Purchases 11 570     Inventory 11 570  
  GST Outlays 1 157     GST Outlays 1 157  
     Accounts Payable   12 727      Accounts Payable   12 727
               
2. Accounts Payable 737     Accounts Payable 737  
     Purchases Rtns & Allows.   670      Inventory   670
      GST Outlays   67      GST Outlays   67
               
3. Accounts Payable 11 990     Accounts Payable 11 990  
     Discount Received   109      Discount Received   109
      GST Outlays   10.90      GST Outlays   10.90
     Cash at Bank   11 870.10      Cash at Bank   11 870.10
               
4. Cash 9 800     Cash 9 800  
  Accounts Receivable 13 520     Accounts Receivable 13 520  
     Sales   21 200      Sales   21 200
     GST Collections   2 120      GST Collections   2 120
               
          Cost of Sales 10 600  
             Inventory   10 600
               
5. Sales Returns & Allowances 860     Sales Rtns & Allows 860  
  GST Collections 86     GST Collections 86  
     Accounts Receivable   946      Accounts Receivable   946
               
          Inventory 430  
             Cost of Sales   430

 

C.

  MUSONDA’S MARKETS
  Periodic   Perpetual
  Physical count at period end   $13 200   Inventory balance Perpetual System   $14 590
  No entry required under periodic system. 

Inventory loss included in calculation of Cost of Sales.

  $13860(balance) + $11570(purchase) – $670(return) – $10600(sale) + $430(sale return) = $14 590
       
          Inventory Shortage Expense 1 390  
             Inventory   1 390
          Inventory loss $14 590 – $13 200 = $1390

 

D.

The perpetual inventory system is the only system which can identify inventory discrepancies.  This system maintains an accurate record of how many inventory units should be on hand at any one time.  The system can then identify any discrepancy between recorded inventory balances and the stocktake or physical count of inventory numbers.

In this case the inventory shortage amount of $1 390 is significant and the owner of the business needs to investigate the cause. Is it theft? Is the inventory being discarded because it has perished? Is it a combination of factors?  What can be done about it?

 

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