Accounting Essay Example

INSTRUCTIONS

Venture Holidays are finalising their financial reports for the year ending 30th

June 2011. Venture is a travel agency which also sells travel items such as

toiletries and small luggage. The owner of Venture has prepared the financial

reports himself. Unfortunately, the owner has not studied accounting and

believes he made a number of mistakes when preparing the end of year financial

reports. He has asked you for assistance in finalising the financial reports. You

are given all of the information used to prepare the financial reports for the year

ending 30th June 2011. During your investigation you have identified the

following issues which may require further action:

(a) The electricity bill for the shop was still owing for the month ending 30th

June 2011. The amount owing (and not yet recorded) was $600.

(b) Office furniture was damaged in June 2011 and was repaired by the business

for $350 cash. The amount recorded in the books had been accidently

recorded as $530 has been recorded as a debit to the “Office Furniture”

account (ie. it increased the asset account).

(c) Income is generated by Venture from both cash and credit transactions.

Venture has a number of large contracts with customers, some of who are

given 30 days to pay for their bookings. Allowance for doubtful debts has

not been recorded for the year ending 30th June 2011 because the owner has

been too busy with things. Net accrued income for the year ending 30th June

2010 were $25,000 and $80,000 for the year ending 30th June 2011. The

allowance for bad debts is estimated as 1.5% of net credit sales. You have

checked the records for the last three years and the owner has always double

checked bad debts in July of the following financial year when he is less

busy and he makes any updates if he needs to.

(d) Venture purchased a motor vehicle on the 30th of September 2010 for

$20,000. The motor vehicle has a useful life of 10 years and a scrap value of

$1,000. The owner knows he has to show depreciation in the records and has

recorded depreciation on the 30th of June 2011 on the motor vehicle for

$1,900 for the year ending 30 June 2011. You have checked the general

journal and the adjustment shows a debit to “Depreciation Expense – Motor

Vehicle” and a credit to “Accumulated Depreciation – Motor Vehicle”.

(e) During the year, the owner took and kept at home, a laptop from the business

for personal use. The laptop had an original cost of $1,800 and had a

carrying amount of $1,200 at the time he took it home. The laptop was being

used in the business and was part of Office Equipment but the owner

purchased a new laptop to replace it and decided to take home the old one to

use himself. The owner did not record anything after taking home the old

laptop because it was no longer going to be used by the business.

(f) Wages of $6,000 (5 staff each paid $1,200) are paid to sales staff every

fortnight. Sales staff wages had been paid and recorded on the 6th and 20th of

June 2011. The shop is only open from Monday – Friday. It does not open on

weekends as the owner has a family and also believes his workers need to

spend time with their families on weekends.

(g) A customer who booked a holiday through Venture paid a $200 deposit on

the 15th of June 2011. The $200 was recorded as “Unearned Income”. On the

29th of June, the customer has decided to cancel his order because he is not

well enough to travel overseas. Venture will refund the $200 to the customer

once all the paperwork has been finalised (it is anticipated everything will be

finalised by the 2nd of July). Venture charges a fee of 10% of any deposits as

an administration fee if an order is cancelled.

(h) Insurance for the 12 months covering April 2011 – March 2012 was paid on

the 1st of April 2011. The amount paid was $3,000. A credit to “Insurance

Expense” and a debit to “Cash at Bank” was recorded on the 1st of April.

Nothing else can be found in the general journal regarding this transaction

for the year ending 30th June 2011.

(i) The owner purchased a plasma television for the staff to use in the staffroom.

He purchased the plasma television from his own personal bank account and

donated the television to the business on the 28th of June 2011. He recorded

the donation of the television as a credit to “Sales Income” and a debit to

“Plasma TV”. The television cost $3,500.

(j) The bank statement for the month of June 2011 shows that a customer has

deposited $1,700 directly into the bank account of venture via a direct

deposit bank transfer for a holiday booked in May 2011. The accountants for

Venture were not aware of the cash transfer as they have not had a look at

the bank statement yet.

(k) Annual rent for the premises is overdue. Rent is $12,000 per year and is

normally paid on the 1st of June for 12 months. The landlord for the premises

has known the owner of Venture for a long time and trusts him so he has

allowed the owner of Venture to pay the rent owing at the end of June. The

owner of Venture has subsequently paid the $12,000 on the 29th of June

2011. Nothing has been recorded yet for this payment because the owner did

not know what to record so has waited to ask you to record the transaction.

(l) The owner of Venture signed an agreement worth $1,000 in April 2011 with

a supplier who in exchange, will set up a special display in Venture’s shop of

luggage which customers can buy to use on their trips. The supplier paid the

$1,000 to Venture on the 30th of June 2011. The luggage will be supplied on

consignment. The display was set up in the middle of June in time for the

mid year holiday rush and sales of these luggage pieces totalled $5,600 for

the month ending 30th June 2011.

(m) The owner only uses straight line depreciation for non-current assets because

this is the only method he has ever seen and used.

REQUIRED

Prepare the general journal entries to make the necessary adjustments for the

information presented to you above. SHOW calculations.

General Journal Pro forma

Expenses a/c

Accrued electricity bill

Suspense a/c

Expenses a/c

Suspense a/c

Office furniture a/c

Provision for bad debt a/c

Bad debt a/c

Depreciation expenses a/c-motor v.

Accumulated depreciation motor v.

Disposal a/c

Office equipment

Expenses a/c

Refund a/c

Charges a/c

Un earn income

Insurance expenses a/c

Please note: 3 pages of the General Journal have been provided – do not use this as an indication of how many entries will be needed to answer the question.

General Journal Pro forma

Sale income a/c

Personal a/c

Customer a/c

Rent expenses a/c

Rent over due a/c

General Journal Pro forma

Calculations

Workings

b) 530-350= 180 error of commission

c) allowance for bad debt

25000 *1.5%=375 for the year 2010

80000*1.5%=1200 for the year 2011

1200-375=875 bad debt to be provided

Calculations