You are working for the temporary accounting employment agency known

Background

Assume it is currently June 1, 2013.

You are working for the temporary accounting employment agency known as Uptempo. Today you have been asked to work at Riggler’s, a small candy store that operates in inner city Miami and is owned by Adriano Davisson. Your task here is to complete the accounting cycle for Riggler’s for the month of June 2013. To assist you in this task, Adriano tells you to read the company’s accounting policies and procedures. Note that you will be required to follow these policies and procedures when completing the accounts for Riggler’s.

Accounting policies

a.Business operations: Riggler’s is set up as a private non-listed corporation based in Miami with Adriano Davisson as the sole stockholder. The business derives its main source of revenue from retail sales of candies.

To assist in managing the business, Riggler’s rents a small office space. Note that the business is required to pay for the rent for this premises in advance.

The electricity and water expenses incurred during the month relate to the running of the office. Additional expenses include an insurance policy to protect the equipment in the office in the event of theft or fire.

All costs associated with the office are classified as general and administrative expenses.

Adriano is the only full-time employee and his role is to handle all administrative tasks. Adriano’s salary is paid once at the end of each month. All other employees are sales staff who are employed on a part-time basis. The sales staff receive their wages on a weekly basis.

b.Accounting cycle: The business adopts a monthly accounting cycle.

c.Purchases: Purchases are recorded when the business receives the goods. All items purchased are received on the same day as recorded in the transaction list, except for purchase orders which are received at a later date. Note that the business uses the gross method of recording purchases and receives trade discounts from some suppliers.

d.Revenue recognition: The business recognizes revenue when goods sold are delivered to customers. All items sold are delivered on the same day as recorded in the transaction list except for sales orders, which are delivered at a later date as agreed with the customer. Note that the business uses the gross method of recording sales and sometimes grants trade discounts to customers. Past experience has shown that offering early payment discounts did not increase the likelihood of accounts receivable being paid promptly. Therefore, discounts for early payment of accounts are not normally offered to credit customers except in exceptional circumstances.

e.Sales returns: So that the business can easily track the level of sales returns in relation to overall sales, all sales returns are recorded using a contra revenue account (Sales Returns and Allowances) rather than being recorded directly in the Sales Revenue account.

f.Sales tax: Adriano has advised you to ignore the effect of the sales tax. [ASIDE: This is an assumption to make the practice set easier for you to complete. In the real world, sales tax cannot be ignored.]

g.Cash: The business accepts cash and checks and uses checks to pay for the majority of its expenses. On the day checks are received, Adriano deposits them at the bank. It may take a number of days for the checks to be cleared by the bank. The business holds its checking account with BitiBank.

h.Inventories: The business uses the perpetual inventory system and applies the FIFO method to allocate costs to inventory and cost of goods sold. Note that the business maintains a set of inventory cards with multiple pairs of lines to keep track of changes in inventory. In each inventory card under the Balance column, items with different unit costs are listed in separate lines with the items purchased earlier listed first in the pair of lines provided.

i.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognize the expense during the accounting period.

j.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis and the monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.

k.Long term liabilities: The business obtained an interest only loan from MRMC Bank on June 1, 2013 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2013 and the principal on the loan is due on June 1, 2016.

Accounting procedures

Riggler’s adopts a manual accounting system and uses the general journal and special journals for the recording of individual transactions. Adriano Davisson has tailored the design of those journals to meet the specific needs of the business so the format of those journals may be slightly different to those you have seen before. However, he advises you that the general principles of how to use special journals are followed in his business.

The table below shows the journals used by the business and the types of transactions that can be recorded in each of these journals:

Journal

Code

Transaction type

General journal

GJ

All transactions that are not able to be recorded in the special journals below.

Sales journal

SJ

Credit sales of inventory

Purchases journal

PJ

Credit purchases of inventory

Cash receipts journal

CRJ

Cash inflows to the business

Cash payments journal

CPJ

Cash outflows from the business

To summarize the effects of transactions recorded in those journals, Adriano maintains the general ledger and the following ledgers:

§  accounts receivable subsidiary ledger,

§  accounts payable subsidiary ledger, and

§  inventory cards.

Adriano then indicates that he is aware other businesses using a manual accounting system may post transactions from journals to ledgers at different times (i.e. daily or monthly). Although the posting procedures used in his business may be different to what you have seen before, he asks that you specifically follow his company’s accounting procedures.

The information below explains when transactions are required to be posted from the journals to the appropriate ledger accounts and inventory cards:

Posting of entries recorded in the general journal

All transactions that are entered in the general journal are posted on a daily basis. Note that if a transaction recorded in the general journal involves both a control account and a subsidiary ledger account, that journal entry will need to be posted to both ledgers.

Posting of entries recorded in the special journals

When a transaction is recorded in a special journal, part of the journal entry may need to be posted daily and part of that entry is to be posted monthly.

a.Daily:

§  If a transaction affects a subsidiary ledger account, then the entry that involves a subsidiary ledger account is to be posted to that subsidiary ledger on a daily basis. However, the same amount posted to the subsidiary ledger account is not posted to the related control ledger account immediately. This procedure allows the business to keep track of supplier and customer balances on a daily basis.

§  In the cash receipts journal or the cash payments journal, if a transaction is recorded in the Other Accounts column, then the amount recorded in the Other Accounts column is to be posted to the appropriate general ledger account daily.

§  If a transaction results in a change in the number of inventory items on hand, then the entry that affects inventory is to be posted to the appropriate inventory card on a daily basis. In this way, the business is able to track the balance of inventory on hand.

b.Monthly:

§  At the end of the month, the totals of each column in the special journals are manually calculated. Those totals, with the exception of the totals of the Other Accounts columns in the cash journals, are posted to the appropriate general ledger accounts at the end of the month.

 

 

 

 

 

Instructions for bank reconciliation

1)Prepare the bank reconciliation statement as at June 30, 2013. To do this, you will need to use:

§  the previous month’s bank reconciliation statement, and

§  the current month’s bank statement and cash journals

Note that the bank reconciliation statement provided below may contain more rows than required.

2)Use the bank reconciliation statement to record the relevant reconciling items in the general journal.

3)Post entries recorded in the general journal to the appropriate ledger accounts according to the company’s accounting policies and procedures.

4)Record the updated balance of each ledger account in the Balance row of each ledger, even for ledgers with a balance of zero. Although each ledger already has a running balance, the Balance row must still be filled out in order to receive full points.

Remember:

§  Enter all answers to the nearest whole dollar.

§  There may be entries in the general journal that require posting to both a control account and a subsidiary ledger. In these cases, after you have posted to both ledgers, you should enter the reference for both the general ledger account and the subsidiary ledger account in the Post Ref. column to indicate that you have posted to both accounts. For example, if the reference number for the control account is 110 and the reference number for the subsidiary ledger account is110-1, you should type ‘110/110-1’ into the Post Ref. column.

§  You are also required to apply the journals and ledgers instructions provided in previous weeks.

 

(Q=822.bankRecQuestion)

Company logo

Riggler’s
Bank Reconciliation Statement
June 30, 2013

 

$

 

$

 

Balance per bank:

 

 

 

No. 

No. 

No. 

 

 

 

 

 

 

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=824-110-6.AcctsRec6_bankRec)

Account: ARC – Central Candy 
Account No. 110-6

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

4,222 DR

 

Jun

15

Repayment

CRJ

 

1,100

3,122 DR

 

Jun

27

Credit sale

SJ

4,928

 

8,050 DR

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-100.Cash_bankRec)

Account: Cash 
Account No. 100

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

63,034 DR

 

Jun

30

Total from cash receipts journal

CRJ

186,349

 

249,383 DR

 

Jun

30

Total from cash payments journal

CPJ

 

44,619

204,764 DR

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-110-0.ARControl_bankRec)

Account: ARC – Accounts Receivable Control 
Account No. 110

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

33,870 DR

 

Jun

20

Sales return from Sweet Tooth

GJ

 

3,456

30,414 DR

 

Jun

30

Total from sales journal

SJ

61,072

 

91,486 DR

 

Jun

30

Total from cash receipts journal

CRJ

 

27,798

63,688 DR

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-210-0.APControl_bankRec)

Account: APC – Accounts Payable Control 
Account No. 210

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

44,260 CR

 

Jun

28

Purchase return to Brennan Imports Group

GJ

944

 

43,316 CR

 

Jun

30

Total from purchases journal

PJ

 

22,112

65,428 CR

 

Jun

30

Total from cash payments journal

CPJ

18,691

 

46,737 CR

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-403.InterestRevenue_bankRec)

Account: Interest Revenue 
Account No. 403

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

0

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-571.InterestExpense_bankRec)

Account: Interest Expense 
Account No. 571

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

0

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

(Q=825-572.BankCharges_bankRec)

Account: Admin. Expense – Bank Charges 
Account No. 572

Date

Description

Ref.

Debit

Credit

Balance

 

May

31

Balance

 

 

 

0

 

Jun

30

 

Jun

30

 

Jun

30

 

Jun

30

Balance

 

 

 

 

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