MBS544 ACCOUNTING PROCESSES

SEMESTER 2, 2019

ASSIGNMENT

Instructions:

You are required to complete the assignment provided herewith. The assignment is worth 20 marks .
The assignment is to be uploaded to LMS for submission via the Assignment Portal. The assignment
will automatically go through Urkind when it is uploaded to LMS so students are advised to make
sure they reference their written work appropriately to avoid any problems with plagiarism. It is
important that students do this assignment themselves and do not collude with other students. If
you are unsure about any aspects of this assignment, please seek advice from your tutor. It is each
group’s responsibility to ensure that the final report is neatly presented, marks will be deducted for
poor presentation. You are expected to use references in your ratio report to support your analysis.

External students can choose either do this assignment with another external student or they can
complete the assignment on their own. The same requirements apply to both internal and external
students about submission of the assignment and appropriate referencing.

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Business Background

Greta’s Furniture Pty Ltd is a small retail business that has operated successfully for some
years buying and selling furniture. The structure of the business is that of a small proprietary
company with the owners being Greta and Roger Fitzgerald.
The owners work in the shop, and employ a part-time clerk/salesperson. Rita Steiner, who is
paid fortnightly, based on an hourly rate.
The business is registered with the ATO for the goods and services tax (GST), and its
Australian Business Number (ABN) is 78 303 823 798. It reports and pays amounts owing for GST
quarterly via the business activity statement (BAS). The business has elected to use the accrual basis
of accounting for both accounting and GST purposes.

Accounting policies
BAD AND DOUBTFUL DEBTS
The business uses the direct write-off method when accounting for bad bets as they only
occur infrequently.

INVENTORY
The business maintains a periodic inventory system.

PREPAYMENTS
Expenses paid in advance for their use, such as insurance, are initially recorded as assets.
Any used portion at the end of period is entered into the journal as an expense.

PROPERTY, PLANT AND EQIUPMENT

The business has adopted the ATO rates of depreciation for all depreciated assets. These
rates are based on the ATO’s estimate of useful life. The straight line method is used for the
calculation of depreciation on these assets. Amounts calculated are rounded to the nearest
dollar.

ACCOUNTING RECORDS

The business maintains the books or original entry set out below. These have been customised to
suit the operations of Greta’s Furniture.
 General journal (GJ): to record all transactions that cannot be recorded in the special
journals
NOTE: All purchase and sales returns are recorded in the general journal

 Sales journal (SJ): to record all sales of goods or services on credit, and GST collected
 Purchases journal (PJ): to record all credit purchases of goods for resale, and GST paid

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  Cash receipts journal (CRJ): to record all receipts of cash, including cash sales of goods or
services.
 Cash payments journal (CPJ): to record all payments made on the business’s cheque
account, including cash purchases of goods for resale.
 Accounts receivable and accounts payable subsidiary ledgers; separate accounts are
maintained for each customer and each supplier
 General ledger: separate accounts are maintained for income, expense, asset, liability and
equity accounts.

ACCOUNTING PROCEDURES

On a daily basis, all relevant source documents are collected and transactions recorded in the
appropriate journals. Transactions recorded in the ‘other accounts’ columns and all entries relating
to accounts or inventory items in the subsidiary ledgers are posted daily. On a monthly basis, special
journals are totalled and posted after the bank statement has been received and any missing items
have been recorded. A worksheet is then prepared from the general ledger and a monthly income
statement and balance sheet are produced, together with schedules of accounts receivable,
accounts payable and inventory. At the end of each month, adjusting and closing general journal
entries are prepared and posted to the general ledger accounts.

The chart of accounts includes the following accounts: 159 Sale of Asset, 161, Accumulated
depreciation – Warehouse, 215 Interest payable, 306 P. Greta, drawings, 350 Profit or Loss
summary, 401 Sales, 412 Sales returns and allowances, 415 Discount received, 417 Commission
revenue, 416, Gain on Sale of Asset, 510 Purchases, 512 Purchase returns and allowances, 516
Freight inwards, 627 Sales salaries expense, 711 Depreciation expense, 722 Insurance expense, 725
Discount allowed, 726 Interest expense, 727 Office salaries expense, 728 Office supplies expense,
729 Rent expense and 730 Bad debts expense.

Greta’s Furniture Pty Ltd has the following opening account balances in its general and subsidiary
ledgers on 1 December, 2019. All accounts have normal debit and credit balances.

General Ledger

NO ACCOUNT NAME 1 December OPENING BALANCE

101 Cash $ 70,785
112 Accounts Receivable 25,740
115 Commissions Receivable 77,220
120 Inventory 32,400
125 Office Supplies 1,800
127 GST Paid 6,300
130 Prepaid Insurance 3,600
157 Equipment 19,200
158 Accumulated Depreciation 8,900
160 Warehouse 120,000
201 Accounts Payable 69,300
211 GST Collected 15,795
270 Bank Loan 120,000
301 P. Greta, Capital 143,050

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 Accounts Receivable Subsidiary Ledger

CUSTOMER 1 December OPENING BALANCE

Couch City $ 2,907
Table Tops Ltd 14,850
Lowell Chairs 7,920
TOTAL 25,740

Accounts Payable Subsidiary Ledger

CREDITOR 1 December OPENING BALANCE

Lee Importers $ 17,820
Ikeah 29,700
Nordin Office Furniture 21,780
TOTAL 69,300

The following transactions occurred during December

3 – Sold inventory on credit to the furniture warehouse $6 160, invoice no. 510, and Beautiful
Homes Ltd $3 564, invoice no. 511

5 – Purchased inventory from Walden & Co. $5 940 and D. Landell $4 356

7 – Received cheques for $7 920 from Lowell Chairs and $3 960 from Table Tops Ltd. Discount
allowed was 1% respectively

8 – Paid freight on inventory purchased $356.40

9 – Sent cheques to Lee Importers for $17 820 and Nordin Office Furniture for $21 780. Discount
received 1% and 1.5% respectively

9 – Issued credit note for $594 to Beautiful Homes Ltd for inventory returned (goods were not
damaged and they were returned to inventory)

10 – Total cash sales $30 690

11 – Sold inventory on credit to Couch City for $2 574, invoice no. 512 and to Lowell chairs $1 782,
invoice no. 513

12 – Paid rent of $1 980 for December

13 – Received payment in full from the Furniture Warehouse and Beautiful Homes Ltd

15 – Withdrew $1 440 cash by P. Greta for personal use

16 – Purchased inventory form Nordin Office Furniture for $29 700 from Lee Importers for $28 116
and from Walden & Co for $2 970

17 – Paid $792 cash for office supplies

18 – Returned $396 of inventory to Lee Importers and received credit

20 – Total cash sales $34 650

21 – Sent cheque to Ikeah in payment of balance due

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21 – Received payment in full from Lowell chairs, discount allowed 10%

22 – Sold inventory on credit to the Furniture Warehouse for $3 366 invoice no. 514 and to Couch
City for $1 584 invoice no. 515

23 – Sent cheques to Nodin Office Furniture and Lee Importers in full payment

25 – Sold inventory on credit to Tale Tops Ltd for $6 930 invoice no. 516 and to Beautiful Home Ltd
for $12 078 invoice no. 517

27 – Purchased inventory from Nordin Office Furniture for $28 710 from D. Landell for $2 376 and
from Walden & Co for $5 544

28 – Paid $396 cash for office supplies

31 – Total cash sales $42 174. Paid sales salaries for $7 740 and office salaries of $4 680. Received
$77 220 commission revenue owing at the end of November 2019

Additional Information

A number of office memorandums were issued during December but these have not been recorded
in the accounting records. As the accountant, you need to record this information.

OFFICE MEMORANDUM Date: 1/12/2019

To: Rita Steiner

SUBJECT: Sale of store equipment

The c o n t r a c t t o s e l l equipment t o R u b y S a b l e s ($4,950 including GST) was signed today.
This equipment originally cost $8,400 and was written down to $6,200 at the date of sale. Ru b y S a b l e s
wi l l p a y t h e f u l l a m o u n t i n J a n u a r y 2 0 2 0 . Create and record journal entries to remove this
equipment from the books.

Signed: G r e t a F i t z g e r a l d

OFFICE MEMORANDUM Date: 28/12/2019

To: Rita Steiner

SUBJECT: Bad Debts

Couch City notified Greta via their lawyer that they are unable to pay their account of $1,584. The lawyer
advised us to write this amount off as a bad debt. Create and record journal entries to record the removal
of this bad debt.

Signed: G r e t a F i t z g e r a l d

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Required:

A) Prepare a chart of accounts for the business using the following format:

Number Account Element Current/NC

101 Cash Asset Current

B) Record the December transactions in the appropriate journal: sales, purchases, cash
receipts, cash payments and general
C) Post the journals to the general and subsidiary ledgers. New accounts should be added and
numbered in an orderly fashion as needed
D) Prepare a trial balance as at 31 December 2019 using a worksheet. Complete the worksheet
using the following additional information.
1. Office supplies at 31 December total $900
2. Insurance cover expires on 31 September 2019
3. Equipment has a useful life of 4 years
4. Commission revenue of $39 600 has accrued during December
5. The Warehouse has a useful life of 40 years and residual value of $20,160
6. Inventory at 31 December is $28 800
7. Interest is accrued on the loan at the rate of 5% pa.
E) Prepare a fully classified statement of profit or loss for December and a classified statement
of position at the end of December
F) Prepare and post the adjusting and closing entries
G) Prepare a post-closing trail balance, and determine whether the subsidiary ledgers agree
with the control accounts in the general ledger
H) You have been provided with the following information about two competitors.

Furniture Mart Furniture Bazar

Sales Revenue $ 155 834 $ 166 864
Cost of Sales 112 781 138 018
Gross Profit 43,053 28 846
Net Profit 77 305 66 900
Inventory 31 726 32 345
Current Assets 79 326 91 688
Total Assets 465 255 514 654
Current Liabilities 21 220 24 215
Total Liabilities 204 775 225 954
Total Equity 260 480 288 700

From this information and the results you have obtained for Greta’s Furniture Pty Ltd, you are
required to calculate the following ratios for the three businesses for 2019 using the table provided
(see page 7). Additionally, you are required to write a report (see page 8) to Greta on the ratios you
have calculated and your main findings. Please also include some recommendations that Greta can
implement to improve business performance.

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Ratio Analysis
Profitability
Gross Profit Margin

Net Profit Margin

Return on Equity

Liquidity
Current Ratio

Inventory Turnover in days

Solvency
Debt Ratio

RATIO Greta’s Furniture Mart Furniture Bazar

Gross profit margin

Net profit margin

Return on equity

Current ratio

Inventory turnover in
days

Debt ratio

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Ratio Report
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