How could Xero help Hilary make better decisions and manage her business better?

How could Xero help Hilary make better decisions and manage her business better?

Question 1

HilaryJohnson owns and manages a needlework and craft shop called Craftworks.The majority of the revenue is from the sale of craft kits. The shop has a large number of small sewing materials and supplies. Hilary also employees casual staff who provide lessons to small groups. Students pay for these lessons in cash at the time the lessons are conducted. Most of the income of the business is from the cash sale of craft and sewing materials although there are a small number of customers who purchase materials and craft supplies on credit. As Hilary’s shop relies on a large number of suppliers of small amounts of different craft materials, she has difficulty keeping track of all her accounts payable.

Hilary is considering implementing Xero as she has been doing a computer course and feels that it could help her to be more organised.

Required:

1. What source documents would be required in order to record the sales to customers and receipt of cash, and to ensure correct payment of money to suppliers? (100 words)

(4marks)

1. How could Xero help Hilary make better decisions and manage her business better?

(350 words)

(10 marks)

(Total: 4 + 10 = 14 marks)

Question 2

Part A

The financial year for Crystal Catering Services ends on 30 June. After analysing the accounting records and other data for the business of Crystal Catering Services, the following information is made available for the year ended 30 June 2020.

• Crystal Catering Services sub-lets space in its building of $2,400 (excluding GST) per month. Crystal Catering Services has not received the rent for June 2020.
• Crystal Catering Services borrowed $15,000 from Metro Bank on 2 February 2020. The principal, plus 5% pa interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.
• The sales assistant earns $130 per day. She will be paid on 3 July for the 5-day period ending 3 July 2020.Accrued wages for sales assistant on 30 June has not been recorded.
• On 18May, Crystal Catering Services received an advance from a customer for services totalling $890 (plus GST). This was recorded in the unearned cleaning revenue.The services were provided on 26 June 2020.
• Crystal Catering Services purchased a 6-month insurance policy for $1,200 (plus GST) on 1 May 2020. The purchase of this was recorded by debiting Prepaid Insurance.
• Repairs to Crystal Jone’s, the owner of Crystal Catering Services, private motor vehicle of $620 was debited to the Vehicles expense account.

Required:

Using the information above, make the necessary adjusting entries for Crystal Catering Services for the year ended 30 June 2020.

(2 + 3 + 2 + 2 + 2 + 2 = 13 marks)

Part B

Compare and contrast the purposes of adjusting entries, closing entries and reversing entries. (300 words)

(6 marks)

(total: 13 + 6 = 19 marks)

Question 3

The owner of Harry’sGarden Supplies has completed a bank reconciliation and cannot get the bank’s records to agree with the cash records of his business. He concludes that internal control has somehow failed and cash is being misappropriated. He asks you to check the records and confirm or otherwise his suspicions. He supplies the reconciliation statement at the end of last month, his cash records, and the most recent bank statement.

Last month’s reconciliation statement is presented below.

The total of the cash receipts journal for June is $64,776.30 and the total of the cash payments journal is $63,265.60. The current bank statement shows that cheques presented and paid amount to $59,725.10, and total deposits amount to $64,780.60. There are also additional debits on the statement for a dishonoured cheque for $210, and account fees for $20.

An examination of the records reveals that all reconciling items at 31 May 2020 appear in the bank statement for June, unpresented cheques at 30 June total $7,154.40, and the 30 June deposit of $1,950.40 has not been credited by the bank. Your check of the cash journals reveals that addition errors have been made by the clerks responsible. Receipts should total $65,766.30 and payments should total $63,185.60.

Required:

2020. Recalculate and present the general ledger Cash at Bank account balance as it should be at 30 June 2020.

(7 marks)

2020. Prepare the bank reconciliation statement at 30 June 2020.

(8 marks)

1. Advise the owner of Harry’s Garden Supplies whether cash is being misappropriated, assuming that the records maintained by the bank are accurate. (150 words)

(5 marks)

1. ‘Although the process of bank reconciliation provides a measure of control over cash in a business entity, bank reconciliation is useless unless it operates within a framework that incorporates essential elements of a good internal control system.’ Discuss this statement.

(150 words)

(5 marks)

(Total marks: 7 + 8 + 5 + 5 = 25marks)

Question 4

2020. Andrews, an account receivable, had his account of $4,400 written off as a bad debt by AD Constructions. A cheque for $4,400 was received in the post to AD Constructions from H. Andrews on 2 June 2020. The assistant account recorded the receipt of the payment in the general journal as follows:

The assistant accountant asserted that there were more complicated ways of handling the recovery of bad debts, but his method is simple and direct.  Do you agree? Provide a reason for your decision.

(5 marks)

Question 5

Alto Imports ending inventory was assigned a cost of $14,600 as a result of a physical stock-take on 30 June 2020.

A review of the company’s records revealed the following information:

• Alto Imports had recorded a $2,900 invoice (excluding GST) from a supplier for goods shipped ExW on 26 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Importsby 30 June.
• Alto Imports had recorded a $1,900 invoice (excluding GST) from a supplier for goods shipped DPP on 28 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Imports by 30 June.
• Alto Imports had goods valued at $3,600 (excluding GST) out on consignment on 30 June 2020 that were included in the physical inventory count.

Required:

1. For each of the above, determine the effects on Alto Imports 30 June inventory account balances.

(6 marks)

1. What is correct value of inventory on hand at 30 June 2020?

(1 marks)

(Total: 6 + 1 = 7 marks)

Question 6

ASL Woollen Mills purchased a weaving machine on 2 July 2018 with a list price of $156,090. Additional costs associated with the purchase of the machine included freight $5,610, insurance in transit $737.  An additional $2,530 was paid to repair damage caused during installation of the weaving machine.  ASL Woollen Mills also signed a 12-month maintenance agreement for $3,300 which was paid in cash.All costs are shown as GST inclusive.

ASL paid $60,000 cash and obtaining a 5-year loan for the balance of the acquisition cost of the weaving machine.

The effective useful life of the weaving machine is expected to be 8 years with a residual value of $15.000

ASL Woollen Mills is registered for GST and has a financial year ending 30 June.

On 30 June 2020ASL Woollen Mills replaced a major part of the weaving machine costing $15, 400 (GST inclusive).  The carrying value of the part replaced was $8,250.  It is estimated that the effective life of the weaving machine will be extended by 4 years.

Required:

Prepare general journal entries to record the following (Narrations are not required):

2018. Purchase of the printing machine on 2 February 2018.

(9 marks)

2019. Depreciation of the weaving machine for the year ending 30 June 2019.

(2 marks)

1. Overhaul of the weaving machine on 30 June 2020

(7 marks)

2020. Sale of the weaving machine on 30 December 2020.

(12 marks)

(total: 9 + 2 + 7 + 12 = 30 marks)