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Practical Accounting Assignment using XERO

Subject Title
Accounting for Management Decisions
Subject Code
ACC601
Assessment
Practical Accounting Assignment using XERO


ACCOUNTING FOR MANAGEMENT DECISIONS – ACC601

Individual Assignment – Date due: End of Week 6 Using Accounting Software

This case study is designed to introduce you to using double entry computer accounting software for a small business. It covers many of the common business transactions including those which have covered in class. This assignment will also include Goods and Services Tax (GST) calculations as this is embedded in the accounting software, but is not examined.

This assignment is not meant to be a data entry exercise, but you are required to carefully record each transaction, understand how the software records these transactions in both the general and subsidiary ledgers and create reports and then analyse and understand these reports.

Accountants were one of the first professions to use accounting software. XERO is a relatively new and now widely used software as it has a number of innovative features, such as: -

  • The software application is in the ‘cloud’ so it can be accessed anywhere in the world on any connected device and there is no software to load onto computers;
  • The software is updated regularly by Xero, so no updating required by users;
  • The software links to other applications easily such as bank accounts – bank transactions are uploaded automatically when the user logs into the application;
  • Written in user friendly language rather than being for ‘accountants’.

The Manly Surf and Wellness Shop Pty Limited

The Manly Surf and Wellness Shop is a store located in Manly, overlooking Manly Beach focusing on the surfing market, providing surfing and yoga lessons

as well as equipment and clothing and other merchandise sales.

Equipment is sold to the general public as well as in bulk to sporting clubs and schools. Surfing and yoga lessons are usually held in groups.

The store is owned by two people - Indira Jones and Simon Fitzgerald. They have been operating the store for 2 years after initially investing $50,000 each of their own money into the business. They are joint Chief Executive Officers (CEO’s) and equal shareholders.

Surfing lessons are conducted seven (7) days per week subject to the weather. These lessons are mainly catered to tourists and / or local residents wanting to learn surfing.

Yoga classes are also conducted most days from 6 am to 10 am every day and from 7 pm to 9 pm 4 days per week (Monday to Thursday).

Equipment is included in the cost of surfing lessons however it is available for hire by other customers 7 days per week from 7 am to 4 pm.

Clothing is available for sale in the shop 7 days per week as well as by bulk orders from surfing clubs and schools.

The store has operated the business using a manual accounting system since it started on 1 July 2016. Accounting is getting too complicated and time consuming for Indira and Simon and they have appointed you as their new Accountant. They have heard about Xero as an easy to use accounting system and they would like you to set up their accounts on this system and also manage the accounting from now on.

You gather the following information that will help you set up the company in XERO:

Company Information

Company name: The Manly Surf and Wellness Shop

ABN: 54 174 259 919 (This is the ABN of ICMS)

Address: 400 North Steyne, Manly NSW 2095

Phone: 9444 4444

Current Financial Year: 2018

Financial Reporting period: 1 July 2017 to 30 June 2018

Conversion Month: March Accounting Periods: Twelve

This information is necessary to create the company file in XERO

This list below can be used to create an accounts list with the account opening balances.

Trial balance as at 31 March 2018

Dr
Cr
Cash at bank
77,904.00

Petty Cash
200.00

Inventory
242,100.00

Accounts Receivable
-

Prepaid Insurance
-

Prepaid Rent
26,500.00

Motor vehicles
45,000.00

Accumulated depreciation - MV

12,000.00
Office Equipment
15,200.00

Accumulated depreciation - Office Equip'

4,560.00
GST
-

Accounts payable

0.00
Loan to NAB

40,000.00
Share capital

100,000.00
Sales Revenue - Clothing and merchandise

515,000.00
Revenue - Surf Lessons

242,000.00
Revenue - Yoga Lessons

96,000.00
Cost of Goods Sold
290,500.00

Advertising expenses
9,000.00

Accounting fees
15,460.00

Depreciation
-

Freight
4,520.00

Electricity
3,215.00

Insurance
33,500.00

Interest expense
2,250.00

Rent
15,458.33

Telephone
2,456.00

Wages
207,500.00

Motor Vehicle expenses
18,796.67


1,009,560.00
1,009,560.00

Goods and Services Tax (GST): Sales and Purchases

GST of 10% is charged on all revenue and is charged at 10% on all purchases of inventory. For all business expenses other than bank charges, wages and superannuation, the business pays GST of 10%.

All in-store sales are either EFTPOS, Credit Card or Cash. Cash is banked every day as there is an express Virtual Bank facility located next door to the store which is operated 24 hours per day, 7 days per week. This policy of banking all takings each day is implemented for security reasons so as no money is left in the store overnight. This means that all income received from in-store sales can be entered into Xero’s bank account immediately after each transaction.

Class price List as at 31 March 2018

Per person per session
Price charged per hour including GST
Session running time
Surf class
Adults $70, Children
$60
1 hour
Surf Class – group of 8 (Schools)
$400
1 hour
Yoga Class
$20
1 hour

Ensure that these items are set up as inventory items.

The above prices include GST. All classes revenue is strictly cash based, where customers pay before the service is performed.

Supplier details

Name
Address
Supplier Terms
Account Balance
Keyo Surfboards
Unit 12/301 Mitchell Road, Brookvale NSW 2100
ABN: 65 567 763 555
Net 30
Nil
Surf Warehouse
5/11 Park Place, Mona Vale NSW 2103
ABN: 45 544 555 888
Net 30
Nil
Quicksilver Wholesale
Shop 28
The Strand Shopping Centre 72-80 Marine Parade
Coolangatta QLD 4225
ABN: 87 987 555 232
Net 30
Nil
Nerdvana Store
27 Mystery Beach Road, Byron Bay NSW 2481
ABN 45 987 256 321
Net 30
Nil


There were no amounts owing as at 31 March 2018.


The following is a list of inventories on hand and the suppliers as at 31 March 2018.


Item Code


Description

Quantity on hand

Cost price $
Total Inventory
$

Sale Price $


Supplier

1524

Short Boards

146

500

73,000

1,000

Keyo Surfboards

1525

Long Boards

175

700

122,500

1,400

Keyo Surfboards

1526

Women’s Tops

135

30

4,050

60
Surf Warehouse

1527
Women’s pants and shorts

140

40

5,600

80
Surf Warehouse

1528
Women’s' Swimwear

302

50

15,100

100
Quicksilver Wholesale

1529

Men’s Tops

110

35

3,850

70
Surf Warehouse

1530
Men’s pants and shorts

100

45

4,500

90
Surf Warehouse

1531

Men’s' Swimwear

220

45

9,900

90
Quicksilver Wholesale

1532
Yoga
merchandise

90

40

3,600

80
Nerdvana Store



Total
242,100

Answer

During the month of April 2018, the Company has recorded a Total Income of $216, 765 and Cost of Sales amounted to $ 94,705. Hence, a Gross Profit of $122,060 was generated which represents a gross margin of 56%. The main expenses consist of Renovations of buildings which was carried out on 23rd of April 2018, a dividend of $20,000 which has been declared and monthly rental fees of $4116.67. Total Expenses for the month of April 2018 amounted to $41,131.54 and a Net Income of $80,928.46 was generated. The Net Margin amounted to 37% for the month of April 2018. 

The Statement of Financial Position as at 30 April 2018, shows a positive net worth of the business of $431, 272.46. The business has a solid liquidity position with a closing bank balance of $265,354.36. The current ration stands at 6.7, which implies that the business can easily repay its short-term obligations. Total assets amounted to $545,466.82 while the total liabilities amounted to $114.194.36. The company is not heavily geared as the only long-term liability is the loan from NAB amounted to $40,000. Retained Profits has increased to $331,272.46 and the capital has remained at $100,000. 

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