Question

Retail operations and retail inventory

‘Kites Galore’ began business on 1 October 2019. The business is owned and operated by Harry Smith as a sole-trader. The business will sell kites via an online store. The business is registered for GST. The following transactions occurred during October 2019:

Date:	Details:
1 Oct	Harry Smith deposited $20,000 into the business bank account.
5 Oct	Kites Galore purchased of 50 kites on account for $2,750 ($55 per kite, including GST) from the kite manufacturer, Super Kites Ltd, on terms of 2/10, n/30.
7 Oct	Kites Galore received an invoice from Star Track Freight Ltd relating to delivery costs for the kites purchased on 5 October. The amount due is $110 (including GST), and is due on 31 October.
10 Oct	Kites Galore sent a cheque to Super Kites Ltd for purchases made on 5 October (net of the early payment discount).
11 Oct	Kites Galore sent a cheque in the mail to Star Track Freight Ltd, in relation to the invoice received on 7 October.
12 Oct	Kites Galore sold 20 kites via its online store, at $110 each (including GST). All of the customers paid by credit card or Paypal. The money was received in the business bank account by the end of the day.
25 Oct	Super Kites Ltd, the kite manufacturer, had a promotion running for 24 hours, selling kites at a discounted price of $49.50 each (including GST), with free delivery. Kites Galore purchased 100 kites from Super Kites Ltd, and paid for the purchase by EFT from the business bank account.
27 Oct	Kites Galore returned 20 of the kites purchased on 25 October as they were damaged. A refund of $990 was received in the business bank account.
29 Oct	Kites Galore sold 60 kites via its online store, at $110 each (including GST). All of the customers paid by credit card or Paypal. The money was received in the business bank account by the end of the day.
31 Oct	An amount of $99 (including GST) was direct debited from the business bank account by Telstra, for the business internet service for October.
31 Oct	Kites Galore received an invoice from Hit Radio, for radio advertising for the month of October. The total amount payable is $550 (including GST), and the invoice is due for payment on 7 November.
31 Oct	Kites Galore received an invoice from Australia Post re. postage costs for delivering kites to customers. Australia Post charges $5.50 per kite (including GST) for each kite. The total amount payable on the invoice is $440. The invoice is due for payment on 15 November.

Harry Smith doesn’t have any experience keeping inventory and accounting records. Harry has come to you for assistance, as he needs help preparing his records for October.

After meeting with Harry, he has agreed that the perpetual inventory system and the average-cost method should be used for his business. When using the average-cost method, the business will calculate a new average cost per unit after each purchase.

Required:

i. Prepare a memo to Harry, explaining what amounts need to be considered when calculating the net cost of the kites (inventory) to the business.

ii. Prepare an Excel worksheet for the kites for October, using the average-cost method to keep track of the number of kites purchased, kites sold, kites on hand, cost of goods sold and gross profit made.

iii. Prepare journal entries in Excel (including any adjusting entries) for all of the business’s transactions for October (using the perpetual inventory system and average-cost method). Include dates, references and narrations.

iv. Prepare T-accounts in an Excel spreadsheet, and post all of the above journal entries to the T-accounts. Include dates and references for each entry. Total all of the T-accounts to determine their balances at the end of October 2019.

v. Prepare the ‘Adjusted Trial Balance’ in an Excel spreadsheet as at 31^st October 2019. Use formulas to generate all of the figures in the ‘Adjusted Trial Balance’ from the balances in the T-Accounts.

vi. Prepare the income statement, balance sheet, and statement of changes in equity in Excel. Use formulas to generate all of the figures in the financial statement reports from the ‘Adjusted Trial Balance’.

vii. Calculate the business’s gross profit percentage and current ratio, and explain what these ratios tell us. Also explain why these ratios should be carefully monitored by Harry Smith.

Please also refer to the 'Requirements' section below for additional submission and spreadsheet requirements.

Answer 1

ii) AwN- ou 5 Date Particulars 7 05-10-2019 Purchases 8 12-10-2019 Sales 9 25-10-2019 Purchases 10 25-10-2019 PurchasesReturn 11 27-10-2019 Sales Opening Balance Purchases Balance Cost Of Goods Sold Gross Profit NO Of Units Amount NO Of Units Amount NO Of Units Amount NO Of Units Amount 0 50 2750 50 2750 50 2750 0 2200 30 1650 1100 1100 30 1650 100 0 130 6673.33 130 6673.33 -20 -990 ol 110 5677.69 1032.31 -42.31 110 5677.69 0 0 60 6600 50 2580.77 3096.92 3503.08 4950 8108

Journal Entries Amt In $ LF No Debit Credit 5 Date Particulars - 20,000.00 01-10-2019 Bank A/C To Capital Being Cash Deposited in bank Account 20,000.00 2,750.00 N 1 05-10-2019 Purchases To Purchase Discount To Super Kites Being Kites Purchased from Super Kites and in terms of 2/10, n/30 55.00 2,695.00 w u 110.00 v 6 07-10-2019 Transportaion Expenses To Star Kites Being Invoice Received From Star kites for transportation Expenses 110.00 co o 0 2,695.00 10-10-2019 Super Kites To Bank Being Amount paid to Super Kites 2,695.00 N w 110.00 11-10-2019 Star Kites To Bank Being Amount paid to Star Kites 110.00 2,200.00 12-10-2019 Bank To Sales Being sales Made and amount Received to bank Account 2,200.00 4,950.00 2 25-10-2019 Purchases To Bank Ac Being 100 Kites Purchased 4,950.00 Uw 990.00 v 6 27-10-2019 Bank To Purchase Return Being 20 kites Returned 990.00 co o

990.00 5 27-10-2019 Bank To Purchase Return Being 20 kites Returned 7 990.00 6,600.00 29-10-2019 Bank TO Sales Being 60 Kites Sold and Amount Received in Bank Account 6,600.00 B 99.00 4 31-10-2019 Internet Chaeges To Bank Being Internet charges Debited From Bank Account 5 99.00 7 550.00 3 31-10-2019 Advertisemnt To Hit Radio Being Advertisment Charges Payable 2 550.00 440.00 m 2 31-10-2019 Postage To Australia Post Being Postage Expenses Payable 440.00

N Trial Balance Particulars Debit Credit in 990 20000 21936 8800 6710 6 Sundry Creditors 7 Capital 8 Bank 9 Sales 10 Purchases 11 Discount Received 12 Advertisment 13 Postage 14 Internet 15 Transportation 550 440 99 110 29845 29845 >

Balance Sheet Amount Amount Assets 20000 Inventory 3526.77 23526.77 Bank Amount Amount 2580.77 21936 2 Liabilities 3 Capital 4 Add Profit 5 Creditors 6 Hot Ratio 7 Austraila Post 550 440 990 24516.77 24516.77 10 Amount Amount 8800 Income Statement 11 Expenditure Amount Amount Revenue 12 Purchases 6710 Sales 13 Advertisment 550 Discount Received 14 Internet 99 Closing Stick 15 Postage 440 16 Transport 110 17 Profit 3526.77 18 11435.77 2580.77 11435.77 22 Net Profit Profit/Sales 40.0769 24 25 Current Ratio Current Assets: Current Liabilities 24.76:1