Ballmart Analyse of Accounting Policy

Background

Assume it is currently 1 June 2012.

You are working for the temporary accounting employment agency known as Accountemp. Today you have been asked to work at Ball-Mart, a small general sports store that operates in inner city Sydney and is owned by Peter Michelson. Your task here is to complete the accounting cycle for Ball-Mart for the month of June 2012. To assist you in this task, Peter 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 Ball-Mart.

Accounting policies

a. Business operations: Ball-Mart is set up as a private non-listed company based in Sydney with Peter Michelson as the sole shareholder. The company derives its main source of revenue from retail sales of sporting goods.

To assist in selling the products, Ball-Mart rents a large showroom. 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 showroom. Additional expenses include an insurance policy to protect the business against inventory items being damaged or lost during deliveries.

All costs associated with the showroom are classified as selling and distribution expenses.

All part-time employees in the business are sales staff who receive their wages every two weeks. Peter is the only full-time employee and his role is to handle all administrative tasks. Peter's salary is paid once at the end of each month.

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 and early payment discounts from some suppliers.

d. Purchase returns: To allow Peter to separately track and analyse the value of goods returned to suppliers, all purchase returns are recorded in the Purchase Returns and Allowances account rather than directly in the Purchases account.

e. Revenue recognition: The business recognises 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 settlement