Journal Entry Help
GST rate 15%
MMT Ltd. completed the following transactions and events in the first month of its operation.
June 2018
1 Sole shareholder (Jason) invested $65,000 cash.
1 Jason contributed a computer, fair value, $1,495 GST inclusive.
1 Paid rent for June and July, $2,500 plus GST (Chq. # 101).
1 Purchased furniture on account from Andrew’s Furniture Ltd, $3,000 plus GST.
1 Paid insurance for 1 year, $1,380 GST inclusive (Chq. # 102).
1 MMT Ltd took out a loan of $10,000 from the Kiwibank for two years. The loan is to be repaid at the end of the loan term. The interest on the loan is due monthly at the end of each month at a rate of 5% p.a., but paid on the first day of the following month. The interest is calculated on a monthly basis but not compounded.
4 Purchased office supplies for cash $150 plus GST (Chq. # 103).
5 Bought 150 jerseys on account at $75 each plus GST from Jennings Sports Supplies; terms 5/10, n/30.
6 Returned 4 torn jerseys purchased on 5 June and received a credit note from Jennings Sports Supplies.
8 Sold 25 jerseys on account at $150 each plus GST to League World (invoice #001); terms 2/7, n/30.
11 League World returned 3 unwanted jerseys from the sale on 8 June. Jason issued a credit note to League World. The jerseys returned were not defective, therefore returned to inventory.
14 Received payment from League World in settlement of its account.
14 Paid the amount owed to Jennings Sports Supplies (Chq. # 104).
19 Sold 28 jerseys at $150 each plus GST for cash.
22 Sold 20 jerseys on account at $150 each plus GST to The Warehouse (invoice #002); terms 2/7, n/30.
28 Paid salaries (1-28 June), gross $2,500, PAYE $350 (Chq. #105). PAYE is payable on the 10th July. MMT Ltd has a working week of 5 days (Monday – Friday inclusive).
Are you in Massey? I guess nobody will answer your question.
To record the transactions and events in journal entries for MMT Ltd. for the first month of its operation in June 2018, you will need to follow these steps:
1. Determine the accounts affected by each transaction/event.
2. Identify the type of account (asset, liability, equity, revenue, or expense).
3. Apply the rules of debit and credit to record the increase or decrease in each account.
4. Determine the amounts for each entry.
5. Write the journal entry with appropriate narration.
Here are the journal entries for the given transactions:
1. Sole shareholder (Jason) invested $65,000 cash:
Debit: Cash $65,000
Credit: Share Capital $65,000 (equity account)
1. Jason contributed a computer, fair value $1,495 GST inclusive:
Debit: Computer Equipment $1,300 (fair value excluding GST)
Debit: GST Input Tax Credits $195 (GST portion)
Credit: Share Capital $1,495 (equity account)
1. Paid rent for June and July, $2,500 plus GST (Chq. # 101):
Debit: Rent Expense $2,500
Credit: Cash $2,875 ($2,500 + GST of $375)
1. Purchased furniture on account from Andrew’s Furniture Ltd, $3,000 plus GST:
Debit: Furniture $3,450 ($3,000 + GST of $450)
Credit: Accounts Payable $3,450
1. Paid insurance for 1 year, $1,380 GST inclusive (Chq. # 102):
Debit: Prepaid Insurance $1,200 (insurance cost excluding GST)
Debit: GST Input Tax Credits $180 (GST portion)
Credit: Cash $1,380
1. MMT Ltd took out a loan of $10,000 from Kiwibank for two years:
Debit: Cash $10,000
Credit: Loans Payable $10,000 (long-term liability)
4. Purchased office supplies for cash $150 plus GST (Chq. # 103):
Debit: Office Supplies $130 (cost of supplies excluding GST)
Debit: GST Input Tax Credits $20 (GST portion)
Credit: Cash $150
5. Bought 150 jerseys on account at $75 each plus GST from Jennings Sports Supplies; terms 5/10, n/30:
Debit: Inventory $9,000 ($75 * 150)
Debit: GST Input Tax Credits $1,350 (GST portion)
Credit: Accounts Payable $10,350
6. Returned 4 torn jerseys purchased on 5 June and received a credit note from Jennings Sports Supplies:
Debit: Accounts Payable $300 ($75 * 4)
Credit: Inventory $300
8. Sold 25 jerseys on account at $150 each plus GST to League World (invoice #001); terms 2/7, n/30:
Debit: Accounts Receivable $4,125 ($150 * 25)
Credit: Sales Revenue $4,125
Debit: GST Output Tax $618.75 (GST portion)
Credit: Sales Revenue $618.75
11. League World returned 3 unwanted jerseys from the sale on 8 June:
Debit: Sales Returns and Allowances $450 ($150 * 3)
Credit: Accounts Receivable $450
Debit: Inventory $270 ($90 * 3)
Credit: Cost of Goods Sold $270
14. Received payment from League World in settlement of its account:
Debit: Cash $3,674.25 ($4,125 - $450)
Credit: Accounts Receivable $3,674.25
14. Paid the amount owed to Jennings Sports Supplies (Chq. # 104):
Debit: Accounts Payable $10,050 ($10,350 - $300)
Credit: Cash $10,050
19. Sold 28 jerseys at $150 each plus GST for cash:
Debit: Cash $5,670 ($150 * 28)
Credit: Sales Revenue $5,670
Debit: GST Output Tax $850.50 (GST portion)
Credit: Sales Revenue $850.50
22. Sold 20 jerseys on account at $150 each plus GST to The Warehouse (invoice #002); terms 2/7, n/30:
Debit: Accounts Receivable $3,210 ($150 * 20)
Credit: Sales Revenue $3,210
Debit: GST Output Tax $481.50 (GST portion)
Credit: Sales Revenue $481.50
28. Paid salaries (1-28 June), gross $2,500, PAYE $350 (Chq. #105):
Debit: Salary Expense $2,500
Debit: PAYE Payable $350 (Income tax withholdings)
Credit: Cash $2,150 ($2,500 - $350)
These journal entries record the transactions and events for the first month of MMT Ltd.'s operation. Remember to cross-check your entries and consult with an accountant or financial professional if you have any doubts or specific accounting requirements.