Addam’s Coffee Shop

After a number of years as a successful barista in a famous coffee shop in Melbourne, Sarah Addam decided to quit her job and move to Sydney to open her own coffee shop. She set up the coffee shop near Coogee Beach and named the shop, Addam’s Coffee Shop. In the first month of operation, on 1st Jul 2022, the following transactions took place.

Date: 1 July 2022

1. She contributed $40,000 in cash to start the business.

2. She borrows $10,000 in cash from the local bank. This loan will have to be repaid after 2 years.

3. She purchases $10,000 worth of equipment (coffee machine, dishwasher, fridge, toaster and so on ) for use in the shop for cash.

4. She applied for a food license (this is an asset), which costs you $100 in cash. 

5. She purchases insurance at a total cost of $2,100. The policy is for 6 months from 1st July 2022 through to 31st Dec 2022.

The following transactions took place during July 2022

Date Transaction

July 1 She bought inventory(coffee beans, milk, etc.) by paying $800 in cash.

2         Rent is paid for the month of July 2022 in cash $3,000. (Hint:  Is this an expense or a prepaid rent?)

15         She bought supplies worth $600 for the shop for cash

16         She collected $10,200 in revenue by selling coffee and coffee beans. Half of the sales was in cash and the other half was on credit. 

17         She sold 10 bags of coffee beans worth $200 to Mr J Wilks for cash.

19         She wanted to promote your business, so you planned an advertising campaign costing $800. Payment has not yet been made.  

22         J Wilks (17 July) changed his mind and returned half of the coffee (5 bags for $100). Sarah paid him back in cash. 

25         She collected $16,000 in revenue by selling coffee for cash. Of this amount, $11,500 is for the coffee sold in July. $4,500 is for a big order of ground coffee that Sarah is yet to provide to the customer. 

28         She paid the chef and barista, David, $3,500 as salary for Jul 2022.

29         She withdrew $2,000 from the business to buy a computer for your son.

Required:

1. Record the transactions in the general journal of Addam’s Coffee Shop for the month of July 2022

2. Post the general journal entries to the ledger accounts.

3. Prepare the unadjusted trial balance for 31 July 2022.

4. Journalise and post the adjusting entries for the period ending 31st July 2022. 

Date Transaction

Jul 31 She received the bills for electricity $200 and telephone $50 for the month of July. This has not yet been paid.

31 Rent for July 2022 was adjusted.

31 Supplies worth $200 was on hand on Jul 31.

31 Of the $4,500 order for coffee (25 July), $2,500 worth of ground coffee has been given to the customer.

31 Depreciation for the coffee shop equipment for the month was $200.

31 Insurance expense was recorded for the month of July.

5. Prepare the Adjusted Trial Balance

6. Prepare the Income Statement for Addam’s Coffee Shop for the period ending 31 July 2022. 

7. Prepare the Changes to Equity Statement  for Addam’s Coffee Shop for the period ending 31 July 2022. 

8. Prepare the Balance Sheet for Addam’s Coffee Shop as at 31 July 2022.

9. Journalise (only) closing entries for the period ending 31st Jul 2022. 

10. Prepare a post-closing trial balance.

11. Evaluate the financial performance of Addam’s Coffee Shop using at least one profitability ratio.