Case brief
Your brief
Northstar Trading Co. imports and distributes commercial espresso machines and grinders to cafés and roasters. It has a small warehouse, four employees and a 60,000 bank loan used to finance its stock.
You joined on 1 March as the company's accountant. February's books were closed by your predecessor, and the opening balances below come from the February post-closing trial balance.
Your job is to record March, reconcile the bank account, post the month-end adjustments the finance manager has listed, and prepare March's financial statements.
What you'll practise
- Record a month of transactions from source documents.
- Use a perpetual inventory system for sales, returns and shrinkage.
- Reconcile the bank statement and record bank-only items.
- Post accruals, deferrals and depreciation.
- Prepare statements from your own ledger and explain the results.
Accounting policies
- Revenue
- Revenue is recognised when goods are delivered to the customer. Deposits received before delivery are customer deposits (a liability).
- Inventory
- Perpetual system at cost. The cost of each delivery is shown on the dispatch note attached to the sales invoice. Goods returned in saleable condition go back into inventory at cost. Count differences are charged to cost of sales.
- Returns
- Sales returns are recorded in Sales returns and allowances, not deducted from Sales revenue, so management can monitor them.
- Equipment
- Items costing 1,000 or more with a useful life over one year are capitalised. Depreciation is straight-line, starting the month after purchase — a house convention for simplicity (IAS 16 starts depreciation when an asset is available for use; the difference is immaterial here).
- Simplifications
- Sales tax, VAT and payroll taxes are left out of this case so you can focus on the accounting cycle. They are covered in the tax track.
People
- Leila Haddad — Finance manager — your manager
- Tomás Reyes — Warehouse and dispatch
- Café Altura, Harbor Street Café, Brightside Roasters — Customers
- Meridian Machines — Main supplier
Opening balances, 1 Mar 2026
| Date | Account | Debit | Credit |
|---|---|---|---|
| 1000Cash at bank | 48,600.00 | ||
| 1100Accounts receivable | 18,400.00 | ||
| 1200Inventory | 36,500.00 | ||
| 1300Prepaid insurance | 3,300.00 | ||
| 1500Equipment | 42,000.00 | ||
| 1510Accumulated depreciation — equipment | 6,300.00 | ||
| 2000Accounts payable | 14,800.00 | ||
| 2200Customer deposits (unearned revenue) | 2,500.00 | ||
| 2500Bank loan | 60,000.00 | ||
| 3000Share capital | 50,000.00 | ||
| 3100Retained earnings | 15,200.00 | ||
| Opening balances brought forward | |||
Chart of accounts
| Code | Account | Type | Normal |
|---|---|---|---|
| 1000 | Cash at bank | Current asset | debit |
| 1100 | Accounts receivableAmounts customers owe on 30-day terms. | Current asset | debit |
| 1200 | InventoryMachines and grinders held for sale, at cost (perpetual system). | Current asset | debit |
| 1300 | Prepaid insurance | Current asset | debit |
| 1500 | EquipmentRacking, forklift, computers. | Non-current asset | debit |
| 1510 | Accumulated depreciation — equipment | Contra asset (non-current) | credit |
| 2000 | Accounts payableAmounts owed to suppliers. | Current liability | credit |
| 2100 | Accrued expensesCosts incurred, not yet invoiced. | Current liability | credit |
| 2110 | Salaries payable | Current liability | credit |
| 2120 | Interest payable | Current liability | credit |
| 2200 | Customer deposits (unearned revenue)Cash received for goods not yet delivered. | Current liability | credit |
| 2300 | Dividends payable | Current liability | credit |
| 2500 | Bank loanRepayable in full in 2029; interest 6% a year, paid quarterly. | Non-current liability | credit |
| 3000 | Share capital | Share capital | credit |
| 3100 | Retained earnings | Retained earnings | credit |
| 3200 | Dividends declared | Dividends / drawings | debit |
| 4000 | Sales revenue | Revenue | credit |
| 4200 | Sales returns and allowances | Contra revenue | debit |
| 4900 | Interest income | Other income | credit |
| 5000 | Cost of sales | Cost of sales | debit |
| 6000 | Salaries and wages | Operating expense | debit |
| 6100 | Rent expense | Operating expense | debit |
| 6200 | Insurance expense | Operating expense | debit |
| 6300 | Utilities expense | Operating expense | debit |
| 6400 | Office supplies expense | Operating expense | debit |
| 6500 | Depreciation expense | Operating expense | debit |
| 6600 | Advertising expense | Operating expense | debit |
| 6800 | Repairs and maintenance | Operating expense | debit |
| 7000 | Interest expense | Finance cost | debit |
| 7100 | Bank charges | Operating expense | debit |