Brennan Pletsch

Simulation 3

Narrative:
You have been hired as a Junior Accountant to work for Plants from Paradise (Plants) a garden
centre in the city of Victoria, BC. Your role reports directly to Plants' Controller Miranda
Cornell. Each week you are emailed a series of tasks that are Miranda has aligned to match your
current accounting class schedule. Each week tasks are laid out for you to assist Miranda in both
operations and accounting decision making. Miranda is hoping to help you see the broader
application that accounting has on operating a business and hopes that the weekly tasks help to
identify how accounting impacts operations.
Plants from Paradise reports under ASPE, and has a December 31, 2021, year end. All work that
you are preparing is for their financial statements dated as such.

Additional Information:
This week it has been raining and Miranda was able to work over the weekend to catch up on
some overdue office work - there is another list of tasks waiting on your desk. Miranda is tied up
on a phone call with the banker about the financing issues, you decide to crack on with your list:

1) Please record the AR transaction based on the notes provide – Appendix A

2) Please adjust the provided AR aging schedule - and apply our policy– Appendix B
3) Accounts Receivable Questions – Appendix C
Appendix A: Accounts Receivable Transactions
Tasks:
1) Record Accounts Receivable journal entries – Appendix A

Background: Miranda provided you a stack of invoices and the following note:
Hint: invoices include a GST component, please include the tax amount in aggregate entry
amounts for simplicity, we will discuss GST impacts in future chapters! Please remember that
we are still using the perpetual inventory system.
1) Invoice #21-076 (cost of goods sold $1,000, plants)
2) Invoice #21-077 (cost of goods sold plants $399.98, Soil $125)
3) Invoice #21-078 (cost of goods sold $89.99, plants)
4) Invoice #21-080 (cost of goods sold $625 soil, $2,500 plants)
5) Received payment for invoice #21-076 in cash, on December 30, 2021

Relevant Accounts:
1000 Cash 3010 Sales Revenue – Soil
1010 Accounts Receivable 3020 Sales Revenue – Delivery
1015 Allowance for Doubtful 4000 Accounts Payable
Accounts
1020 Interest Receivable 5000 Cost of Goods Sold
1030 Inventory - Plants 5010 Sales Discounts Expense
1040 Inventory - Soil 5040 Bad Debt Expense
3000 Sales Revenue – Plants 5050 Salaries Expense

Journal Entry Template: note – please record each transaction separately

*Sales Revenue = Service Revenue
Date Description Accoun Debit
Entr t or
Account Name Amount
y# Numbe Credi
r t
12-15- Invoice #21- 1010 Accounts Receivable DR
1 2,049.99
21 076
3000 Sales Revenue – Plants CR 2,000
3020 Sales Revenue – Delivery CR 49.99
2 12-15- Invoice #21- 5000 Cost of Goods Sold DR
21 076 (cost of
goods sold
1,000
$1,000,
plants)

1030 Inventory - Plants CR 1,000

3 12-15- Invoice #21- 1010 Accounts Receivable DR 1,049

21 077
3010 Sales Revenue – Soil CR 250
3000 Sales Revenue – Plants CR 799

4 12-15- Invoice #21- 5000 Cost of Goods Sold DR 524.98

21 077 (cost of
goods sold
plants
$399.98, Soil
$125)

1040 Inventory - Soil CR 125

1030 Inventory - Plants CR 399.98

5 12-20- Invoice #21- 1010 Accounts Receivable DR 229.98

21 078
3000 Sales Revenue – Plants CR 179.99
3020 Sales Revenue – Delivery CR 49.99

6 12-20- Invoice #21- 5000 Cost of Goods Sold DR 89.99

21 078 (cost of
goods sold
$89.99,
plants)
 1030 Inventory - Plants CR 89.99

7 12-22- Invoice #21- 1010 Accounts Receivable DR 6,529.97

21 080
3000 Sales Revenue – Plants CR 5,179.99
3010 Sales Revenue – Soil CR 1,250
3020 Sales Revenue – Delivery CR 99.98

8 12-22- Invoice #21- 5000 Cost of Goods Sold DR 3,125

21 080 (cost of
goods sold
$625 soil,
$2,500 plants)

1030 Inventory - Plants CR 2,500

1040 Inventory - Soil CR 625

9 12-30- Received 1000 Cash DR 2,049.99

21 payment for
invoice #21-
076 in cash
1010 Accounts Receivable CR 2,049.99

Appendix B: Accounts Receivable

Tasks:
1) Please adjust the provided AR aging schedule - and apply our policy– Appendix B

Note from Miranda: Based on the above recorded transactions, please update the
previous months aged accounts receivable schedule. Then please apply the company’s
policy, which main points are noted below. Please use the provided templates.
Policy notes:
1) No individual customer will have an account balance that exceeds $10,000
2) We will write off accounts that are 120+ overdue
 3) We notify customers after 90 days that their account is not in good standing

Using the following template, please update in the blank version below:

Plants From Paradise

Aged Receivables Listing
November 30, 2021
Account # Name <30 30 - 60 60 – 90 >90 120+ Total
days days days days days Balance
150 - 100 Larry's $2,300 $2,300
Landscaping
250 - 100 Billy Jean’s $0
Ponds
350 - 100 Harry’s $1,500 $1,500
Hedges
450 - 100 Big Berry $8,750 $8,750
Corp
Total 2,300 $8,750 1,500 12,550

Plants From Paradise

Aged Receivables Listing
December 31, 2021
Account # Name <30 days 30 - 60 61 – 90 >90 120+ Total
days days days days Balance
150 - 100 Larry's $6,759.95 $2,300 $9,059.95
Landscaping
250 - 100 Billy Jean’s $1,049 $1,049
Ponds
350 - 100 Harry’s $1,500 $1,500
Hedges
450 - 100 Big Berry $8,750 $8,750
Corp
Total $7,808.95 $2,300 $8,750 $1,500 $20,358.95

Apply the policy:

1) For any account that exceeds (at any point) $10,000 please flag for my review

Accounts Receivable-Larry's Landscaping has exceeded $10,000 on Dec. 15, 2021.

2) Prepare any journal entries required for accounts that are to be written off,
please note that Plants from Paradise has an Allowance for Doubtful accounts account
balance of $2,000.
 Date Description Debit
Entry
Account Name or Amount
#
Credit
12-31- To write-off 120+ Allowance for Doubtful DR
1 $1,500
21 overdue accounts accounts
Accounts Receivable- CR
$1,500
Harry’s Hedges

3) For all accounts that are greater than 90 days, please identify them, and draft a
quick (3-4 sentence) email template that communicates for each overdue account

1. Accounts Receivable due from Harry’s Hedges amounting to $1,500.

2. Accounts Receivable due from Big Berry Cup amounting to $8,750.

Appendix C: Accounts Receivable Questions

Tasks:
1) Respond to Accounts Receivable Questions

Miranda had the following accounts Receivable questions:

1) Please define Factoring for me, is this something we should consider?

When a company sells needs cash for its operation and cannot wait to collect its receivables,
they can sell it to another entity especially banks or various financial institutions. This is
called factoring receivables.
2) What other considerations should we make beyond the cost of Factoring our
receivables?

The factoring fee

3) If we have a good working relationship with customers, should we be flexible on our
policies? Why/why not?
 We should be flexible with the policies, however, strict implementation should still be
applied because this could impact the company’s working capital that would in effect, affect
our liquidity ratio.
4) If last years accounts receivable balance was $15,000, and our current net credit
sales are projecting to be $35,000 what is our Accounts Receivable Turnover Ratio?

Solution:
a. Average accounts receivable

(15,000+20,358.95)/2= 17,679.475
b. Average Receivable Turnover Ratio

35,000/17,679.475= 1.98

5) Can you please analyze our Accounts Receivable Turnover Ratio compared to
standard benchmarks?

When a company's turnover ratio is high, it suggests it collects money more frequently. This
could indicate that the business mostly sells in cash or has a stringent collection procedure. A
smaller ratio indicates that the company is inefficient in collecting the debt, has a soft credit
policy, or has poor debtor quality.