ASSIGNMENT ON ACCOUNTING FOR BUSINESS DECISIONS

ASSIGNMENT ON ACCOUNTING FOR BUSINESS DECISIONS

1. Introduction

Big business industries make thousands; millions of transactions in a working day thus remembering the details of cash inflows and outflows is not possible. Therefore, financial accounting involves monitoring financial information and helps management to make effective decisions. Hence, it is necessary to maintain financial accounts by a company on a regular basis in order to avoid the risk of misplacing transaction related information. The annual report of the company is the final result of regular financial transactions which helps investors and shareholders to make investment programs. Financial accounting also helps to understand the status of a company in the high competition as well hence, board members and owners utilize financial information to make comparisons of data. This study has been conducted based on the journal, ledger, trial balance, income statement and balance sheet and based on proper calculation financial knowledge can be extended.

2. Week 1

Accounting is the process of measurement through which financial transactions are recorded and based on the record profit loss or increase and decrease in the financial elements are observed. As per the view of Schroeder, Clark &Cathey (2019), it can be said that numbers and currencies are the main keys to financial accounting and an accountant required to monitor the flows of numbers in order to record in accounting statements. As per the view of Vollmer (2019), recording of financial information is the beginning of accounting work as it also extends to summarizing and analyzing as well. It can be seen that in an organization several types of transactions occur on a daily basis but there are several differences in the types of expenses and incomes. As per the view of Johnson (2019), an accountant needs to identify the nature of income or expenses and based on the classification logical entries are being made. Based on the net income a company requires paying income tax to the government thus it is necessary to prepare the accounting statement in an ethical manner. As per the view of Ma (2019), accountants are required to maintain the laws specified by GAAP while maintaining accounts of a company or individuals.

It is observable that in a day several types of raw materials and tools are being purchased by ongoing concerns but presenting the whole details in the time of making strategic decisions is troublesome. As per the view of Dutta&Patatoukas (2017), shorting the information is also essential in accounting, so accounting work is not limited to recording entries as it has a widespread role in the world of financial transactions. Based on the shorting process an organization is able to predict net worth and ranking in the competitive market, so accounting is the tool of measurement which helps to manage financial information.

3. Week 2

Safety Hire
Income Statement
For the year ending 30th June 2019
Revenue :- 
Equipment hire income  170,000.00
Cost of revenue :- 
Wages    75,000.00
Gross profit      95,000.00
   
Operating Expenses :-
Advertisement Expenses    30,000.00
Electricity Expenses    18,000.00
Telephone Expenses      7,500.00
Total Operating Expenses     55,500.00
Net Profit     39,500.00

Table 1: Income Statement

(Source: Created by learner)

 

Analysis of income statement:  Safety Hire Company had maintained financial information in the year 2019 in order to understand the profit earned by the company in a financial year. As per the view of Zhou (2019), it can be said that the necessity of preparing an income statement is to identify expenses and incomes and finally results in the form of net income or a net loss.

Based on the calculation it can be seen that the Safety Hire had incomes from lending equipment on hire. The company was able to generate a total of $170,000 during the year 2019 based on the unique business process. It is observable that a company can divide the total industrial expenses into two different sectors one is direct expenses and another is indirect expenses. Similarly, the Safety Hire Company also has direct expenses regarding wages that are related to revenue and the amount the company spends in 2019 for wages was $75,000. The main purpose of preparing a profit and loss account in the form of a statement is to provide detailed information about the gross profit and operating profit. The process of calculating gross profit is to subtract the total cost of revenue from the net revenue earned by the organization within a specific period of time. Hence, based on the calculator it has been founded that the gross profit earned by the Safety Hire in 2019 was (170,000 – 75,000) = $95,000.

A company required bearing several other expenses that are not directly linked to production but it has a huge role in the operation of providing the final product or service (Osho&Adebambo, 2018). Therefore, the Safety Hire Company had expenditure on an advertisement sum of $30,000 and the expense is necessary to enhance the number of customers. The office requires electricity to maintain the lighting and other necessary equipment to run so, total expenses regarding electricity in 2019 was $18,000. Apart from that, it can be seen that the company has other office expenses regarding telephone bills and in 2019 the company paid $7,500. Hence, total operating expenses during the year were $55,500 and it has been subtracted from gross profit to calculate the net profit. As per the view of Robson, Young & Power (2017), the Safety Hire Company is able to earn a total of $39,500 of net profit from the business process.

Safety Hire
Balance Sheet
For the year ending 30th June 2019
Assets  Amount Liabilities and Equity Amount
 Current Assets:  Liabilities:
Cash at bank     45,000.00Loan Payable     50,000.00
Accounts Receivable     63,000.00Accounts Payable     40,000.00
Mortgage Payable   130,000.00
 Non-Current Assets:
Land     75,000.00
Building     85,000.00 Equity:
Equipment   180,000.00Michael Donato
Opening capital (Bal. fig.)   188,500.00
Retained Earnings     39,500.00   228,000.00
   448,000.00   448,000.00

Table 2: Balance Sheet

(Source: Created by learner)

Analysis of balance sheet: Maintaining financial assets and liability details is the main requirement of preparing the balance sheet. It can be seen that there are two alternative ways to present a balance sheet such as in the form of statement and in account format. The balance sheet of the Safety Hire Company has been prepared on the basis of the account format.

It can be seen from the given information the company had two different current assets among which the cash balance is maintained by the company of $45,000. Apart from that, accounts receivable is considered the part of current assets and the company had maintained its balance at $63,000. As per the view of Osho&Ajayi (2018), the classification of current assets has been made based on the money acquired from the business and it can be seen that current assets can be converted into liquid cash within a short period of time. On the other hand, it can be seen that non-current assets need time to convert into liquid cash. Safety Hire has maintained its business in a land valued $75,000 and building valued $85,000. These two assets are considered as non-current assets as these items cannot be converted into cash easily. Apart from that, the company had equipment of total $180,000 and it also counted in the non-current assets of the organization.

Company dues have been considered as the liabilities of the safety Hire Company and it can be said that the company had maintained several types of dues in the organization. Based on the analysis the company needs to pay for a borrowing loan of $50,000. Similarly, there is a due to creditors as well of amounting $40,000 and mortgage payable by the company of a total $130,000. Hence, the total liabilities of the company at the end of the year 2019 were $220,000. Equity shareholders fund is the sector of owners invested money into the business and it can be seen that the owner of Safety Hire Mr Michael Donato has a capital of $188,500 in this business. It has been assumed that the owner did not withdraw money from the business during the year and thus the balance of retained earnings has been adjusted with the equity balance. Hence, it can be said that the total assets and liabilities for the year 2019 was $448,000 where the profit of the year has been added in the business and enhanced the net worth.

4. Week 3

a) Journal Entries
As at 31 July 2018
DateAccountsRef. Debit Credit
02.07.18Cash at Bank A/CDr.100-1 $   120,000.00
To, Nicole Andreou Capital A/CCr.300-1 $   120,000.00
02.07.18Rent Expenses A/CDr.500-1 $       1,800.00
To, Cash at Bank A/CCr.100-2 $       1,800.00
03.07.18Equipment A/CDr.103-1 $     70,000.00
To, Cash at Bank A/CCr.100-3 $     32,000.00
To, Loan Payable A/CCr.200-1 $     38,000.00
04.07.18Supplies A/CDr.102-1 $       8,400.00
To, Cash at Bank A/CCr.100-4 $       8,400.00
06.07.18Advertising Expenses A/CDr.501-1 $          890.00
To, Cash at Bank A/CCr.100-5 $          890.00
16.07.18Cash at Bank A/CDr.100-6 $       3,250.00
Accounts Receivable A/CDr.101-1 $          620.00
To, Revenue A/CCr.400-1 $       3,870.00
20.07.18Insurance Expenses A/CDr.502-1 $          480.00
To, Cash at Bank A/CCr.100-7 $          480.00
23.07.18Cash at Bank A/CDr.100-8 $          140.00
To, Accounts Receivable A/CCr.101-2 $          140.00
28.07.18Nicole Andreou Drawings A/CDr.301-1 $          560.00
To, Cash at Bank A/CCr.100-9 $          560.00
31.07.18Cash at Bank A/CDr.100-10 $       3,680.00
Accounts Receivable A/CDr.101-3 $          580.00
To, Revenue A/CCr.400-2 $       4,260.00
31.07.18Telephone Expenses A/CDr.503-1 $          330.00
To, Cash at Bank A/CCr.100-11 $          330.00

Table 3: Journal entries

(Source: Created by learner)

 

b) General ledger accounts
As at 31 July 2018
Date Accounts Ref. Debit   Credit   Balance
Cash at Bank Account
02.07.18Nicole Andreou Capital A/C100-1 $   120,000.00 $   120,000.00
02.07.18Rent Expenses A/C100-2 $       1,800.00 $   118,200.00
03.07.18Equipment A/C100-3 $     32,000.00 $     86,200.00
04.07.18Supplies A/C100-4 $       8,400.00 $     77,800.00
06.07.18Advertising Expenses A/C100-5 $          890.00 $     76,910.00
16.07.18Revenue A/C100-6 $       3,250.00 $     80,160.00
20.07.18Insurance Expenses A/C100-7 $          480.00 $     79,680.00
23.07.18Accounts Receivable A/C100-8 $          140.00 $     79,820.00
28.07.18Nicole Andreou Drawings A/C100-9 $          560.00 $     79,260.00
31.07.18Revenue A/C100-10 $       3,680.00 $     82,940.00
31.07.18Telephone Expenses A/C100-11 $          330.00 $     82,610.00
Accounts Receivable Account
16.07.18Revenue A/C101-1 $          620.00 $          620.00
23.07.18Cash at Bank A/C101-2 $          140.00 $          480.00
31.07.18Revenue A/C101-3 $          580.00 $       1,060.00
Supplies Account
04.07.18Cash at Bank A/C102-1 $       8,400.00 $       8,400.00
Equipment Account
03.07.18Cash at Bank A/C103-1 $     32,000.00 $     32,000.00
03.07.18Loan Payable A/C103-1 $     38,000.00 $     70,000.00
Loan Payable Account
03.07.18Equipment A/C200-1 $     38,000.00 $   (38,000.00)
Nicole Andreou Capital Account
02.07.18Cash at Bank A/C300-1 $   120,000.00 $ (120,000.00)
Nicole Andreou Drawings Account
28.07.18Cash at Bank A/C301-1 $          560.00 $          560.00
Revenue Account
16.07.18Cash at Bank A/C400-1 $       3,250.00 $     (3,250.00)
16.07.18Accounts Receivable A/C400-1 $          620.00 $     (3,870.00)
31.07.18Cash at Bank A/C400-2 $       3,680.00 $     (7,550.00)
31.07.18Accounts Receivable A/C400-2 $          580.00 $     (8,130.00)
Rent Expense Account
02.07.18Cash at Bank A/C500-1 $       1,800.00 $       1,800.00
Advertising Expense Account
06.07.18Cash at Bank A/C501-1 $          890.00 $          890.00
Insurance Expense Account
20.07.18Cash at Bank A/C502-1 $          480.00 $          480.00
Telephone Expense Account
31.07.18Cash at Bank A/C503-1 $          330.00 $          330.00

Table 4: General ledger Accounts

(Source: Created by learner)

 

c) Trial Balance
As at 31 July 2018
Accounts  Debit   Credit 
Cash at Bank Account      82,610.00
Accounts Receivable Account        1,060.00
Supplies Account        8,400.00
Equipment Account      70,000.00
Loan Payable Account      38,000.00
Nicole Andreou Capital Account    120,000.00
Nicole Andreou Drawings Account           560.00
Revenue Account        8,130.00
Rent Expense Account        1,800.00
Advertising Expense Account           890.00
Insurance Expense Account           480.00
Telephone Expense Account           330.00
    166,130.00    166,130.00

Table 5: Trial Balance

(Source: Created by learner)

Analysis of business: The reparation of journal entries has been conducted based on the guidance provided by GAAP. It can be seen that the company started with a capital balance of $120,000 so it has been added as the company’s bank balance and owner’s capital balance. Beauty parlor business has been started in a rented building thus on 2nd July the company bore an expense regarding the rent of $1,800 which has been adjusted from the cash balance. It has been assumed that the company maintained its incomes and expenses through bank transactions. It can be seen that on 3rd July there was a payment of $32000 regarding the purchase of equipment but Andreou had raised a loan to make remaining payments. Similarly, several other expenses such as payment to suppliers, advertisement expenses, insurance expenses and telephone expenses had occurred during the month.

Based on the journal entries several ledger accounts have been formed in running balanced format. It can be seen that the journal entries of business of Andreou have been constructed for one month and in future, these transactions will continue. As per the view of Santoso&brSebayang (2017), a running ledger format helps to observe the continuous updates of financial transactions. Journal entries are prepared based on the scenario of the transaction; on the other hand, ledger accounts help to monitor the specific accounts such as cash at bank accounts. As per the view of Osho&Moronkeji (2018), the details specified in the journal entries the preparation of ledger accounts has been done. Based on the analysis of general ledger accounts it can be seen that a total of 11 transactions have been placed with the bank account during the month of July 2018. Reference numbers are especially useful to track the details of transactions which are linked with general ledger with journal entries.

Apart from that, the ledger also helps to understand the remaining balance or total balance and based on the result trial balance has been formed in the study. It can be seen that the total balance in the cash balance at the end of July 2018 was $82,610. It also can be seen that the revenue earned by Andreou during the month was amounting of $8,130. Therefore, based on the observation of trial balance Andreou will be able to control costs and also take necessary strategic approaches in order to enhance the revenue.

5. Week 4

Journal Entries
As at 30 June
DateAccountsRef. Debit Credit
30-JunBank A/CDr. $     17,280.00
To, 8% interest on loan A/CCr. $       1,280.00
To, Loan A/CCr. $     16,000.00
(Being deducted princial and interest balance adjusted)
30-JunInsurance Expenditure A/cDr. $       1,720.00
To, Prepaid Expenses A/cCr. $       1,720.00
(660 – (660*8/12) + 2700 – (2700*16/36))
(Being prepaid expenses adjusted)
30-JunWages A/cDr. $       1,320.00
To, Outstanding wages A/cCr. $       1,320.00
(220*2*3)
(Being wages due)
30-JunHighup Hotel A/cDr. $       4,200.00
To, Accrued Income A/CCr. $       2,100.00
To, Pre Received A/CCr. $       2,100.00
(Being the amount adjusted with pe received account)
30-JunSuppliers A/cDr. $          280.00
To, Purchase A/cCr. $          280.00
(Being purchase entruy adjusted)
30-JunPurchase A/cDr. $          190.00
To, Suppliers A/cCr. $          190.00
(Being supplies received)

Table 6: Adjusted Journal Entries

(Source: Created by learner)

Analysis of adjustments journal entries: It often can be seen in several business sectors that one journal entry made by the company was wrong and needs to be rectified in order to show the original financial condition. Similarly, this part of the analysis has been constructed based on the rectification of journal entries of Drip Dry Cleaning Services. As per the view of Alayemi& Abdul-Lateef (2017), journal entries are the beginning of recording financial information, so it is necessary to rectify the journal entries in the first place.

It can be seen that the payment of borrowed money will be done in the month of August but the company adjusted the borrowed money and its interest at the end of June. Hence, the journal entry has been rectified by making a reverse journal entry to nullify the amount. It has also assumed that the company is required to pay the interest money at the end of the repayment period. Therefore, there is no need to make an entry of bank interest for the period 15 February – 30 June. It has been found that the company has made two insurance policies, one for a period of three years and another for one year. It is necessary to adjust similar other error transactions in order to maintain the essence of financial transactions.

6. Week 5

ELLIOT PAINTING SERVICES
Worksheet (Partial)
for the year ended 30 June 2019
Account Adjusted trial balance Income statement Balance sheet
 Debit Credit Debit Credit Debit Credit
Cash at Bank      1,230      1,230
Accounts Receivable    75,600    75,600
Prepaid Rent      1,800      1,800
Office Supplies      8,320      8,320
Equipment  160,000  160,000
Accum. Depr. Equip’t    25,000    25,000
Accounts Payable    54,000    54,000
Salaries Payable      8,760      8,760
Unearned Revenue      3,430      3,430
F. Elliot, Capital  101,500  101,500
F. Elliot, Drawings    22,000    22,000
Painting Revenue  219,650  219,650
Salaries Expense  106,000  106,000
Rent Expense      6,050      6,050
Depreciation Expense      8,040      8,040
Telephone Expense      4,020      4,020
Office Supplies Used    10,080    10,080
Sundry Expenses      9,200      9,200
TOTAL  412,340  412,340  143,390  219,650  268,950  192,690
Profit for the period    76,260           –           –    76,260
TOTAL  219,650  219,650  268,950  268,950

Table 7: WorkSheet

(Source: Created by learner)

 

ELLIOT PAINTING SERVICES
Worksheet (Partial)
Closing Entries
for the year ended 30 June 2019
Accounts Debit Credit
Painting RevenueDr.      219,650
To, Income SummaryCr.      219,650
Income SummaryDr.      143,390
To, Salaries ExpenseCr.      106,000
To, Rent ExpenseCr.          6,050
To, Depreciation ExpenseCr.          8,040
To, Telephone ExpenseCr.          4,020
To, Office Supplies UsedCr.        10,080
To, Sundry ExpensesCr.          9,200
Income SummaryDr.        76,260
To, Retained EarningsCr.        76,260
(219,650 – 143,390)

Table 8: Closing Entries 

(Source: Created by learner)

Analysis: This part of the study has been prepared based on the provided trial balance of Elliot painting service. It can be seen that the trial balance holds the financial information of a company in terms of wealth and income and expenditure. Hence, proper differentiation is necessary to separate the income statement and balance sheet statement. Therefore, this part of the study has been made by calculating the income statement and balance sheet statement in the worksheet.

7. Conclusion

Based on the study of accounting works in the business it can be concluded that it is necessary for business organizations to record financial data with the help of journal entries. Ledger helps to organize the financial data and also provides the details based on accounts. It also can be concluded that trial balance provides the view of the performance of a company thus it is also necessary to maintain by a company in order to enhance performance.

 

 

References

Schroeder, R. G., Clark, M. W., &Cathey, J. M. (2019). Financial accounting theory and analysis: text and cases. John Wiley & Sons. Retrieved from: https://www.researchgate.net/profile/Mousa_Saleh/post/I_need_information_or_references_regarding_International_Accounting_Standards_and_Financial_Reporting_Standards_IAS_IFRS_Thanks_Can_anyone_help/attachment/5c73cabd3843b0544e680a45/AS%3A730148655599617%401551092413456/download/Financial+Accounting+Theory+and+Analysis+-+Text+and+Cases+%281%29.pdf

Vollmer, H. (2019). Accounting for tacit coordination: The passing of accounts and the broader case for accounting theory. Accounting, Organizations and Society73, 15-34. Retrieved from: http://www.phdyar.ir/wp-content/uploads/2018/09/Accounting-for-tacit-coordination-The-passing-of-accounts-and-the-broader-case-for-accounting-theory.pdf

Johnson, S. (2019). Analysis of Financial Accounting Theory and Methodologies. Retrieved from: https://egrove.olemiss.edu/cgi/viewcontent.cgi?article=2101&context=hon_thesis

Ma, Y. (2019).Problems and Solutions in the Development of Management Accounting Theory in China. Retrieved from: https://webofproceedings.org/proceedings_series/ECOM/ISMEEM%202019/ISMEEM074.pdf

Dutta, S., &Patatoukas, P. N. (2017).Identifying conditional conservatism in financial accounting data: theory and evidence. The Accounting Review92(4), 191-216. Retrieved from: https://www.aaajournals.org/doi/pdf/10.2308/accr-51640

Zhou, Y. (2019). A Concept Tree of Accounting Theory:(Re) Design for the Curriculum Development. Education Sciences9(2), 111. Retrieved from: https://www.mdpi.com/2227-7102/9/2/111/pdf

Osho, A. E., &Adebambo, A. (2018).The Relevance of Accounting Theory on Business Financial Performance in Nigeria. European Scientific Journal September, 37-53. Retrieved from: https://www.academia.edu/download/57504661/3.pdf

Robson, K., Young, J., & Power, M. (2017). Themed section on financial accounting as social and organizational practice: exploring the work of financial reporting. Accounting, Organizations and Society56, 35-37. Retrieved from: http://eprints.lse.ac.uk/69822/1/Power_Themed%20section.pdf

Osho, A. E., &Ajayi, D. A. (2018).Relevance of Accounting Theory to Business Corporate Governance Performance in Nigeria. Research Journal of Finance and Accounting www.iiste. org ISSN, 2222-1697. Retrieved from: https://www.researchgate.net/profile/Augustine_Osho/publication/328060282_The_Relevance_of_Accounting_Theory_on_Business_Financial_Performance_in_Nigeria/links/5e1475654585159aa4b86e8b/The-Relevance-of-Accounting-Theory-on-Business-Financial-Performance-in-Nigeria.pdf

Santoso, M. R., &brSebayang, M. M. (2017).A glimpse of positive accounting theory (PAT). Junior Scientific Researcher3(2), 70-77. Retrieved from: https://mpra.ub.uni-muenchen.de/83665/1/MPRA_paper_83665.pdf

Osho, A. E., &Moronkeji, T. A. (2018). Usefulness of Accounting Theory and Practices on Banking Sectors in Nigeria: Empirical Evidence from Basel Accord. Research Journal of Finance and Accounting. United Kingdom. www. iiste. org ISSN, 2222-1697. Retrieved from: https://pdfs.semanticscholar.org/a119/6eb13e3233591ba463239df7918ce6407ad0.pdf

Alayemi, S. A., & Abdul-Lateef, M. O. (2017).Accounting Numbers and Management’s Financial Reporting Incentives: Evidence from Positive Accounting Theory. Noble International Journal of Economics and Financial Research2(2), 50-53. Retrieved from: https://www.researchgate.net/profile/Sunday_Alayemi2/publication/313837880_Accounting_Numbers_and_Management’s_Financial_Reporting_Incentives_Evidence_from_Positive_Accounting_Theory/links/58c99f4a92851c4b5e6c9a33/Accounting-Numbers-and-Managements-Financial-Reporting-Incentives-Evidence-from-Positive-Accounting-Theory.pdf

 

 

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