Accounting Fundamentals

This assignment comprises of the business transactions that have been entered into by Stanlee who is a sole proprietor of his business. This report records all of the business transactions in the form of journal entries, lists down the various accounts as current and non-current assets etc. further, this report also draws various T accounts and also, draw financial statements.

ACCOUNTING FUNDAMENTALS 1
ACCOUNTING
FUNDAMENTALS

ACCOUNTING FUNDAMENTALS 2
Contents
Introduction:.............................................................................................................................3
Financial statements:..................................................................................................................4
Financial Report:......................................................................................................................27
Alternative methods of depreciation:...................................................................................32
Alternative methods of inventory:........................................................................................32
Internal control mechanisms:...............................................................................................33
Conclusion:.............................................................................................................................33
References:..............................................................................................................................34

ACCOUNTING FUNDAMENTALS 3
Introduction:
This assignment comprises of the business transactions that have been entered into by Stanlee
who is a sole proprietor of his business. This report records all of the business transactions in
the form of journal entries, lists down the various accounts as current and non-current assets
etc. further, this report also draws various T accounts and also, draw financial statements.
Then the respective actions that could be undertaken for the purposes of improving the
business of the company have been listed down. The report also lists down the various
method of depreciation that could be used along with its own set of advantages and
disadvantages. Also, lists down the internal control mechanisms that must be in place so that
there is no fraud and also, the various method of inventory valuation.

ACCOUNTING FUNDAMENTALS 4
Financial statements:
TRANSACTIONS
Date Details
Jul-17 2 Business established with contribution from A Stanlee of $100,000 cash.
5
Purchased inventory on credit from SuperStock. Purchased 25x Mermaid Fountains
for $349 each (not incl GST) and 12x Kingseat Garden Benches for $275 each (not
incl GST).
Aug 2 Bought office furniture (asset) from Smart Mart, on credit, for $33 000 (incl GST).
Aug 18 Bought general supplies for the office for $665.50 (incl GST). Paid with cash.
Aug 29 Paid Super Stock account in full for July purchases.
Sept 4
Sold 10x Mermaid Fountains on credit to Garden Solutions for $10 516 (gross
total). Credit terms 4/15 n60.
Sept 16 Received payment from debtor of Sept 4 (4% discount applies).
Sept 29 Sold 3x Kingseat Benches for $3 135 cash (incl GST).
Oct 2
Paid cash for insurance Invoice in the amount of $2750. (Invoice amount covers
insurance for 12months - 1 Oct 17-30 Sept 18, and includes GST)
Oct 9
Performed services including delivery and installation for $1870 (incl GST) on
credit to customers.
Oct 12
Purchased inventory from SuperStock: 10x Mermaid Fountains for $360 each (not
incl GST). Paid with cash.
Nov 5 Paid Super Realty rent for July to October - paid cash $1232 (incl GST).
Nov 7
Sold 6x Mermaid Fountains on credit to Bank Botanicals for $6 479 (incl GST).
Credit terms 3/30 n60

ACCOUNTING FUNDAMENTALS 5
Dec 2
Received full payment from Bank Botanicals for sale of 7 Nov (3% discount
applies).
Jan-18 1
Paid $27 500 (incl GST) on credit for a Toyota van (asset). The van will have a
residual value of $6000 at the end of its effective life.
Feb 22 Purchased 4x Kingseat Benches for $1 200 total (not incl GST) on credit.
Mar 5 Paid Super Realty rent for November to February - paid cash $1232 (incl GST).
Mar 31
Sold inventory: 2x Mermaid Fountains and 6x Kingseat Benches for a total of
$14,190 (incl GST) cash.
June 6
Paid fortnightly wages: office assistant, T Frankenstand received $970 (net pay)
(PAYG $172).
June 20
Paid fortnightly wages: Frankenstand received $970 (net pay) (PAYG $172); and M
Spiders received $448 (net pay) (PAYG amount $21).
June 27 A. Stanlee withdrew $4500 from the business for private travel.
GENERAL JOURNAL
Date Details Debit Credit
July 2 Cash at bank
1,00,000
.00
A Stanlee, Capital
1,00,000
.00
A Stanlee contributes cash to the business
July 5 Purchases
12,02
5.00
Account payable 12,02

ACCOUNTING FUNDAMENTALS 6
5.00
(Purchased raw material)
Aug 2 Office furniture
33,00
0.00
Cash
33,00
0.00
Purchased office furniture
Aug 18 General supplies
66
5.00
Cash
66
5.00
Purchased general supplies
Aug 29 Accounts payable
Cash
33,00
0.00
Paid for purchase of inventory
33,00
0.00
Sep 4 Accounts receivables
10,51
6.00
Sales
10,51
6.00
Sales made

ACCOUNTING FUNDAMENTALS 7
Sep 16 Cash
10,09
5.36
Accounts receivables
10,09
5.36
Cash received in respect of sales made
Sep 29 Cash
3,13
5.00
Sales
3,13
5.00
Sales made
Oct 2 Prepaid insurance
2,75
0.00
Cash
2,75
0.00
Amounts paid towards insurance
Oct 9 Accounts receivables
1,87
0.00
Sales
1,87
0.00
Sales revenue generated
Oct 12 Purchases
3,60

ACCOUNTING FUNDAMENTALS 8
0.00
Cash
3,60
0.00
Purchases made
Nov 5 Rent expense
1,23
2.00
Cash
1,23
2.00
Paid rent
Nov 7 Accounts receivables
6,47
9.00
Sales
6,47
9.00
Sales revenue generated
Dec 2 Cash
6,28
4.63
Accounts receivables
6,28
4.63
Cash received in respect of sales made
Jan 1 Van
27,50
0.00
Cash
27,50

ACCOUNTING FUNDAMENTALS 9
0.00
Purchased van
Feb 22 Purchases
1,20
0.00
Account payable
1,20
0.00
(Purchased raw material)
Mar 5 Rent expense
1,23
2.00
Cash
1,23
2.00
Paid rent
Mar 31 Cash
14,19
0.00
Accounts receivables
14,19
0.00
Cash received in respect of sales made
Jun 6 Wage expense
1,14
2.00
Cash
1,14
2.00
Paid wages

ACCOUNTING FUNDAMENTALS 10
Jun 20 Wage expense
1,61
1.00
Cash
1,61
1.00
Paid wages
Jun 27 Drawings
4,50
0.00
Cash
4,50
0.00
Withdrawing’s
2,76,026 2,76,026

ACCOUNTING FUNDAMENTALS 11
.99 .99
GENERAL JOURNAL - Adjustments 30 June 18
Date Details Debit Credit
ADJUSTMENTS:
a Supplies expense 3
65.00
Supplies 3
65.00
( adjustment for supplies used)
b Wages Expense 1,6
11.00
Wages Payable 1,6
11.00
(adjustment for wages)
c Insurance expense 2,0
62.50
Prepaid insurance 2,0
62.50
(adjustment for insurance)
d Provision for doubtful debts

ACCOUNTING FUNDAMENTALS 12
37.40
Accounts receivable
37.40
(adjustment for doubtful debts)
e Depreciation expense 13,3
75.00
Accumulated depreciation-furniture 9,0
75.00
Accumulated depreciation-vehicle 4,3
00.00
(record depreciation expense)
f Loss on inventory 6
80.00
Inventory 6
80.00
(to record the inventory damage)
g Rent expense 1,2
32.00
Rent payable 1,2
32.00
(to record rent payable)
19,36 19,36

ACCOUNTING FUNDAMENTALS 13
2.90 2.90
GENERAL JOURNAL - Closing at 30 June 18
Date Details Debit Credit
CLOSING ENTRIES:
June
Sales Revenue
31,7
52.60
Sales Discount
-
615.01
Service Revenue
1,8
70.00
P&L Closing Account 33,0
07.59
(Close all Revenue / Cr A/c's)
P&L Closing 41,3
39.91
Cost of goods sold
Discount allowed 16,1
45.00
Rent expense 6
15.01
Wages expense 3,6
96.00
PAYG expense 3,9

ACCOUNTING FUNDAMENTALS 14
99.00
Insurance expense 3
65.00
Depreciation expense 2,0
62.50
Supplies expense 13,3
75.00
Loss on inventory 3
65.00
Provision for doubtful debts 6
80.00
Drawings
37.40
Retained earnings 4,5
00.00
Drawings 4,5
00.00
78,84
7.50
78,84
7.50

ACCOUNTING FUNDAMENTALS 15
Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance
July 2 $ 1,00,000.00 ########## - $1,00,000.00 1,00,000.00 Sep 4 Accounts receivables 10,516.00 10,516.00 Oct 12 Purchases $ 3,600.00 3,600.00
Aug 2 Office furniture 33,000.00 67,000.00 Jun 30 Wages 1,611.00 1,611.00 1,00,000.00 Sep 29 Cash 3,135.00 13,651.00 Feb 22 Purchases $ 1,200.00 4,800.00
Aug 18 General supplies $ 665.00 66,335.00 1,611.00 1,00,000.00 Sep 4 Cash $ 10,516.00 24,167.00 4,800.00
Aug 29 Accounts payable 33,000 99,335.00 1,611.00 1,00,000.00 Oct 9 Accounts receivables 1,870.00 26,037.00 4,800.00
Sep 16 Sales 10,095 ########## 1,611.00 1,00,000.00 Nov 7 Accounts receivables 6,479.00 32,516.00 4,800.00
Sep 29 Sales 3,135 ########## 1,611.00 1,00,000.00 32,516.00 4,800.00
Oct 2 Prepaid insurance 2,750.00 ########## 1,611.00 1,00,000.00 32,516.00 4,800.00
Oct 12 Purchases 3,600.00 ########## 1,611.00 1,00,000.00 32,516.00 4,800.00
Nov 5 Rent 1,232.00 ########## 1,611.00 1,00,000.00 32,516.00 4,800.00
Dec 2 Accounts receivables 6,285 ########## 1,611.00 1,00,000.00 32,516.00 4,800.00
Jan 1 Van 27,500.00 83,767.99 1,611.00 1,00,000.00 32,516.00
Mar 5 Rent 1,232.00 82,535.99 1,611.00 1,00,000.00 32,516.00
Mar 31 Accounts receivables 14,190 96,725.99 1,611.00 1,00,000.00 32,516.00
Jun 6 Wages 1,142.00
Jun 20 Wages 1,611.00
Jun 27 Drawings 4,500.00
96,725.99
Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance
- - Jun 27 Cash 4,500.00 - Nov 5 Cash $ 1,232.00 1,232.00
July 5 Purchases $ 12,025.00 12,025.00 July 5 Purchases 12,025.00 12,025.00 - Mar 5 Cash $ 1,232.00 2,464.00
Jun 30 Loss on inventory $ 680.00 11,345.00 Aug 29 Cash 33,000 - 20,975.00 - Jun 30 Rent payable 1,232 3,696.00
11,345.00 Feb 22 Purchases 1,200 - 22,175.00 - 3,696.00
11,345.00 - 22,175.00 - 3,696.00
11,345.00 - 22,175.00 - 3,696.00
11,345.00 - 22,175.00 - 3,696.00
11,345.00 - 22,175.00 - 3,696.00
Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance
- - Mar 5 Cash $ 1,142.00 1,142.00
Aug 2 Cash $ 33,000.00 33,000.00 Jun 30 Depreciation 9,075.00 9,075.00 Jun 6 Cash $ 1,611.00 2,753.00
33,000.00 9,075.00 Jun 30 Wages payable $ 1,611.00 4,364.00
33,000.00 9,075.00 4,364.00
33,000.00 9,075.00 4,364.00
33,000.00 9,075.00 4,364.00
33,000.00 9,075.00 4,364.00
33,000.00 9,075.00 4,364.00
Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance
- - Jun 30 Supplies $ 365.00 365.00
Aug 18 Cash $ 665.00 665.00 Jun 30 Depreciation 4,300.00 4,300.00 365.00
Jun 30 Expense $ 365.00 300.00 4,300.00 365.00
300.00 4,300.00 365.00
300.00 4,300.00 365.00
300.00 4,300.00 365.00
300.00 4,300.00 365.00
300.00 4,300.00 365.00
Details Debit Credit Balance Details Debit Credit Balance Details Debit Credit Balance
- - Jun 30 Insurance $ 2,062.50 2,062.50
Sep 4 Sales $ 10,516.00 10,516.00 Jun 30 Rent expense 1,232.00 1,232.00 2,062.50
Sep 16 Sales 10,095 20,611.36 1,232.00 2,062.50
Oct 9 Sales 1,870 22,481.36 1,232.00 2,062.50
Nov 7 Sales 6,479 28,960.36 1,232.00 2,062.50
Dec 2 Cash 6,284.63 22,675.73 1,232.00 2,062.50
Mar 5 Cash 14,190.00 8,485.73 1,232.00 2,062.50
Jun 30 Provision for doubtful debts 37.40 8,448.33 1,232.00 2,062.50
Details Debit Credit Balance Details Debit Credit Balance
- Jun 30 Accounts receivables 37.40 -
Oct 2 Cash $ 2,750.00 2,750.00 -
Jun 30 Insurance $ 2,062.50 687.50 -
687.50 -
687.50 -
687.50 -
687.50 -
687.50 -
Details Debit Credit Balance Details Debit Credit Balance
- Jun 30 Acumulated depreciation $ 13,375.00 13,375.00
Jan 2 Cash $ 27,500.00 27,500.00 13,375.00
27,500.00 13,375.00
27,500.00 13,375.00
27,500.00 13,375.00
27,500.00 13,375.00
27,500.00 13,375.00
27,500.00 13,375.00
Details Debit Credit Balance
Jun 30 Inventory $ 680.00 680.00
680.00
680.00
680.00
680.00
680.00
680.00
680.00
Depreciation expense
Date
Loss on inventory
Date
Rent payable
Date Date
Provision for doubtful debts
Date
accumulated dep-furniture
Date
accumulated dep-van
Date
Wage expense
Date
Supplies expense
Date
Insurance expense
Date
Prepaid insurance
Date
Van
Date
Office furniture
Date
General supplies
Date
Accounts receivables
Wages Payable
Date
LIABILITIES EQUITY
A Stanlee, Capital
Date
GENERAL LEDGER
Inventory Accounts payable A Stanlee, Drawings Rent expense
REVENUE
Sales Revenue
Date
Cost of Goods Sold
Date
EXPENSES
Date
Cash at Bank
ASSETS
Date Date Date Date Date
Trial Balance
As At 30/6/2017
Account Name Dr Cr
Cash at Bank 1,04,947.99
Office furniture 29,700.00
GST 799.10
Supplies 598.50
Accounts receivables 1,870.00
Prepaid insurance 2,750.00
Van 27,500.00
Accounts payable 61,700.00
Stanlee Capital 1,00,000.00
Purchases 16,825.00
Sales revenue 33,622.60

ACCOUNTING FUNDAMENTALS 16
Discount allowed 615.01
Rent expense 2,464.00
Wages expense 2,388.00
PAYG expense 365.00
Drawings 4,500.00
Totals 1,95,322.60 1,95,322.60
Worksheet for Financial year end 30 June
Account
Unadj Trial
Balance
Adjustme
nts
Adjusted
Trial
Balance
Income
Statemen
t
Balance
Sheet
Names
Debit
Cre
dit
Deb
it
Cre
dit
Deb
it
Cre
dit
De
bit
Cr
edi
t
Deb
it
Cre
dit
Cash at Bank
$
1,04,
947.9
9
$
1,04
,947
.99
$
1,04
,947
.99
Office
furniture
$
29,70
0.00
$
29,7
00.0
0
$
29,7
00.0
0
GST $ $ $

ACCOUNTING FUNDAMENTALS 17
799.1
0
799.
10
799.
10
Supplies
$
598.5
0
$
365.
00
$
233.
50
$
233.
50
Accounts
receivables
$
1,870
.00
$
37.4
0
$
1,83
2.60
$
1,83
2.60
Provision for
doubtful
debts
$
37.4
0
$
37.4
0
$
37.
40
Prepaid
insurance
$
2,750
.00
$
2,06
2.50
$
687.
50
$
687.
50
Van
$
27,50
0.00
$
27,5
00.0
0
$
27,5
00.0
0
Accumulated
depreciation-
furniture
$
9,07
5.00
$
9,07
5.00
$
9,07
5.00
Accumulated
depreciation-
van
$
4,30
0.00
$
4,30
0.00
$
4,30
0.00
Accounts $ $ $

ACCOUNTING FUNDAMENTALS 18
payable
61,7
00.0
0
61,7
00.0
0
61,7
00.0
0
Rent payable
$
1,23
2.00
$
1,23
2.00
$
1,23
2.00
Wages
payable
$
1,61
1.00
$
1,61
1.00
$
1,61
1.00
Stanlee
Capital
$
1,00
,000
.00
$
1,00
,000
.00
$
1,00
,000
.00
Purchases
$
16,82
5.00
$
680.
00
$
16,1
45.0
0
$
16,
145
.00
Sales revenue
$
33,6
22.6
0
$
33,6
22.6
0
$
33,
622
.60
Discount
allowed
$
615.0
1
$
615.
01
$
615
.01
Rent expense $ $ $ $

ACCOUNTING FUNDAMENTALS 19
2,464
.00
1,23
2.00
3,69
6.00
3,6
96.
00
Wages
expense
$
2,388
.00
$
1,61
1.00
$
3,99
9.00
$
3,9
99.
00
PAYG
expense
$
365.0
0
$
365.
00
$
365
.00
Drawings
$
4,500
.00
$
4,50
0.00
$
4,5
00.
00
Supplies
expense
$
365.
00
$
365.
00
$
365
.00
Insurance
expense
$
2,06
2.50
$
2,06
2.50
$
2,0
62.
50
Depreciation
expense
$13
,375
.00
$
13,3
75.0
0
$
13,
375
.00

ACCOUNTING FUNDAMENTALS 20
Loss on
inventory
$
680.
00
$
680.
00
$
680
.00
$
1,95,
322.6
0
$
1,95
,322
.60
$19
,362
.90
$19
,362
.90
$
2,11
,540
.60
$
2,11
,540
.60
$
45,
839
.91
$
33,
622
.60
$
1,65
,700
.69
$
1,77
,918
.00
Profit or
Loss 0
$
12,
217
.31
$
12,2
17.3
1 0
$
-
$
-
$
45,
839
.91
$
45,
839
.91
$
1,77
,918
.00
$
1,77
,918
.00
FINANCIAL STATEMENTS
Balance Sheet:
Current Assets:
Cash at bank
1,04,947.9
9

ACCOUNTING FUNDAMENTALS 21
Supplies
233.5
0
Accounts receivables less doubtful debts
1,832.6
0
Prepaid insurance
687.5
0
Total Current Assets
1,07,701.5
9
Non-current Assets:
Office furniture
29,700.0
0
Accumulated depreciation-furniture
-
9,075.00
Van
27,500.0
0
Accumulated depreciation-van
-
4,300.00
GST
799.1
0
Total Non-current Assets 44,624.1

ACCOUNTING FUNDAMENTALS 22
0
Total Assets
1,52,325.6
9
Current Liabilities:
Accounts payable
61,700.0
0
Rent payable
1,232.0
0
Wages payable
1,611.0
0
Total Current liabilities
64,543.0
0
Non-current liabilities and shareholders’ equity:
Stanlee capital, less drawings
87,782.6
9
Total Liabilities and shareholders’ equity
1,52,325.6
9

ACCOUNTING FUNDAMENTALS 23
Profit and Loss
Particulars Amounts in $
Sales revenue
33,622.6
0
Less: cost of goods sold
16,145.0
0
Gross profit
17,477.6
0
Less: expenses:
Discount allowed
615.0
1
Rent expense
3,696.0
0
Wages expense
3,999.0
0
PAYG expense
365.0
0
Insurance expense
2,062.5
0
Depreciation expense
13,375.0
0
Supplies expense 365.0

ACCOUNTING FUNDAMENTALS 24
0
Loss on inventory
680.0
0
Provision for doubtful
debts
37.4
0
Drawings
4,500.0
0
29,694.9
1
Net Loss
-
12,217.31
Perpetual Inventory
Stock: Mermaid Fountains Weighted Average
Purchases Sales Inventory on Hand
Date
Quantit
y
Unit
Cost
Total
Cost
Quantit
y
Unit
Cost
Total
Cost
Quantit
y
Unit
Cost
Total
Cost
Beg. 0
$
-
05-Jul 25
$
349
$
8,725 25 349.00 8,725.00
04-Sep 10
$
1,052
$
10,516 35 549.74
19,241.0
0
12-Oct 10 $ $ 45 507.58 22,841.0

ACCOUNTING FUNDAMENTALS 25
360 3,600 0
07-Nov
$
- 6 507.58 3,045.47 39 507.58
19,795.5
3
31-Mar
$
- 2 0.00 0.00 37 535.01
19,795.5
3
TOTAL
S 45
$
22,841 8
$
3,045 37
$
19,796
507.577
8
Stock: Kingseat Bench Weighted Average
Purchases Sales Inventory on Hand
Date
Quantit
y
Unit
Cost
Total
Cost
Quantit
y
Unit
Cost
Total
Cost
Quantit
y
Unit
Cost
Total
Cost
Beg.
05-Jul 12
$
275
$
3,300 12 275.00 3,300.00
29-Sep 3
1105.0
0 3315.00 9 -1.67 -15.00
22-Feb 4
$
300
$
1,200 13 91.15 1,185.00
31-Mar 6 281.25 3315.00 7
-
304.29
-
2,130.00
TOTAL
S 16 4500 23 103.04 2,370.00

ACCOUNTING FUNDAMENTALS 26
281.25
Financial Report:
The following are the desired financial statements:
FINANCIAL STATEMENTS
Balance Sheet:
Current Assets:
Cash at bank
1,04,947.9
9
Supplies
233.5
0
Accounts receivables less doubtful debts
1,832.6
0
Prepaid insurance
687.5
0
Total Current Assets
1,07,701.5
9
Non-current Assets:
Office furniture
29,700.0
0

ACCOUNTING FUNDAMENTALS 27
Accumulated depreciation-furniture
-
9,075.00
Van
27,500.0
0
Accumulated depreciation-van
-
4,300.00
GST
799.1
0
Total Non-current Assets
44,624.1
0
Total Assets
1,52,325.6
9
Current Liabilities:
Accounts payable
61,700.0
0
Rent payable
1,232.0
0
Wages payable
1,611.0
0
Total Current liabilities 64,543.0

ACCOUNTING FUNDAMENTALS 28
0
Non-current liabilities and shareholders’ equity:
Stanlee capital, less drawings
87,782.6
9
Total Liabilities and shareholders’ equity
1,52,325.6
9
Profit and Loss:
Particulars Amounts in $
Sales revenue
33,622.6
0
Less: cost of goods sold
16,145.0
0
Gross profit
17,477.6
0
Less: expenses:
Discount allowed
615.0
1

ACCOUNTING FUNDAMENTALS 29
Rent expense
3,696.0
0
Wages expense
3,999.0
0
PAYG expense
365.0
0
Insurance expense
2,062.5
0
Depreciation expense
13,375.0
0
Supplies expense
365.0
0
Loss on inventory
680.0
0
Provision for doubtful
debts
37.4
0
Drawings
4,500.0
0
29,694.9
1
Net Loss
-
12,217.31
Statement of changes in equity:

ACCOUNTING FUNDAMENTALS 30
Particulars Amounts in $
Opening capital 1,00,000.00
Less: net loss 12,217.31
Less; drawings 4,500.00 16,717.31
Closing capital 83,282.69
The company has incurred a loss during the year, so it is recommended for the company to
take some measures that could help it in increasing it sales revenue. The example include
increasing the productivity of the staff which could be done by the way of providing staff
reviews, teaching them new skills etc, developing new lines of products, so that a wide
variety of products could be products be offered to the customers, finding new customers
finding new markets, improving the customer service by the way of training staff and by the
way of increasing prices of the various products that have been offered. The company could
also offer discounts to its customers to increase its sales revenue.
The company could also take measures to reduce costs. The company could achieve this by
the way of controlling stock, decrease the direct costs associated with the product. The
company could look for ways through which the direct costs could be reduced, decrease
overheads such as saving energy, finding energy Supply Company etc. the company could
also assess its performance through benchmarking with other companies (Business
queensland, 2019).
Alternative methods of depreciation:

ACCOUNTING FUNDAMENTALS 31
The first method of depreciation is the straight line method in which the same amount of
depreciation is charged for each year. The main advantage of this method is the fact that
there is an ease of calculating this amount and disadvantage of it is the fact that this method
does not take into account the rate at which an asset deteriorates.
The second method is the units of production method which includes the determination of
the costs for depreciation and this is derived by the way of determining the cost of the asset
and then dividing it by estimated number of units of production. An advantage of this is the
fact the calculation of depreciation is easy and the disadvantage of it is that it assumes that
the asset shall depreciate over its productive life.
The third method is the declining balance method which includes the calculation of
depreciation by calculating the rate of depreciation and then multiplying it by the remaining
value of that asset. An advantage of this method is the fact that a higher amount of
depreciation is charged during the initial life of the asset which also means lesser income
taxes and a disadvantage if the fact that its calculation is more complicated.
The fourth method is the sum of year’s digits which is calculated through calculating the
rate of depreciation and then adding the digits for each year in the life of the asset. And
advantage of this method is the fact that income taxes are reduced and disadvantage if the
calculation is more complicated (Accounting simplified, 2019).
Alternative methods of inventory:
The first method is the FIFO method in which the costs of the goods that are purchased first
are sold first.

ACCOUNTING FUNDAMENTALS 32
The LIFO method is the method in which the goods that were purchased most recently would
be sold first.
Then there is weighted average method in which cost of the units calculated are the same
(Lumen learning, 2019).
Internal control mechanisms:
The following are some of the internal control mechanisms that could be implemented:
 There should be a separation of duties which means that any single employee should
not be responsible for each and every activity. When the business is small, it is better
to have minimum possible number of employees.
 The accounting information must be locked through the use of passwords, lockouts
and the electronic accesses. There must be an information system audit done to
ensure that the accounting information is protected.
 There must be physical audits to protect the assets of the company. Physical
verification of the various accounting balances should be done.
 There must be a standardised financial documentation of all the documents.
 All the sales and the purchases must be routed through proper authority (Small
business chron, 2019).
Conclusion:
The company has incurred loss during the current year which means it must go for the ways
or undertake measures so that the profit of the company could be improved. This could be
done by increasing the sales revenue and also by reducing the costs or thee expenses. Some
of the internal control mechanisms must be in place to ensure that financial records of the
company are saved.

ACCOUNTING FUNDAMENTALS 33
References:
Accounting-simplified.com. (2019). Methods of Depreciation | Accounting-Simplified.com.
[online] Available at: https://accounting-simplified.com/financial/fixed-assets/depreciation-
methods/types.html [Accessed 27 Apr. 2019].
Business.qld.gov.au. (2019). Strategies to improve profit | Business Queensland. [online]
Available at: https://www.business.qld.gov.au/running-business/finances-cash-flow/
managing-money/more-profit/strategies [Accessed 27 Apr. 2019].
Courses.lumenlearning.com. (2019). Valuing Inventory | Boundless Accounting. [online]
Available at: https://courses.lumenlearning.com/boundless-accounting/chapter/valuing-
inventory/ [Accessed 27 Apr. 2019].
Smallbusiness.chron.com. (2019). What Are the Seven Internal Control Procedures in
Accounting?. [online] Available at: https://smallbusiness.chron.com/seven-internal-control-
procedures-accounting-76070.html [Accessed 27 Apr. 2019].