Accounting Processes and Systems

This document provides detailed information about accounting processes and systems. It includes journal entries, ledger accounts, trial balance, adjusting journal entries, income statement, balance sheet, and more. The content is relevant for students studying accounting or related courses.

Running head: ACCOUNTING PROCESSES AND SYSTEMS
1
ACCOUNTING PROCESSES AND SYSTEMS

ACCOUNTING PROCESSES AND SYSTEMS 2
Table of Contents
Question 1...................................................................................................................................................3
1...............................................................................................................................................................3
2...............................................................................................................................................................5
3...............................................................................................................................................................8
4...............................................................................................................................................................9
5.............................................................................................................................................................10
6.............................................................................................................................................................10
7.............................................................................................................................................................11
Question 2.................................................................................................................................................11
Importance of Double Entry Bookkeeping.............................................................................................12
Question 3.................................................................................................................................................14
1.............................................................................................................................................................14
Accounting issues..................................................................................................................................15
Related party Transactions....................................................................................................................15
Opaque Operations................................................................................................................................15
Poor strategic planning and expansion...................................................................................................16
2.............................................................................................................................................................16
Ethical issues.........................................................................................................................................16
References.................................................................................................................................................18

ACCOUNTING PROCESSES AND SYSTEMS 3
Question 1
1.
Journal
Entries
Date Particulars Debit Credit
7/1/2018 Bank A/c Dr.
$
30,000.00
To Capital
A/c
$
30,000.00
(For capital invested in the business)
7/1/2018 Bank A/c Dr.
$
20,000.00
To Loan Account
$
20,000.00
(for loan taken from the bank)
7/1/2018 Interest Account Dr.
$
2,400.00
To Loan A/c
$
2,400.00
(For interest charged on loan by the bank)
7/1/2018 Motor Vehicle Account Dr.
$
18,000.00
To Bank Account
$
18,000.00
(for motor vehicle
purchased)
7/31/201
8 Depreciation Account Dr.
$
208.33
To Motor Vehicle Account
$
208.33
(for depreciation charged on the motor cycle)
Cleaning equipment A/c Dr.
$
4,800.00
To Bank Account
$
4,800.00
(for cleaning equipment purchased)
7/1/2018 Prepaid insurance A/c Dr. $

ACCOUNTING PROCESSES AND SYSTEMS 4
3,600.00
To bank A/c
$
3,600.00
(for insurance paid in cash in advance)
7/9/2018 Supplies A/c Dr.
$
2,400.00
To Accounts Payable
$
2,400.00
(for supplies acquired on credit )
7/13/201
8 Bank A/c Dr.
$
500.00
To Rainbow Child care
Centre
$
500.00
(for amount received for the cleaning services)
7/20/201
8 Wages A/c Dr.
$
1,600.00
To bank A/c
$
1,600.00
(for cash paid to the wages)
7/25/201
8 Bank A/c Dr.
$
5,500.00
To ABC Public School
$
5,500.00
(for cash received from the school for the purpose of cleaning)
7/27/201
8 Accounts Payable A/c Dr.
$
2,000.00
To bank
$
2,000.00
(for cash paid to the accounts payable from whom the
supplied were purchased)
7/31/201
8 Interest on Loan A/c Dr.
$
300.00
To Bank A/c
$
300.00
(for loan charged by the
bank)
7/31/201
8 Advertising A/c Dr.
$
1,600.00
To Bank A/c $

ACCOUNTING PROCESSES AND SYSTEMS 5
1,600.00
(for advertising charges paid thorugh bank account)
2.
Ledger Accounts
BANK A/C
Date Particulars
Amoun
t Date Particulars Amount
7/1/2018 To Capital A/c 30000 7/1/2018 By Motor Vehicle A/c 18000
7/1/2018 To Loan A/c 20000 7/1/2018
By Cleaning equipment
A/c 4800
7/25/201
8 To ABC Public Limited 5500 7/1/2018 By Prepaid Insurance A/c 3600
7/13/201
8
To Rainbow Child Care
Centre 500
7/20/201
8 By Wages A/c 1600
7/31/201
8 By Interest A/c 300
7/31/201
8 By Advertising A/c 1600
7/27/201
8 By Accounts Payable 2000
7/31/201
8 By Cash A/c 24100
56000 56000
CAPITAL A/C
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bal c/d 30000 7/1/2018 By Bank A/c 30000
30000 30000
LOAN AC/C

ACCOUNTING PROCESSES AND SYSTEMS 6
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bal c/d 20000 7/1/2018 By Bank A/c 20000
20000 20000
INTEREST A/C
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bank A/c 300
7/31/201
8 By Bal c/d 300
300 300
MOTOR VEHICLE
A/C
Date Particulars
Amoun
t Date Particulars Amount
7/1/2018 To Bank A/c 18000
7/31/201
8 By Depreciation A/c 208.33
7/31/201
8 By Bal c/d 17791.67
18000 18000
DEPRECIATION A/C
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Motor Vehicle 208.33
7/31/201
8 By Bal c/d 208.33
208.33 208.33

ACCOUNTING PROCESSES AND SYSTEMS 7
PREPAID INSURANCE A/C
Date Particulars
Amoun
t Date Particulars Amount
7/1/2018 To Bank A/c 3600
7/31/201
8 By Bal c/d 3600
3600 3600
SUPPLIES A/C
Date Particulars
Amoun
t Date Particulars Amount
7/9/2018 To Accounts Payable A/c 2400
7/31/201
8 By Bal c/d 2400
2400 2400
WAGES A/C
Date Particulars
Amoun
t Date Particulars Amount
7/20/201
8 To Bank A/c 1600
7/31/201
8 By Bal c/d 1600
1600 1600
RAINBOW CHILD CARE CENTRE
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bal c/d 500
7/25/201
8 By Bank A/c 500
500 500

ACCOUNTING PROCESSES AND SYSTEMS 8
ABC PUBLIC LIMITED
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bal c/d 5500
7/25/201
8 By Bank A/c 5500
5500 5500
ACCOUNTS PAYABLE A/C
Date Particulars
Amoun
t Date Particulars Amount
7/27/201
8 To Bank A/c 2000 7/9/2018 By Supplies A/c 2400
To Bal C/d 400
2400 2400
INTEREST ON LOAN A/C
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bank A/c 300
7/31/201
8 By interest on Loan A/c 2400
7/31/201
8 To Bal c/d 2100
2400 2400
ADVERTISING A/C
Date Particulars
Amoun
t Date Particulars Amount
7/31/201
8 To Bank A/c 1600 By Bal c/d 1600
1600 1600

ACCOUNTING PROCESSES AND SYSTEMS 9
3.
Unadjusted Trial Balance
Account Name Debit Credit Adjustments Final Trial
Debit Credit Debit Credit
Bank A/c
18100.0
0 18100.00
Accounts Receivable 6000.00 12600 18600.00
Supplies 2400.00 2100 300.00
Prepaid Insurance 3600.00 3600.00
Store Equipment 4800.00 4800.00
Acc. Depreciation - Equipment
Motor Cycle
18000.0
0 208.33 17791.67
Acc. Depreciation - Automobile
Accounts Payable 400.00 400.00
Interest Payable 2400.00 2400.00
Unearned revenue 5000 5000.00
Loan Payable 22400.00 22400.00
Mortgage Payable
Telephone Expenses Payable 100 100.00
Fuel Expenses Paybale 190 190.00
Outstanding Expenses 2200 2200.00
Capital 30000.00 30000.00
Drawings
Revenue 6000.00 17600 23600.00
Advertising Expense 1600.00 1600.00
Wages 1600.00 1600.00
Depreciation Expense - Store
Equipment
Depreciation Expense - Motor Cycle 208.33 208.33
Miscellaneous Expense
Expenses 2490 2490.00
Supplies Expense 2100 2100.00
Telephone Expenses Payable
Fuel Expenses Paybale
Interest Expense 300.00 300.00
58800.0
0 58800.00
22398.3
3
22398.3
3
78890.0
0
78890.0
0

ACCOUNTING PROCESSES AND SYSTEMS 10
4.
Adjusting Journal entries
Date Particulars Debit Credit
31/07/2018 Expenses Dr.
$
2,200.00
To Outstanding Expenses
$
2,200.00
(For outstanding expenses recorded)
31/07/2018 Accounts receivable Dr.
$
12,600.00
To Service
revenue
$
12,600.00
(for services given to the customers)
31/07/2018
Telephone
payable Dr.
$
100.00
To telephone expenses
$
100.00
(For telephone expenses payable)
31/07/2018 Fuel payable Dr.
$
190.00
To fuel Expenses
$
190.00
(for fuel expenses payable)
31/07/2018 Supplies Expenses Dr.
$
2,100.00
To supplies
Account
$
2,100.00
(for supplies in hand)
31/07/2018 Unearned revenue Dr. 5000
To revenue 5000
(for revenue unearned)
5.
Income statement
(For the month ending 31st July 2018)
Particulars Amount Particulars Amount
By Revenue 23600
Advertising Expense 1600

ACCOUNTING PROCESSES AND SYSTEMS 11
Wages 1600
Depreciation Expense - Motor Cycle 208.33
Expenses 2490
Supplies Expense 2100
Interest Expense 300
Net Profit 15301.67
23600 23600
6.
Balance sheet
As at 31st July 2018
Particulars Amount Particulars Amount
Capital Bank A/c 18100
Add: net profit 30000
15302 Store Equipment 4800
Loan 20000 Motor Cycle 17798
Accounts payable 400
Supplies 2000 Accounts Receivable 18600
Outstanding expenses 2200 Supplies 300
Telephone payable 100 Interest Accrued 2000
Fuel payable 196 Prepaid Insurance 3600
Unearned Revenue 5000
70197.67 70197.67
7.
If the company pay backs the loan than the amount of the debt will be zero and the
company will be left with no major liability. If the bank loan is repaid, it will be paid only out of
the bank balance, the entire cash in hand or bank balance will be zero. This situation will be
creating a positive instance for the temporary period as the zero cash in hand will not be the
appropriate step the company might take. Hence, the half loan can be paid so that the liability
may decrease and the bank balance shall also be there to pay the emergency costs if required.
The debt to equity ratio will be reduced from 0.67 to 0.33 and this is the sound benefit. The
current ratio on the other hand will have the impact will be bearable as the current ratio will 5.45
which is declined from 7.50 than the previous stop. The current ratio will depict the liquidity
position of the company, whereas the debt to capital ratio will determine how much funds are
financed from the loan as well as the capital.

ACCOUNTING PROCESSES AND SYSTEMS 12
Question 2
Double entry bookkeeping is said to be a concept that is applicable and followed in all the
transactions in the account. According to this concept, all the accounting transactions have two
effects on the financial aspects of the business. The general ledger is used to record the two sides
of every transaction takes in an organization. It a business vends its services or products, the
revenue of the company increases and cash also increased by the same amount. The time a
business borrows some funds from its creditor, the cash balance of the company increased
however the debt balance of the business also increases with the same amount (Walshaw, 2018).
The system of double-entry results in creating a balance sheet comprised of equity,
liabilities, and assets. The sheet is said to be balanced since the assets of the company always
remain equal to liabilities plus equity. Assets of the company are comprised of a list of items
such as machinery, inventory, cash and intangible assets like patents. Liabilities of the company
highlights all the items that business owns to someone else, like long-term notes payable and
short term accounts payable. Equity highlights the stake of the owner in the business. Equity can
also be the owner's contribution to the business, plus profits or minus losses of the company.
Every entry possesses a credit side and a debit side that is recorded by the accountant of the
company in the general ledger (Bragg, 2011).
The double entry system book was first presented by Fra Luca Pacioli and Leonardo da
Vinci the Italian mathematicians. The book was published in the year 1994, with the title
“Summa de arithmetical, geometric, proportion et proportionality”. da Vinci and Pacioli do not
call themselves the inventors of this system but have discovered the way concepts can be utilized
in an effective and planned manner.
Da Vinci is responsible for drawing the practical examples and Pacioli is responsible for
writing text in order to assist in understanding the book. The book was separated into the diverse
segment and the part that illustrates double entry system was titled with the name “Particularis de
computis et scripturis”. The book was further separated into different small sections or chapters
that recite about trial balance, income statement, double entry, balance sheet, journals, and
different techniques and tools successively accepted by a number of traders and accountants.

ACCOUNTING PROCESSES AND SYSTEMS 13
Importance of Double Entry Bookkeeping
It is very important to keep a precise financial system; therefore companies make use of
double entry system since it assists in precise financial reporting and eliminates errors and
dishonest activity. Some of the ways double entry system is important for the businesses are:
Accuracy – Double entry booking system offers more precise information regarding the financial
position of the company in comparison to the single-entry system. The main reason for this is
because the double entry system adheres to the matching principle of accounting. The matching
principle follows accrual accounting guidelines in order to record revenue and expenses linked to
the revenue. Maintaining the record of revenue and expenses offers a precise calculation of
losses and profits (Jeffrey, 2018).
Error Reduction – Human errors can result in a misrepresentation of the financial position of the
company. Double entry system eliminates the chances of errors as it includes balances and
checks. With the technology advancement, a number of software programs for accounting
mechanically offer double-entry bookkeeping the time an accounting event or transaction is
entered. It eliminated the chances of wrongly posting of any transaction in the wrong offsetting
account (Hussey, 2014). Errors could be simply trapped with double entry system by enduring an
equal amount of debit and credit side.
Preparation of the Financial Statements - Financial statements can be easily presented in the
organization with the help of the double-entry bookkeeping system since information is collected
straight from the transaction of the double entry booking. It is essential for businesses to create a
precise, efficient, and quick financial statement. Users of the internet like management of the
company rely on the financial statements in order to identify where the company stands in
financial terms and to prepare operational budgets. External users, like vendors, investors
majorly rely on financial statements in order to define the creditworthiness of the company.
Leaves an Audit Trail – Double-entry system of bookkeeping eliminated the chances of
fraudulent activities by leaving an adult trail. The audit trail permits business to track the journal
entries transactions that are posted in the general ledger. For instance, when the cash balance of
the business in the balance sheet appears to be going high, then the department of the company
can trace back all the transactions done in the cash account and check the accuracy (Johnson,

ACCOUNTING PROCESSES AND SYSTEMS 14
2019). The business can get precise information about which account is influenced by posting
the transactions. Double entry system makes use of reference numbers and present short
descriptions with all the entry.
Cost Control – Double entry system maintains comprehensive information about the financial
transaction of the business. Hence, the financial transaction recording in the books offers
important data or information for controlling the cost.
Difference between Double Entry Bookkeeping and Single Entry System (Conventional Methos)
Single entry bookkeeping system is inexpensive however it is not scientific since it does
not maintain the records of every transaction in its place it maintains the record of limited
transactions and few of them are recorded incompletely. On the other side, double entry
bookkeeping system is dependent on necessary accounting principles and therefore it keeps the
records of all transaction aspects (Suntook, 2010).
Basis Double-Entry Bookkeeping
System
Single-Entry Bookkeeping
System (Conventional
method)
Meaning Under this system, all the
transactions affect two
accounts at the same time.
Under this system, only
single sided entry is needed
in order to record the
transactions (Surbhi, 2015)
Recording Complete Incomplete
Ledger Nominal, real, and personal
account
Cash and personal account
Suitability for tax Yes No
Nature Complex Simple
Errors Simple to locate Difficult to locate
Preferred by Big organizations Small businesses
Accuracy Guaranteed arithmetical
precision
Unsure arithmetical precision
Number of accounts Subsidiary books, journals, Cash book and ledger

ACCOUNTING PROCESSES AND SYSTEMS 15
and ledger
Coverage Detailed information is
covered under double entry
bookkeeping system
Cover limited details
Question 3
1.
ABC learning is considered as one of the most renowned and the established institute of
learning, by far the largest chain of the corporate child care in Australia. Though it was
established in the year 1988, yet the company has experienced a rapid growth in recent years.
There are several reasons for the failure of the ABC Learning and some of them have been listed
below (Neelon, Mayhew, O’Neill, Neelon & Pate, 2016).
First to record the failure the company was performing well enough, when in March
2006, its market capitalization reached A$2.5 billion in the year 2007 and it reported a net profit
after tax of A$143.1 million and revenues of A$ 1.7 billion. Thereafter the entire scenario
changed for the company when peer shaped. ABC was overwhelmed by its debts and had to sell
almost 60% of the US subsidiary. The last traded price recorded was A$0.54. The several issues
have been bifurcated on the basis of accounting issues, related party transactions, and damages
on liquidation, operating at opaque level (Kruger, 2009).
Accounting issues
The major accounting issue for the ABC was the valuation of the assets which became
difficult for the auditors to value at times. Without any doubt there have been fundamental flaws
in keeping and recording the accounting transactions correctly. There seems to be the different
level of the discrepancies in the profits, revenues and the pretax earnings were inconclusive.
ABC’s external auditors, Pitcher Partners are, gave unqualified opinions since the year 2003 and
the management took no action and they resigned. Thereafter when the company appointed new
auditors E & Y, stated that the accounts were highly manipulated and that there was a deep need
to reinstate the accounts (Islam, 2017).

ACCOUNTING PROCESSES AND SYSTEMS 16
Related party Transactions
After doing the investigations in depth, it was found that after the E and Y was being
appointed the CEO of the company, Mr Eddy Groves appointed Queensland Maintenance
Services, the company which belonged to his former brother in law Frank Zullo for $74 million.
The related party transactions also played a vital role in making the situations worse. Payments
from several developers that subsidized loss-making centers through the funds - and hid the basic
fact that the loss was faced whereas in return the situation was equally reversed and the money
was right below their fists (O’Neill, Dowda, Benjamin Neelon, Neelon & Pate, 2017).
Opaque Operations
Furthermore, the business operations of the ABC, Learning was not transparent either.
The main issue was also related to the policies and the guidelines that were not clear and the
division was also in vain. The costs that were allocated with each center were also opaque in
nature and therefore it was one of the non-feasible matters which created havoc for the ABC
learning. This way the performance of the each center also went down and this eventually led to
a fall in the entire ABC centre (Governance for stakeholders, 2012).
Poor strategic planning and expansion
There were rapid international expansions made by the company and this did make the
company as one of the high levered company. The company also crossed the international
boundaries and took over many daycare and child care providers in New Zealand, USA and UK.
At this moment the company was having huge loan and the loans were raised to such an extent
that the company could not repay those. Also the debt raised when the ABC opted the multi
option facility for A$1.48 million and due to this the profit fell by 42% and the covenants of the
debt amounted to A$1.2 billion were also breached (Youtube, 2018).
2.
Ethical issues
The first ethical issue faced by the company was the payment of the low wages to the
employees and which incur the low cost and generate more profits for the organization. To
capturing the market share, settle rivals and the profits, ABC employees were giving the low rate
of wages. Also in 2004, ABC was found guilty in paying the low wages which are not even in

ACCOUNTING PROCESSES AND SYSTEMS 17
alignment with the Australian accounting standards. The worst case scenario was when the ABC
learning forced the employees to cleanse the toilets and purchase the regular uniform on its own
(Youtube, 2018).
The second issue that has been faced by the company was the misstating of the reports by
the auditors of the company. The cash flows and the misappropriation in financial statements
were the major reasons for the collapse and also for the ethical issues faced by the company. The
company was involved with the men such as politicians who have no idea about the child care
industry. They are not having any idea of how to read and analyze the financial statements.
Lastly the valuation of the assets was not proper and no other methods were chosen to
overcome the problem. In child care center the infrastructure plays a vital and the crucial role in
determining the ethical decisions. The open field, the sleeping rooms, the dining area, bathrooms
for the toddlers, developmental toys were not able to be valued because the purchase was in bulk
and some of them were being used for the personal use. Further at the beginning of the year
2006/7 financial year, there was A$37.4 million in goodwill and A$647.6 million in child care.
Goodwill rose to A$271 million and licenses to A$2.4 billion by the end of the financial year
2007/08. The impairment charges were so high that the intangibles were becoming worthless.
Also the inherent risk associated with the valuation of the assets tends to be more enormous.
This situation was counted as the red flag (Islam, 2017).

ACCOUNTING PROCESSES AND SYSTEMS 18
References
Bragg, S.M. (2011). Bookkeeping Essentials: How to Succeed as a Bookkeeper 1st ed. U.K: John
Wiley & Sons.
Governance for stakeholders, (2012). The ABC of a corporate collapse. Retrieved from
https://governanceforstakeholders.com/2012/12/28/the-abc-of-a-corporate-collapse/
Hussey, R. (2014). MBA Accounting 1st ed. U.K: Macmillan International Higher Education.
Islam, (2017). ABC Learning :: Collapse of an Entrepreneurial Venture. Retrieved from
http://dspace.bracu.ac.bd/xmlui/bitstream/handle/10361/9144/12164006.pdf?
sequence=1&isAllowed=y
Jeffrey, J. (2018). Research on Professional Responsibility and Ethics in Accounting 1st ed. U.K:
Emerald Group Publishing.
Johnson, R. (2019). The Importance of Double-Entry Bookkeeping. Retrieved from
https://bizfluent.com/info-8691783-importance-doubleentry-bookkeeping.html
Kruger, C. (2009). Lessons to be learnt from ABC Learning's collapse. Retrieved from
https://www.smh.com.au/business/lessons-to-be-learnt-from-abc-learnings-collapse-20090101-
78f8.html
Neelon, S. E. B., Mayhew, M., O’Neill, J. R., Neelon, B., Li, F., & Pate, R. R. (2016).
Comparative evaluation of a South Carolina policy to improve nutrition in child care. Journal of
the Academy of Nutrition and Dietetics, 116(6), 949-956.
O’Neill, J. R., Dowda, M., Benjamin Neelon, S. E., Neelon, B., & Pate, R. R. (2017). Effects of a
new state policy on physical activity practices in child care centers in South Carolina. American
journal of public health, 107(1), 144-146.
Suntook, Z. (2010). Learning Accountancy: The Novel Way 1st ed. U.S: Cambridge Scholars
Publishing.

ACCOUNTING PROCESSES AND SYSTEMS 19
Surbhi, S. (2015). Difference Between Single Entry System and Double Entry System. Retrieved
from https://keydifferences.com/difference-between-single-entry-system-and-double-entry-
system.html
Walshaw, T. (2018). Double Entry Bookkeeping 2nd ed. U.S: Lulu.com.
Youtube, (2018). The ABC of a Corporate Collapse - Chapter 1 Foundations and Growth.
Retrieved from https://www.youtube.com/watch?
v=YYF6JW9vJKo&list=PL12C0ADD577F6B741&index=2&t=0s
Youtube, (2018). The ABC of a Corporate Collapse - Chapter 3 (part 1) The Balance Sheet.
Retrieved from https://www.youtube.com/watch?
v=sMZExHXNlJQ&list=PL12C0ADD577F6B741&index=3