Accounting Skills: Journal Entries, General Ledger, Financial Statements, Cash Budget

This article covers various topics related to accounting skills such as journal entries, general ledger, financial statements, and cash budget. It provides answers to questions related to accounting and bookkeeping. The article also explains the difference between bookkeeping and accounting and the importance of financial statements.

Running head: ACCOUNTING SKILLS
Accounting Skills
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING SKILLS
Table of Contents
Answer to Question 1:.....................................................................................................................3
Requirement A:............................................................................................................................3
i) Journal Entries:.................................................................................................................3
ii) General Ledger:.............................................................................................................4
Requirement B:............................................................................................................................5
Answer to Question 2:.....................................................................................................................6
Requirement A:............................................................................................................................6
Requirement B:............................................................................................................................7
Answer to Question 3:.....................................................................................................................9
Requirement A:............................................................................................................................9
Requirement B:..........................................................................................................................10
Answer to Question 4:...................................................................................................................11
Requirement A:..........................................................................................................................11
Requirement A.i:....................................................................................................................11
Requirement A.ii:..................................................................................................................13
Requirement A.iii:.................................................................................................................14
Requirement B:..........................................................................................................................14
Answer to Question 5:...................................................................................................................15
Requirement A:..........................................................................................................................15

2ACCOUNTING SKILLS
Requirement B:..........................................................................................................................15
Answer to Question 6:...................................................................................................................16
Requirement A:..........................................................................................................................16
Requirement B:..........................................................................................................................16
Requirement C:..........................................................................................................................16
Reference.......................................................................................................................................18

3ACCOUNTING SKILLS
Answer to Question 1:
Requirement A:
i) Journal Entries:
Dr. Cr.
Date Reference Amount Amount
01-10-2016 Cash A/c. Dr. $8,00,000
To, Capital A/c. $8,00,000
02-10-2016 Purchase A/c. Dr. $3,000
To, Cash A/c. $3,000
15-10-2016 Cash A/c. Dr. $25,000
To, Sales A/c. $25,000
18-10-2016 Stationeries A/c. Dr. $4,000
To, Cash A/c. $4,000
23-10-2016 Furniture & Fittings A/c. Dr. $24,000
To, Cash A/c. $24,000
25-10-2016 Electricity Expenses A/c. Dr. $3,000
To, Cash A/c. $3,000
26-10-2016 Salary Expenses A/c. Dr. $18,000
To, Cash A/c. $18,000
28-10-2016 Rent Expenses A/c. Dr. $500
To, Cash A/c. $500
(Stationeries purchased for cash)
(Furniture bought for cash)
(Electricity charges paid with cash)
(Salary expenses paid)
(Rent expense paid)
Particulars
In the books of Phoenix Inc.
Journal Entries
(Caash invested in business by proprietor)
(Goods purchased for cash)
(Goods sold for cash)

4ACCOUNTING SKILLS
ii) General Ledger:
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
01-10-2016 To, Capital A/c. $8,00,000 02-10-2016 By, Purchase A/c. $3,000
15-10-2016 To, Sales A/c. $25,000 18-10-2016 By, Stationeries A/c. $4,000
23-10-2016 By, Furniture & Fittings A/c. $24,000
25-10-2016 By, Electricity Expenses A/c. $3,000
26-10-2016 By, Salary Expenses A/c. $18,000
28-10-2016 By, Rent Expenses A/c. $500
31-10-2016 By, Balance c/d $7,72,500
$8,25,000 $8,25,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
02-10-2016 To, Cash A/c. $3,000 31-10-2016 By, Balance c/d $3,000
$3,000 $3,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
18-10-2016 To, Cash A/c. $4,000 31-10-2016 By, Balance c/d $4,000
$4,000 $4,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
23-10-2016 To, Cash A/c. $24,000 31-10-2016 By, Balance c/d $24,000
$24,000 $24,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
23-10-2016 To, Cash A/c. $3,000 31-10-2016 By, Balance c/d $3,000
$3,000 $3,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
23-10-2016 To, Cash A/c. $18,000 31-10-2016 By, Balance c/d $18,000
$18,000 $18,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
23-10-2016 To, Cash A/c. $500 31-10-2016 By, Balance c/d $500
$500 $500
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
31-10-2016 To, Balance c/d $8,00,000 01-10-2016 By, Cash A/c. $8,00,000
$8,00,000 $8,00,000
Dr. Cr.
Date Particulars Ref Amount Date Particulars Ref Amount
31-10-2016 To, Balance c/d $25,000 01-10-2016 By, Cash A/c. $25,000
$25,000 $25,000
Salary Expenses A/c.
Rent Expenses A/c.
Capital A/c.
Sales A/c.
Cash A/c.
Purchase A/c.
Stationeries A/c.
Furniture & Fittings A/c.
Electricity Expenses A/c.

5ACCOUNTING SKILLS
Requirement B:
Book Keeping is an essential part of the accounting process where in various accounting
transactions are recorded in ledgers accounts. The ledger accounts provide the account balances,
required for the preparation of various financial statements (Sangster 2015). The purpose of
accounting is to summarise financial information and interpretation of the same. Information
which generated in reports and interpreted are done by using accounting information which is
provided in the database of records which is created in book keeping process. The process of
book keeping can be described as the recording of various business transactions during a
particular year as per the accounting guidelines (Edwards 2013). On the other hand, the role of
accounting goes beyond the role of book keeping as they have to classify, summarise and present
the accounting information which is extracted from book keeping records. Thus, it can be said
that the process of book keeping forms a part of the overall accounting process. Therefore, it is
clear that the field of accounting is much wider than the field of Book Keeping.
Book keeping involves recording transactions which the business is involved in during a
particular period in a journal or ledger account (Ijiri 2014). The process of book keeping does not
follow any accounting regulations or standards and does not involve any skills or specialised
knowledge for the same. On the other hand, accounting starts from the point where book keeping
process ends. The transactions are posted into respective accounts as per double entry system and
accounting standards and principles are followed for the purpose of treating various transactions
and bring about presentability of the accounting information. Therefore, book keeping process
forms a part of the accounting process of the business.

6ACCOUNTING SKILLS
Answer to Question 2:
Requirement A:
Particulars Amount
($'000)
Sales 37,436
Cost of Goods Sold -26,980
GROSS PROFIT 10,456
Selling, General & Administrative Expense -3,624
Research & Development Expense -1,982
NET PROFIT BEFORE INTEREST & TAX 4,850
Interest Expense -450
NET PROFIT BEFORE TAX 4,400
Income Tax Expense -1,100
NET PROFIT FOR THE PERIOD 3,300
In the books of Indus Corp
Income Statement
for the period ended 31st Dec, 2016

7ACCOUNTING SKILLS
Particulars Amount Amount
($'000) ($'000)
Current Assets:
Cash 4,895
Accounts Receivable 5,714
Inventories 8,517
TOTAL CURRENT ASSETS 19,126
Non-Current Assets:
Plant & Equipment 7,154
Land 981
TOTAL NON-CURRENT ASSETS 8,135
TOTAL ASSETS 27,261
Current Liabilities:
Accounts Payable 7,156
TOTAL CURRENT LIABILITIES 7,156
Non-Current Liabilities:
Long-Term Liability 20,105
TOTAL NON-CURRENT LIABILITIES 20,105
TOTAL LIABILITIES 27,261
Capital:
Retained Earnings -3,300
Add: Net Profit for the period 3,300
TOTAL CAPITAL 0
TOTAL LIABILITIES & CAPITAL 27,261
In the books of Indus Corp
Balance Sheet
as on 31st Dec, 2016
Requirement B:
Financial statements refer to the compilation of different statements, presented in the
companies’ annual reports. Financial statement of an accounting entity mainly comprises of

8ACCOUNTING SKILLS
income statement, balance sheet and cash flow statement (Carraher and Van Auken 2013). The
primary objective of the financial statement is to disclose the financial performance of the
business during a particular period. Financial statements are the main sources of the information
relating to the financial position of the company and cash flows in a business. Therefore, it is
very valuable for the investors. Financial statements are very useful for the investors in order to
take decisions regarding whether to invest in the company or not (Kraft 2014).
Financial statements are also important to the management of the company as the
information which are presented in the financial statements are used for the purpose of
comparison with previous year’s performance and then decisions regarding improvements can be
made on the basis of the information which are already shown in the annual report of the
business. Moreover, financial statements are essential for obtaining credit from financial
institutions and in the presence of a favourable financial statements, required amount of credit is
easily granted (Ball 2013). Thus, financial statements are used both potential investors,
stakeholders and banking institution to analyse the current performance of the firm and also
check the viability of the business for future. In other words, it can be said that the financial
statements provide the information, required to measure the financial performance of a business
for a particular period.

9ACCOUNTING SKILLS
Answer to Question 3:
Requirement A:
Particulars April May June TOTAL
Cash flow from Operating Activities:
Cash Sales $23,200 $22,400 $24,000 $69,600
Receipts from Customers $38,400 $34,800 $33,600 $1,06,800
Payment to Suppliers -$38,000 -$33,000 -$35,000 -$1,06,000
Wages Paid -$8,000 -$10,000 -$8,500 -$26,500
Overhead Expenses paid -$11,500 -$9,000 -$9,500 -$30,000
Net Cash Inflow/(Outflow) from
Operating Activities $4,100 $5,200 $4,600 $13,900
Cash flow from Investing Activities:
Payment for Land Purchased -$87,000 -$87,000
Receipts of Dividend Income $8,000 $8,000
Net Cash Inflow/(Outflow) from
Investing Activities -$87,000 $8,000 $0 -$79,000
Cash flow from Financing Activities:
Repayment of Loan -$16,000 -$16,000
Net Cash Inflow/(Outflow) from
Financing Activities $0 -$16,000 $0 -$16,000
Net Increase/Decrease in Cash Flow -$82,900 -$2,800 $4,600 -$81,100
Add: Opening Cash Balance $8,00,000 $7,17,100 $7,14,300 $8,00,000
Closing Cash Balance $7,17,100 $7,14,300 $7,18,900 $7,18,900
In the books of ABC Industries
Cash Budget
For the period from April to June

10ACCOUNTING SKILLS
Workings:
Particulars January February March April May June
Total Sales $60,000 $62,000 $64,000 $58,000 $56,000 $60,000
40% Cash Sales $24,000 $24,800 $25,600 $23,200 $22,400 $24,000
Cash Receipts from Customers $36,000 $37,200 $38,400 $34,800 $33,600
Purchases $36,000 $38,000 $33,000 $35,000 $39,000 $34,000
Payment to Suppliers $36,000 $38,000 $33,000 $35,000
Wages $9,000 $8,000 $10,000 $8,500 $9,000 $8,000
Payment of Wages $9,000 $8,000 $10,000 $8,500
Selling Overheads $4,000 $5,000 $4,500 $3,500 $4,500 $4,500
Offi ce Overheads $2,000 $1,500 $2,500 $2,000 $1,000 $1,500
Mfg. Overheads $4,000 $3,000 $4,500 $3,500 $4,000 $3,000
Total Overheads $10,000 $9,500 $11,500 $9,000 $9,500 $9,000
Payment of Overheads $10,000 $9,500 $11,500 $9,000 $9,500
Requirement B:
Zero Based Budgeting is a budgeting process, where the expenses are to be acceptable for
each new accounting period. The method requires justification of the costs in order to avoid the
blanket increase the costs of the business and thereby optimizing the costs of the business
(Ekanem 2014). The method not only focuses on the revenues of the but also looks to minimize
the costs which are associated with the business. The purpose of Zero Based Budgeting system is
to put an onus on the managers to justify the expenses and aims to drive the management
towards value driving by optimizing the costs of the business and not just the revenues of the
business (Kelly and Rivenbark 2014). The purpose of following a zero based budgeting practice,
the management of the company aims to reduce the overall spending of the business by
reviewing the areas through which different costs can be cut (Surianti and Dalimunthe 2015).
The method of zero based budgeting practice helps businesses to save funds of the business and

11ACCOUNTING SKILLS
effectively scrutinise the budget, accounting for every costs which the business has incurred for a
year.
Most of the business Zero Budgeting policies in order to prepare a new budget for every
new period so that the additional increase in the cost of the business can be reduced and
optimized.
Answer to Question 4:
Requirement A:
Requirement A.i:
Direct Material Price Variance:
Particulars Amount
Standard Material Cost per kg. $7.50
Actual Material Cost per kg. $13.50
Actual Quantity p.u. (in kg.) 6.75
Total Production (in units) 15000
Direct Material Price Variance -$6,07,500
Remarks Unfavorable

12ACCOUNTING SKILLS
Direct Material Usage Variance:
Particulars Amount
Standard Quantity p.u. (in kgs.) 8.50
Actual Quantity p.u. (in kg.) 6.75
Standard Material Cost per kg. $7.50
Total Production (in units) 15000
Direct Material Usage Variance $1,96,875.00
Remarks Favorable
Total Material Variance:
Particulars Amount
Direct Material Price Variance -$6,07,500.00
Direct Material Usage Variance $1,96,875.00
Total Material Variance -$4,10,625.00
Remarks Unfavorable
Direct Labor Rate Variance:
Particulars Amount
Standard Labor Cost per hour $15.00
Actual Labor Cost per hour $12.20
Actual Labor Hours per unit 6.50
Total Production (in units) 15000
Direct Material Price Variance $2,73,000
Remarks Favorable

13ACCOUNTING SKILLS
Direct Labor Efficiency Variance:
Particulars Amount
Standard Labor Hours p.u. 5.50
Actual Labor Hours p.u. 6.50
Standard Labor Cost per hour $15.00
Total Production (in units) 15000
Direct Labor Efficiency Variance -$2,25,000.00
Remarks Unfavorable
Total Labor Cost Variance:
Particulars Amount
Direct Material Price Variance $2,73,000.00
Direct Material Usage Variance -$2,25,000.00
Total Material Variance $48,000.00
Remarks Favorable
Requirement A.ii:
Variable Overhead Spending Variance:
Particulars Amount
Standard Variable Overhead Rate per hour $10.40
Actual Variable Overhead Rate per hour $9.30
Actual Labor Hours used 260.00
Variable Overhead Spending Variance $286
Remarks Favorable

14ACCOUNTING SKILLS
Requirement A.iii:
Variable Overhead Efficiency Variance:
Particulars Amount
Numbers of Units Produced 620
Standard Direct Labor Hours per unit 0.2
Standard Direct Labor hours Allowed 124
Actual Labor Hours used 260
Standard Variable Overhead Rate per hour $10.40
Variable Overhead Efficiency Variance -$1,414
Remarks Unfavorable
Requirement B:
The major functions which the managers of the business perform on a regular basis for
bringing about continuity in planning and then checking whether the desired results as
anticipated are achieved or not, are the functions of planning and controlling. The functions of
planning and controlling are explained below:
 The function of planning which is performed by the managers helps the managers to
effectively estimate the targets of the business and the business is going to achieve such
targets (Goetsch and Davis 2014). Planning is also related to forecasting of revenues and
expenses which the business is going to incur in near future and is also used for setting
targets and goals which the firms will be looking to achieve in the following accounting
periods (Burke 2013).
 The function of controlling allows the managers to measure the performance of the
business in accordance with the plan which was previously set by the management of the
business. The process of controlling identifies variances and the causes due to which the

15ACCOUNTING SKILLS
planning target could not be achieved by the business (Kerzner and Kerzner 2017). The
function of controlling also allows the management to supervise the activities of the
business and also take corrective actions in case of any discrepancy takes place.
Answer to Question 5:
Requirement A:
Particulars Amount
Selling Price per unit $250
Variable Cost per unit $100
1. Contribution Margin per unit $150
2. Contribution Margin Ratio 60%
Fixed Cost $56,000
3. Break-Even Point in units 373
4. Break-Even Point in sales $93,333
Requirement B:
The concept of cost behaviour analysis refers to the attempt of the management to
understand how the operating costs of the business changes with the variation in the level of
activity of the firm (Dalla Via and Perego 2014). These costs may include direct cost, indirect
costs and overhead costs of the business which are incurred during the production process.
In order to analyse the cost behaviour for a particular product, the management needs to
establish the cost function. The cost function shows how a cost of a particular product changes
with the variation in the level of activity of the firm (Eaton et al. 2014). An example can be
given of total variable costs which increases as the output of production of a business increases
which establishes a direct relationship between these. Cost behaviour analysis is significantly

16ACCOUNTING SKILLS
important for the manager in order to plan appropriately as to what level of activity will the
business be targeting for that particular year. The cost behaviour will be an important factor in
the decision-making process as to what level of activity will the business be targeting (Drury
2013). In addition to this, various types of analysis can be undertaken in case of cost behaviour
analysis such as qualitative and quantitative analysis and even statistical analysis can also be
applied to such an analysis.
Answer to Question 6:
Requirement A:
Particulars Amount
Annual demand 90000
Cost of Placing Order $30
Carrying Cost per unit $9
Economic Order Quantity 775
Requirement B:
Particulars Amount
Economic Order Quantity 775
Safety Stock 2000
Average Inventory 1388
Requirement C:
In a business where inventory management practices are followed as well as physical
take of the stock is done, errors can take place due to inefficiency of internal controls which is
established in the business (Wild 2017). The stock loss which is due to damage might not be
considered for recording in the accounts books and can only be identified when physical

17ACCOUNTING SKILLS
valuation of stocks are done by the business. Another reason for under or overvaluation of stock
figure in the books of accounts may be due to faulty inventory management software. This will
undervalue or overvalue the stocks of the business and show inaccurate balances for the same in
the ledger accounts (Warren, Reeve and Duchac 2013).
Another instances which can cause inappropriate valuation of the inventories of the
business is due the error of the staff or misappropriation of stocks at the hand of the staffs of the
business. These errors in practices will not be reflected by the books of accounts which shows
the inventory balance and therefore needs physical verification of stocks in order to ascertain the
same (Feng et al. 2014). There are several other instances as well such as inventory which are
warehoused are not recorded and included in the figure of inventory of the business, wrong entry
of inventory in the books of accounts, omission of a value of inventory.

18ACCOUNTING SKILLS
Reference
Ball, R., 2013. Accounting informs investors and earnings management is rife: Two questionable
beliefs. Accounting Horizons, 27(4), pp.847-853.
Burke, R., 2013. Project management: planning and control techniques. New Jersey, USA.
Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by
small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Dalla Via, N. and Perego, P., 2014. Sticky cost behaviour: evidence from small and medium
sized companies. Accounting & Finance, 54(3), pp.753-778.
Drury, C.M., 2013. Management and cost accounting. Springer.
Eaton, J.W., Menzies, N.A., Stover, J., Cambiano, V., Chindelevitch, L., Cori, A., Hontelez,
J.A., Humair, S., Kerr, C.C., Klein, D.J. and Mishra, S., 2014. Health benefits, costs, and cost-
effectiveness of earlier eligibility for adult antiretroviral therapy and expanded treatment
coverage: a combined analysis of 12 mathematical models. The Lancet Global Health, 2(1),
pp.e23-e34.
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university budget
implementation in University of Calabar, Nigeria. European Journal of Business and Social
Sciences, 2(11), pp.11-19.

19ACCOUNTING SKILLS
Feng, M., Li, C., McVay, S.E. and Skaife, H., 2014. Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory management. The
Accounting Review, 90(2), pp.529-557.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper
Saddle River, NJ: pearson.
Ijiri, Y., 2014. The beauty of double-entry bookkeeping and its impact on the nature of
accounting information. Economie Notes by Monte dei Paschi di Siena, 22(2-1993), pp.265-285.
Kelly, J.M. and Rivenbark, W.C., 2014. Performance budgeting for state and local government.
Routledge.
Kerzner, H. and Kerzner, H.R., 2017. Project management: a systems approach to planning,
scheduling, and controlling. John Wiley & Sons.
Kraft, P., 2014. Rating agency adjustments to GAAP financial statements and their effect on
ratings and credit spreads. The Accounting Review, 90(2), pp.641-674.
Sangster, A., 2015. The genesis of double entry bookkeeping. The Accounting Review, 91(1),
pp.299-315.
Surianti, M. and Dalimunthe, A.R., 2015. The Implementation of Performance Based Budgeting
In Public Sector (Indonesia Case: A Literature Review). Research Journal of Finance and
Accounting, 6(12), pp.198-210.
Warren, C., Reeve, J.M. and Duchac, J., 2013. Financial & managerial accounting. Cengage
Learning.
Wild, T., 2017. Best practice in inventory management. Routledge.