Prepare Financial Reports

This article provides a comprehensive guide on preparing financial reports, including accounting principles, general ledger, trial balance, and revenue statements. It also includes a case study on recording assets and an asset register card. The article is relevant for students studying accounting and finance courses in universities and colleges.

Running head: PREPARE FINANCIAL REPORTS
Prepare financial reports
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Name of the university
Student ID
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1PREPARE FINANCIAL REPORTS
Table of Contents
Activity 2A.................................................................................................................................2
Activity 3A.................................................................................................................................3
General Ledger...........................................................................................................................4
Trial balance as at 30th June (Extract)........................................................................................6
Activity 4A.................................................................................................................................6
4.2 Case study............................................................................................................................8
4.3 project work activity..........................................................................................................10
Reference..................................................................................................................................14

2PREPARE FINANCIAL REPORTS
Activity 2A
Accounting principle Describe and state when used
Double – entry bookkeeping principles Double entry of bookkeeping accounting
system states that each transaction from
business will engage 2 or more accounts. It
also allows to establish the accounting
equation that is Assets = Liabilities +
Equities. Except some small entities standard
method of recording the transactions is
through double entry. Whenever there is a
debit entry there shall be an adjusting credit
entry for the same amount.
General journal and general ledger entries General journal is referred as books of the
original entry. In the journal the accounting
entries are listed in accordance with the
dates. General ledger entries are the set of
numbered accounts used by the businesses
for tracking the financial transactions and
preparing the financial reports. General
journal is used when the entity uses the
double entry book keeping system through
debit and credit to maintain the accounting
equation. On the other hand, the general
ledger entries are passed by the businesses
that employ double entry book keeping
system that is each of the financial
transactions have impact on 2 general ledger
accounts and each entry has debit as well as
credit transaction (Easton and Sommers
2018).
Key provisions of relevant accounting and
auditing standards
Auditing and accounting practices are
regulated with worldwide standards.

3PREPARE FINANCIAL REPORTS
Requirement of developing the auditing and
accounting practices created from birth of the
joint stock companies during the year 1844
that was accompanied with the segregation of
ownership and control. The segregation
required that the management shall report to
owners regarding fairness of stewardship and
resources assigned to them on the periodic
basis. Accounting standards are considered as
major regulatory mechanisms while
preparing general purpose financial
statements. It is concerned about the
measurement scheme and the disclosure
principles. On the other hand, auditing
standards are necessary for subsequent
auditing of the financial statements. It is used
for providing the users of financial
statements with the auditor opinion regarding
whether the financial statements are
presented in fair and material aspect (Lane
and Farleigh 2017).
Goods and services tax (GST) regulation GST is 10% fee added by Australian
government to all the services and goods
those are imported to Australia. All the
Australian businesses having turnover of $
75,000 per annum ($ 150,000 for the non-
profit entities) shall register themselves for
GST. For registering under GST, the business
house must have ABN (Australian business
number).

4PREPARE FINANCIAL REPORTS
Activity 3A
Date Particulars Folio Debit Credit
June 1 Colin a/c
Capital
$ 200,000
$ 200,000
June 2 Inventory a/c
Input GST
Accounts payable
$ 6,000
$ 600
$ 6,600
June 15 Rent expenses
Input GST
bank a/c
$ 1,500
$ 150
$ 1,650
June 28 Insurance expenses
Input GST
Bank a/c
$ 300
$ 30
$ 330
June 30 Motor vehicle
Input GST
Bank a/c
$ 22,000
$ 2,200
$ 24,200
June 30 Cash a/c
Sales a/c
Output GST
$ 55,000
$ 50,000
$ 5,000
General Ledger
Bank account
Date Particulars Folio Debit Credit Balance
June 15 Rent expenses with GST $ 1,650
June 28 Insurance expense with GST $ 330
June 30 Motor vehicle purchase with GST $ 24,000 $ 26,180
(Credit)
Capital a/c
Date Particulars Folio Debit Credit Balance
June 1 Colin a/c $ 200,000 $ 200,000
(Credit)

5PREPARE FINANCIAL REPORTS
Inventory a/c
Date Particulars Folio Debit Credit Balance
June 2 Accounts payable $ 6,000 $6,000 (Debit)
GST paid and collected
Date Particulars Folio Debit Credit Balance
June 2 Accounts payable $ 600
June 28 Bank a/c $ 2,380
June 30 Cash a/c $ 5,000 $ 2,020 (Credit)
Rent a/c
Date Particulars Folio Debit Credit Balance
June 15 Bank a/c $ 1,500 $ 1,500 (Debit)
Accounts payable
Date Particulars Folio Debit Credit Balance
June 2 Inventory $ 6,000 $ 6,000 (credit)
Motor vehicle
Date Particulars Folio Debit Credit Balance
June 30 Bank a/c $ 22,000 $22,000 (Debit)
Insurance
Date Particulars Folio Debit Credit Balance
June 28 Bank a/c $ 300 $ 300 (Debit)
Sales
Date Particulars Folio Debit Credit Balance
June 2 Cash a/c $ 50,000 $ 50,000 (credit)

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Trial balance as at 30th June (Extract)
Account name Debit Credit
Bank account $ 26,180
Capital a/c $ 200,000
Inventory $ 6,000
GST $ 2,020
Rent $ 1,500
Accounts payable $ 6,000
Motor vehicle $ 22,000
Insurance $ 300
Sales $ 50,000
Activity 4A
Accounting principle Describe and state when used
Balance sheet function and purpose Main function of the balance sheet is
informing the investors, company owners and
the creditors regarding the liabilities, assets
and shareholder’s equity at specific point of
the time. Purpose of the balance sheet is
revealing the financial status of the business
at particular point of time. It reveals what is
owned by the company in terms of assets,
what is owed in terms of liabilities and the
amount invested as equities (Robinson et al.
2015)
Revenue statements Revenue statement is one of the three major
financial statements used to report the
financial performance of the company over
the particular accounting period. Revenue
statement is mainly focussed on the expenses
and revenues of the company during specific
period of time (Henderson et al. 2015)
 Cost of goods sold  Cost of sales is direct cost that is

7PREPARE FINANCIAL REPORTS
 Gross profit
 Operating net profit
 Unclassified adjusted expenses and
revenues
attributable to goods production or
service supply. It measures the cost
incurred for producing the goods or
the services provided under a
particular period of time.
 Gross profit is the amount of profit
generated by the entity after
deducting all the costs associated with
the producing and selling the products
or the costs incurred for delivering the
services. It is appeared in the income
statement of the company and the
formula used is gross profit =
revenues – cost of sales.
 Operating profit is the residual
income left with the company after
paying all the costs required for
operating the businesses. Along with
COGS it includes the fixed expenses
like rent, rates, insurance and variable
costs like freight, shipping charges,
utilities and payroll (Wang 2014).
 Unclassified adjusted expenses and
revenues are recorded in the income
statement; however, they are not
classified into any classes. Total
amount of the revenue or expenses do
not change irrespective of the fact that
the accounts are classified or
unclassified.

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4.2 Case study
Recording of assets –
 Purchased computer on 1/7/2016 for $ 14,000 with nil residual value and additional $
1,000 for software installation. Method of depreciation is straight line and estimated
useful life is 5 years.
Depreciation = ($ 14,000+$1000 – 0)/5 = $ 3000 per year
 Purchased computer on 1/9/2016 for $ 9,000 with nil residual value and additional $
3,000 for installation. Method of depreciation is straight line and estimated useful life
is 4 years.
Depreciation = ($ 9,000+$3000 – 0)/4 = $ 3,000 per year
 Purchased motor vehicle on 1/8/2016 for $ 18,000 with nil residual value and
additional $ 2,000 for music system. Method of depreciation is straight line and
estimated useful life is 5 years.
Depreciation = ($ 18,000+$2,000 – 0)/5 = $ 4,000 per year
Date Particular Folio Debit Credit
Purchase
01/07/2016 Computer
Software installation
Bank
(Purchased computer through bank)
160
215
220
14000
1000
15,000
01/09/2016 Office furniture
Installation
Bank
( Purchased Machinery)
150
215
100
9000
3000
12,000
01/11/2016 Motor vehicle
Music system
Cash
166
215
100
18,000
2,000
20,000

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( Purchased computer)
Depreciation
30/06/2017 Depreciation expense
Accumulated depreciation- computer
(Depreciation calculated as 20% p.a)
3,000
3,000
30/06/2017 Depreciation expense
Accumulated depreciation-Office furniture
(Depreciation calculated as 25% p.a)
3,000
3,000
30/06/2017 Depreciation expense
Accumulated depreciation-Motor vehicle
(Depreciation calculated as 20% p.a)
4,000
4,000
ASSET REGISTER CARD
Description: Computer Estimated Residual: 0
Asset ID : Comp001 Depreciation Method : Straight line Method
Location :Admin Office Depreciation Rate: 20%
Supplier: ABC Company Estimated Useful Life: 5 Years
Date Details Original capital cost Additional
cost
Total capital cost Depreciation Written down
value
Annual Accumulated
1/7/2016 Comput
er
purchase
d
14,000 1,000 15,000 15,000
30/6/20
17
3,000 3000 12000

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30/06/2
018
3,000 6,000 9,000
30/6/20
19
3,000 9,000 6,000
ASSET REGISTER CARD
Description: Office furniture Estimated Residual: 0
Asset ID : Furn005 Depreciation Method : Straight line Method
Location :Admin Office Depreciation Rate: 25%
Supplier: ABC Company Estimated Useful Life: 4 Years
Date Details Original capital cost Additional
cost
Total capital cost Depreciation Written down
value
Annual Accumulated
1/9/2016 Office
furniture
9,000 3000 12,000 12,000
30/6/20
17
3,000 3000 9,000
30/06/2
018
3,000 6,000 6,000
ASSET REGISTER CARD
Description: Motor vehicle Estimated Residual: 1000
Asset ID : Motr003 Depreciation Method : Straight line Method
Location :Admin Office Depreciation Rate: 20%
Supplier: ABC Company Estimated Useful Life: 5 Years
Date Details Original capital cost Additional Total capital cost Depreciation Written down

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cost valueAnnual Accumulated
1/8/2016 Office
furniture
18,000 2,000 20,000 20,000
30/6/20
17
4,000 4000 16,000
30/06/2
018
4,000 8,000 12,000
30/06/2
019
4,000 12,000 8,000
Additional expenses
Date Service Provider Details of work Provided cost
1/07/2016 Selling company Software installation 1000
01/9/2016 selling company Computer services 3000
01/08/2016 Selling company Music system 2000
Profit or loss on disposal –
Item Carrying value Selling price Profit /( Loss)
Computer 6,150 2000 (4,150)
Office furniture 6,000 7,000 1,000
Motor vehicle 8,000 10,000 2,000
Total profit/(loss) (1,150)
4.3 project work activity
Answer 1

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Register for PPE is the register that lists all the fixed assets owned by business and
includes details like the type of asset, location of the asset, date and purchase price and useful
life of asset. Fixed asset register includes the following items –
 Serial number that shows the entries count
 Identification
 Description of the asset
 Name of the asset
 Date of purchase
 Purchase costs
 Date on which the asset is put to use
 Method of depreciation
 Rate of depreciation
 Amount of the depreciation
 Asset’s gross book value
 Asset’s net book value
 Salvage value expected from the asset
Answer 2
Depreciation is allocation of asset’s cost over the useful life of the asset on systematic
basis. On the basis of generally accepted accounting principles the method of depreciation is
determined. Various factors considered while determining the appropriate method of
depreciation are as follows –
 If it is considered that the equal amount of the asset will be used in each period on
continuous basis throughout the useful life of the asset straight line method will be
most appropriate. Assets for which this method is used are office furniture and
building.
 If the measurable units are produces by the asset, units-of-production method is used.
It allocates the depreciation on per unit basis in each period (Frias‐Aceituno,
Rodríguez‐Ariza and Garcia‐Sánchez 2014).
 If the asset is used more in early years of the asset’s life as compared to the later years
of the asset’s life declining balance method will be appropriate.
Answer 3

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Fixed asset register is maintained on a book or on excel spreadsheet that includes the
below mentioned details –
 Identification and serial number
 Name of the asset
 Date of purchase
 Purchase costs
 Method of depreciation
 Rate of depreciation
 Amount of the depreciation and accumulated depreciation
 Asset’s net book value
At end of each month accountant shall prepare the depreciation schedule for each line
item using the rate of depreciation and describing in the sub-section.
Answer 4
There are 2 ways of computing the depreciation on the assets – diminishing balance
method and straight line method. Hence, the entities are required to determine the appropriate
method that will be suitable for them. Eventually, they are required to record the depreciation
in the journal entry.
Answer 5
Prepaid expenses are the future expenses payment for which has been made in
advance. In other words, the prepaid expenses are for which costs have been paid but the
services has not been availed yet. Prepaid expenses are reported in the balance sheet of the
company under current assets. On the other hand, accrual expenses and revenues are that
which have already been availed or consumed however, the related payment has not yet been
made. Accruals are reported in the balance sheet of the company as liability (Trotman and
Carson 2018).
Answer 6
Bad debts are those debts that are not expected to be recovered. Bad debt expenses are
recorded in the income statement as expense. Bad debts can be recorded in 2 ways –
allowance method or direct write off method. Under direct write off method when it is
probable that invoice from specific customer will not be paid invoice amount is recorded to

14PREPARE FINANCIAL REPORTS
the bad debt expenses directly. It is debit to the bad debt expenses and credit to the receivable
account. on the other hand, as per allowance method while the sales transaction is recorded
an associated amount for bad debt expense is recorded. It is recorded as debit to bad debt
expense account and credit to allowance for the doubtful accounts (Zeff, van der Wel and
Camfferman 2016).
Answer 7
1st journal entry is recorded for clearing the opening balance of inventories through
debiting the income summary and crediting the inventories for an equal amount of opening
balance of inventories. 2nd adjusting journal entry is recorded through debiting the inventories
and crediting the income summary for the inventory values at the closing of the accounting
period (Macve 2015).
Answer 8
Main purposes of the adjusting entries are adjusting the expenses and revenues to
accounting period to which it pertains. After making the entries in accounting journals they
are posted or recorded in the general ledger in same way as other journal entries are recorded.
Answer 9
Every time a transaction takes place shall be recorded. After recording the
transactions in journal, they are transferred to general ledger. Each transaction from the
journal entry shall be posted to ledger. Ledger is the final entry book and is used for
classifying and organizing the transactions. Each of the journal entry is transferred to
individual account. These line items are known as ledger accounts (Cao, Chychyla and
Stewart 2015).
Answer 10
Final ledger accounts are prepared for reflecting the gross as well as net profits to
evaluate the way in which the entity has performed during particular time period. This
evaluation can be used for making future decisions.
Answer 11
Revenue statements are prepared for evaluating the entity’s past performance that
provides the basis for predicting future performance. It is prepared by taking into

15PREPARE FINANCIAL REPORTS
consideration all the revenues and deducting the expenses from that (Minnis and Sutherland
2017).
Answer 12
Balance sheet is prepared for revealing the performance of the company. It is regarded
as the documented proof regarding the assets and liabilities of the company and the claims of
residual ownership against the equity at particular point of time. Balance sheet gives clear
idea regarding the assets of the company and liability claims against it. It is prepared through
showing the assets that is segregated into current assets and non-current assets, liabilities that
is segregated into current liabilities and non-current liabilities and owner’s equity (Kwok
2017).

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Reference
Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement
audits. Accounting Horizons, 29(2), pp.423-429.
Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.
Frias‐Aceituno, J.V., Rodríguez‐Ariza, L. and Garcia‐Sánchez, I.M., 2014. Explanatory
factors of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), pp.56-72.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Kwok, B.K., 2017. Accounting irregularities in financial statements: A definitive guide for
litigators, auditors and fraud investigators. Routledge.
Lane, C. and Farleigh, W., 2017. Annual Report and financial statements.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms:
Evidence from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.
Robinson, T.R., Henry, E., Pirie, W.L., Broihahn, M.A. and Cope, A.T., 2015. International
Financial Statement Analysis, (CFA Institute Investment Series). John Wiley & Sons.
Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage
AU.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.
Zeff, S.A., van der Wel, F. and Camfferman, C., 2016. Company financial reporting: A
historical and comparative study of the Dutch regulatory process. Routledge.