Financial Accounting Reporting and Analysis

This assignment focuses on the fundamentals of financial accounting reporting. It requires students to understand and apply the appropriate format for preparing an Income Statement, Balance Sheet, and Statement of Cash Flows. Specific instructions are given for each report, including the headings, layout, and calculations involved. Students will learn how to present financial information clearly and concisely, using standard accounting principles.

FNSACC404 Prepare financial statements for non-
reporting entities
Assessment 1
Part A – Written questions
Part B – Practical tasks
Student Name: Stan
Avalon
Student Number: XXXX
Assessment Number: 32290/01

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Page 2 of 65

Assessment 1
FNSACC404 Prepare financial statements for non-
reporting entities
Instructions
Once you feel confident that you have covered the learning materials for this unit, you are ready
to attempt this assessment. Write your assessment in a commonly used software program such
as Microsoft Word, or you can download a Microsoft Word copy of this assessment from the
relevant Study Period of your course in OpenSpace.
To help Open Colleges manage your assessment, please use the following file naming
convention when you save your Microsoft Word document.
Your file should be named and saved to your computer’s hard drive using your [student
number]_[assessment number].doc. For example 12345678_22129_01.doc
Assessment submission
When you are ready to submit your assessment, upload the file in OpenSpace using the
Assessment Upload links in the relevant Study Period of your course.
Uploading assessments in OpenSpace will enable Open Colleges to provide you with the
fastest feedback and grade on your assessment. If you upload your assessment in OpenSpace
you do not need to use an Assessment Cover Sheet.
Alternatively, you can print and post your assessment to:
Open Colleges
PO Box 1568
Strawberry Hills NSW 2012
If you are submitting the assessment by post, please ensure that you use the Open Colleges
Assessment Cover Sheet (available in Support in OpenSpace).
Students who submit written assessments by post or via OpenSpace, should allow up to five
days from receipt by Open Colleges for marking and return.
It is important you keep a copy of all electronic and hardcopy assessments submitted to Open
Colleges.
Page 3 of 65

Assessment Description
This unit describes the skills and knowledge required to develop a range of commonly required
financial reports for entities that do not have a statutory duty to file financial reports with
government agencies and regulators.
Assessment Tasks
Assessment
number
Assessment type and methods
32290/01 Part A: Written Questions
Written questions consist of the following assessment method:
- Written responses to assess underpinning knowledge
Part B: Practical Questions
Practical questions consist of the following assessment method:
- Evaluating an integrated activity which combines elements of
the competency.
Page 4 of 65

Marks for this assessment task will be awarded as follows:
Question Marks Total Weighting
Assessment Results
Marks Weighted%
Part A
Q 1-14 38 10%
Part B
1 70 20%
2 20 15%
3 20 15%
4 40 20%
5 20 20%
Total Marks 208 100%
Convert to a %:
Total A + B / 208 x 100
Grades will be awarded as follows:
Grade Marks converted to %
Pass (meet competency requirements per the
competency evaluation below)
50-64%
Credit 65-74%
Distinction 75-84%
High Distinction 85-100%
Page 5 of 65

Part A - Written questions
1. What do we mean by “Accounting”?
Accounting is the process used for the collection, processing and communication
Of financial information.
It does this by recording, analysing, interpreting and recording data from
transactions.
2. List three types of non-reporting entities.
A Registered Charities
B. Social Clubs
c. Health organisations
3. List three pieces of legislation that not-for-profit organisations need to adhere to?
A. The goods and sevices tax act
B. The income tax assessment act
C. The privacy act and its ammendments
4. a) Define the goods and services tax (GST)?
The GST is an indirect tax on private consumption levied at every stage of
production and distribution.
b) Who pays and who collects GST?
Paid by consumers and collected by businesses registered for GST.
c) What is the name of the statement that records GST?
Business activity statement [BAS]
d) At what level of earning do the following organisations have to register for
GST?
(i) sole trader
$75,000 excluding GST
(ii) not-for-profit
Page 6 of 65

$150,000
5. What legislation regulates tax agents and who administers this?
The tax agent services act 2009 and this is regulated by the Tax Practitioners Board.
6. a) Why is it important to have internal controls?
It is important to have internal controls to reduce the risk of mistakes and to ensure
That financial plans are completed accurately.
b) Why is it particularly important for not-for-profit organisations to have internal
control
It is important because most of the accounts are prepared by volunteers who
often do not have a good knowledge of accounting procedures.
7. a) According to the policy and procedures manual in Appendix A of this
assessment, list the three categories or classifications of cash flows in a cash
flow statement.
1. cash flows from operating activities
2. cash flows from investing activities
3 .cash flows from financing activities
b) According to the policy and procedures manual in Appendix A of this
assessment, who is responsible for checking accuracy, verifying and
authorising the financial reports?
The Chief financial officer
c) What process should be undertaken prior to the preparation of any financial
reports to ensure that reporting is in line with original data and provide an
example?
Balance day adjustments to ensure correct information is recorded.
Page 7 of 65

d) List three expenses of a business not included in a cash flow statement.
1. Depreciation
2. Bad debts
3. Discounts allowed
8. List three types of ratios and state what each tells us about a business.
1.Income statement ratios which tells us about the businesses profitability.
Eg. Income statement ratio gives us the profitability ratio
2.Balance sheet ratios which tells us about the businesses liquidity.
Eg. Balance sheet ratio is the liquidity ratio.
3.Combined income and balance sheet ratios which tell us about the
Businesses activity ratios.
Eg.combined income statement and balance sheet ratios give us
The business activity ratios..
9. a) What is a partnership?
A partnership is the relation between two or more persons carrying on
business with
a view to making a profit.
b) List three advantages and three disadvantages of partnerships compared with
sole
traders.
Advantages
4. Greater availability of capital.
5. taxation advantages
6. shared workload
Disadvantages
1.Profits are shared
2. No separate legal entity
3. Partners are jointly liable for
the debts of the partnership.
Page 8 of 65

10. a) What is a not-for-profit organisation?
A not for profit organisation is a club, or an association formed for the
Social, recreational or special interest of their members,. Providing service and
facilities
like sports, social events like clubs do.
b) Who decides which not-for-profit organisations are exempt from income tax?
Not for profit organisations, who are registered with the [ACNC] are exempt from
Paying income tax. So the ATO can be satisfied and exempt them.
c) What details of members are clubs required to keep?
A register of all members and details of individual members, name address,
contact details, type of member, joining date and fee and subscriptions paid.
11. a) Define depreciation.
A reduction in value of an asset over time due mainly to wear and tear.
b) List and explain two methods of calculating depreciation.
1. Straight line method which assumes that the depreciation sustained
Is uniform throughout the effective life of the unit
The formula is assets cost x days held x 100%
365 assets effective life
2.Diminishing value method where the depreciation is greater in the first year
and smaller in each succeeding year.
The formula is base value x days held x 200%
365 assets effective life
12. Refer to the Erbal Remedies policies and procedures manual in Appendix A to
identify:
a) who in the organisation can pay suppliers on behalf of the organisation
The chief financial officer Bookkeeper
Page 9 of 65

b) any limits on the business credit card expenditure
The credit limit is $500
c) any two types of expenditure that need special permission/authorisation
yes purchase of equipment and assets, chief financial officer and financial
accountant needed.
d) Who can authorise the purchase of assets, for example, equipment
The Chief financial officer Financial accountant
13. In reference to the Erbal Remedies policies and procedures manual in Appendix
A, provide the format this organisation uses for its Balance Sheet.
Format must be presented in a vertical format.
Balance Sheet as at ............................(date)
$ $
Current Assets





Other Assets





14. a) What is a non-reporting entity?
Basically a non reporting entity is that a user does not depend on the
information
That general purpose financial statements would provide and can not obtain
this
Information directly themselves. Also there is no clear separation between
management and ownership.
Page 10 of 65

b) Discuss the key differences in the requirements for preparing financial
statements
between a reporting entity and a non-reporting entity.
The key differences are that a reporting entity recquires to produce income
statement, cash flow statement and a balance sheet,. Whilst a non reporting
Entity produces a receipts and payments account, subscriptions account,
Trading account and an income and expenditure account.
c) List three regulations that relate to a business entities’ reporting
obligations.
1. ASAB107 statement of cash flows.
2. ASAB101 presentation of financial statements
3. ASAB1031 materiality
The 2 other examples are
The corporations act 2001 and the income tax
Assessments act [1936 and 1997]
Page 11 of 65

Part B - Practical questions
Question 1: Incomplete records
A friend of yours, Dianna Gordon, has a small business and each year
complains about the cost of her accountant preparing her books. She has no
idea how to prepare ledgers and gets her accountant to prepare an Income
Statement and Balance Sheet. This year she has asked you to give her a
hand. The information she has provided you with is as follows:
Receipts $
Received from accounts receivable 194 000
Discounts allowed 4 000
Payments
Payments to accounts payable 106 400
Wages and salaries paid 73 500
Administration expenses 18 400
Drawings 34 000
Discount received 5 200
Depreciation on equipment 6 000
Assets and liabilities have been determined as follows:
Description 1/07/14
$
30/06/15
$
Inventory 104 000 96 000
Motor vehicles 50 000 50 000
Accounts receivable 275 000 425 000
Equipment 24 000 24 000
Accounts payable 89 400 107 600
Bank (credit balances) 3 150 2 750
Wages accrued 2 000 1 600
You are required to:
1. Calculate opening capital
Page 12 of 65

See attachment
2. Complete ledger accounts to calculate sales, purchases and wages
3.
Sales
Accounts receivable control
account
Details Amount Details Amount
Balance
b/d
275,000 Bank 194,000
Discount
allowed
4,000
Balance c/d 425,000
Credit
sales
348,000
$ 623,000 $ 623,000
See attatchments for purchases and wages
4. Prepare D Gordon’s Income Statement and Balance Sheet as at
30/06/2015
Books of Dianna Gordon
Income statement for period ending 30th June 2015
$
$
Sales
348,000
Less cost of good sold
Opening inventory 104,000
Purchases 129,800
233,800
Page 13 of 65

Less closing inventory 96,000
137,800
Gross profit
210,200
Add other operating income
Discount received
5,200
215,400
Less operating expenses
Administration expenses 18,400
Wages and salaries 73,100
Discount allowed 4,000
Depreciation --- equipment 6,000
101,500
----------
-------------
Net operating profit $
113,900
----------------------------------------------------------------
Question 2: Cash Flow
Another friend, M Sellars, heard that you could prepare accounts and asked if
you could complete a cash flow statement so he could see clearly how much
money is coming into and going out of the business. He gave you a list of
figures he got from his accountant. You need to decide which of these
figures should be included in the Cash Flow statement and then draw up his
Cash Flow Statement for 30/06/2015.
Description $
Cash sales 145 000
Cash received from accounts receivable 86 000
Page 14 of 65

Interest received 1 000
Payments to suppliers 80 500
Payments to employees 54 000
Payments for expenses 17 000
Depreciation 6 000
Bad debts 1 500
Payments to the ATO 14 000
Purchase of equipment 18 000
Repayment of loan 12 000
Drawings 28 000
Balance as at 1/7/14 29 500
Page 15 of 65

Statement of Cash Flows for the year ended 30th June 2015
Cash flows from operating activities
Receipts from customers 231,000
Interest received 1,000 232,000
GST received from the sale of non-current assets
Payments to suppliers and GST 111,500
Payments to employees 54,000
GST paid on purchases of non-current assets 1,636 167,136
Net Cash from operating activities 64,864
Cash flow from investing activities
Receipts: Proceeds from the sale of non-current
assets
Payments: Purchases of non-current assets 16,364
Net cash used by investing activities 16,364
Cash flows from financing activities
Receipts: Additional capital
Payments: Drawings, repayment of loans 40,000
Net Cash from financing activities - 40,000
Net increase in cash 8,460
Cash at the beginning of the year 01/07/2014 29,500
Cash at the end of the year 30/06/2015 37,960
Page 16 of 65

Question 3
Maggie Pie is unsure about her small business and would like to know how she can
analyse her financial performance and position. Maggie has asked you to assist and
has provided the following balance sheet and sales figures for the previous 2 years:
Balance sheet 2014 Total 2015 Total
Current assets
Cash at bank 7 050 9 120
Accounts receivable 21 060 22 600
Inventory 21 200 49 300 28 940 60 660
Non-current assets
Premises 325 000 325 000
Motor vehicles 26 000 30 000
Furniture and fittings 12 400 12 900
Equipment 15 500 378 900 13 300 381 200
Total assets 428 200 441 860
Current liabilities
Accounts payable 25 400 21 300
Non-current
liabilities
Bank loan 101 600 99 700
Total liabilities 127 000 121 000
Net assets $ 301 200 320 860
Owner’s equity $ 301 800 320 860
Sales 495 390 534 700
Gross profit 247 695 267 300
Net profit 26 008 30 777
Page 17 of 65

A. To provide information about Maggie’s business, calculate the following
and prepare a brief report to her about what each of the following ratio’s
indicates about the business:
 Gross profit percentage Gross profit percentage

2014 2015
247,695 267,300
--------------- x 100 = 50 % -------------- x 100 = 50 %
495,390 534,700
REPORT. Gross profit percentage has not changed even though turnover has
increased.
Fair result but we need to increase this percentage and bring it in line with the
industry.
Benchmark which is 62.1%.
 Net profit percentage
2014 2015
26,008 x 100 = 5.2% 30,777 x 100 = 5.7%
495,390 534,700
REPORT. Net profit percentage has increased by .5%
Very good result
 Liquidity ratio
2014 2015
49300:25400 60660:21300
1.94:1 2.84:1
REPORT. Liquidity ratios are also up.
Very good result
 Quick asset ratio Quick asset ratio
Page 18 of 65

2014 2015
[49,300-21,200] [60,660-28940]
28100 : 25400
1.10 : 1 31720 : 21300
1.49 : 1
REPORT. Quick asset ratios a very healthy increase as well.
 Return on asset
2014 2015
2015 30777 x 100 = 6.9%
26008 x 100 = 6% 441860
428200
REPORT. Return on assets nearly a 1 per cent increase.
Very good result.

 Return on investment / capital return on investment / capital
2015
2014 30777 x 100 =
9.6%
26008 x 100 = 8.6% 320860
301800
REPORT. Another healthy result with a 1 per cent increase.
OVERALL REPORT
A. Referring to my above reports I find the business is in fair shape ,firstly our
turnover has increased while maintaining our gross profit percentage but it
should be higher.
We have been able to do this and increase our net profit percentage by .5
per cent and also increase our liquidity and quick asset ratios.
Return on assets and capital a modest one per cent rise.
The business is on its way up and at the moment is giving you a decent
return.
However there is room for improvement.
NOTE: Include in your written report:
Page 19 of 65

a) Commentary about the overall performance of the business as above
b) List three things she could do to improve business performance
b The three things you could do to improve is collect more accounts receivable,
decrease inventory and reduce expenses.
c) Using the charting template (also available on the additional resources page of
your course), create a chart for the Gross Profit Margin by inputting the required
figures – additional information: 2013 Sales were $367 258 and the Gross Profit
was $228 360. Copy the Gross profit margin chart and paste it in this
assessment document.
B. Provide a verbal report to Maggie including:
a) Please refer to the industry benchmarking table below for financial ratio
profile for the carpentry business in the construction industry. Advise Maggie how
her gross profit % (or margin) is tracking compared to the industry average and
how this could be improved. NOTE: You will need to record your advice to
Maggie using the tool here http:// recordmp3online.com and upload your
recording separately with the assessment.
Page 20 of 65

Page 21 of 65

Question 4: Partnerships
a) Cane and Wood are both sole traders who decide to combine their operations and
form a partnership to be called Canewood. They have come to you to ask you to
record the opening journal entries for their new partnership. Each partner contributes
the following to the new partnership with the following agreed valuations:
Description Cane $ Wood $
Land and buildings 540 000
Machinery 468 000
Inventory 46 800 48 000
Accounts receivable 28 800 31 300
Bank 25 600 24 500
Accounts payable 11 400 15 600
Date particulars debit
credit
1/10/15 land and buildings 540,000
Inventory 46,800
Accounts receivable 28,800
Cash at Bank 25,600
Accounts payable
11,400
Capital contributed by cane
629,800
Date particulars debit
credit
1/10/15 machinery 468,000
Inventory 48,000
Accounts receivable 31,300
Cash at bank 24,500
Page 22 of 65

Accounts payable
15,600
Capital contributed by wood
556,200 The partnership of Frog, Lizard and Gecko who share
profits in the ratio of 5:3:2 have asked you to complete the relevant
ledger accounts to dissolve their business. They provide you with their
Balance Sheet as at 31st May and some additional information you will
require to complete this task. You are required to complete their ledger
accounts in order to dissolve their partnership
31/5/2015 . Bank
Date Details Amoun
t
Date Details Amoun
t
30/5/15 balance 9,600 Accounts
payable
36,000
premises 78,000 Capital frog 57,600
Accounts
receivabl
e
21,600 Capital
lizard
25,200
Inventory 26,400 Capital
gecko
7,200
Expenses 9,600
171,000 171,000
Current Account frog
Details Amoun
t
Date Details Amoun
t
Capital 9,600 Balance B/D 9,600
Current Account lizard
Details Amoun Date Details Amoun
Page 23 of 65

t t
capital 7,200 Balance B/D 7,200
Current Account gecko
Details Amoun
t
Details Amoun
t
capital (12,000
)
Balance B/D (12,000
)
Capital account frog
Details Amoun
t
Details Amoun
t
REALIZATIO
N A/C
12,000 Balance B/D 60,000
BANK 57,600 Current
account
9,600
69,600 69,600
Capital account lizard
Details Amoun
t
Details Amoun
t
Realization
a/c
10,800 balance 36,000
REALIZATIO 7,200 Current 7,200
Page 24 of 65

N A/C account
BANK 25,200
43,800 43,800
Capital account gecko
Details Amoun
t
Details Amoun
t
REALIZATIO
N A/C
4,800 balance 24,000
BANK 7,200 Current
account
(12,000
)
12,000 12,000
Realisation Account
Date Details Amoun
t
Date Details Amount
premises 112,800 LESS
DEPRECIATION
accumulated
PREMISES
18,000
Accounts
receivable
28,800 LESS
ACCUMULAT
ED
DEPRECIATIO
N MOTOR
VEHICLE
13,200
inventory 32,400 LESS PROVISION
FOR
DOUBTFUL
DEBTS
4,800
Expenses
bank 9,60
0
MOTOR VEHICLE
LIZARD
10,800
Motor vehicle 37,200 PROCEEDS
FROM SALE
OF PREMISES
78,000
ACCOUNTS
RECEIVABLE
21600
Page 25 of 65

LESS
MORTGAGE
24,000
Proceed from
sale of
inventory
26,400
CAPITAL A/C
FROG
12,000
CAPITAL A/C
LIZARD
7,200
CAPITAL A/C
GECKO
4,800
220,800 220,800
Page 26 of 65

Balance Sheet as at 31/05/2015
Non-current assets
Premises 112 800
Less accumulated depreciation 18 000 94 800
Motor vehicle 37 200
Less accumulated depreciation 13 200 24 000
Current assets 118 800
Inventory 32 400
Accounts receivable 28 800
Less provision for doubtful debts 4 800 24 000
Bank 9 600
184 800
Current liabilities
Accounts payable 36 000
148 800
Capital
Capital Frog 60 000
Capital Lizard 36 000
Capital Gecko 24 000 120 000
Current Account Frog 9 600
Current Account Lizard 7 200
Current Account Gecko (12 000) 4 800
Non-current liabilities 124 800
Mortgage on premises 24 000
148 000
Page 27 of 65

Additional information
1. Premises realised $78 000 after the mortgage had been paid
2. Lizard took over the vehicle at an agreed value of $10 800
3. $21 600 was received from accounts receivables
4. Inventory realised $26 400
5. Expenses of the dissolution amounted to $9 600
Question 5: Not-for-Profit organisations
Recently you joined the Sun and Sand Sports Club. After only attending for a short while and to
get to know more people in the club you decided to go to a meeting. In this meeting you
discovered that the treasurer had moved away from the area and the club had no one who was
willing or able to do the club accounts. You volunteered and were given the following
information about the club:
Receipts $
Entrance fees (refundable) 436
Subscriptions 6 865
Coffee shop sales 18 200
Hire of hall 5 200
Sporting equipment hire 10 900
Payments
Payment to creditors for coffee shop supplies
9 200
Coffee shop wages 6 200
Administration wages 1 200
Crockery replacement 150
Insurance 500
Sporting equipment purchase 2 000
Laundry 1 560
Members subscription account Page 28 of 65

Date Details Amoun
t
Date Details Amoun
t
1/7/14 Arrears b/d 427 1/7/14 Advance
b/d
528
30/6/15 I & E a/c 6,835 cash 6,865
1/7/15 Advance c/d 477 Arrears c/d 346
$ 7,739 $ 7,739
1/7/15 ARREARS
B/D
346 1/7/15 ADVANCE
C/D
477
Additional information: 1/7/14
$
30/6/15
$
Subscriptions in arrears 427 346
Subscriptions in advance 528 477
Accounts payable 498 526
Coffee shop wages accrued 90 120
Insurance prepaid 50 50
From this information you prepared a Member’s Subscription Account, a Coffee Shop Trading
Account and a Club Income and Expenditure Account. You have been asked to present these
at the next meeting. Coffee shop wages account
Coffee shop wages account
Date Details Amoun
t
Date Details Amoun
t
bank 6,200 1/7/14 Balance b/d 90
30/6/15 Balance c/d 120 3/6/15 Coffee shop
trading
6,230
Page 29 of 65

accont
$ 6,320 $ 6,320
Coffee shop trading account
D Details Amoun
t
Date Details Amoun
t
purchases 9,200 sales 18,200
wages 6,230
I&E account 2,620
Crockery
replacements
150
$ 18,200 $ 18,200
Page 30 of 65

Income and expenditure account
Da
t
e
Details Amoun
t
Date Details Amou
nt
Subscription fees 6835
Wages admin 1,200 Entrance fees 436
Insurance 500 Coffee shop
income
2,620
Sports
equipment
2,000 Sports hire income 10,900
laundry 1,560 Hall hire income 5,200
Excess income
over
expenditure
20,731
25,991 25,991
Appendix A
Finance Policy and Procedure Manual
Erbal Remedies
Table of Contents
Introduction........................................................................................... 19
Finance Authorisation Policy..................................................................20
Purpose of the Policy.........................................................................20
Procedures......................................................................................... 20
Bank Account Policy............................................................................... 21
Purpose of the Policy.........................................................................21
Page 31 of 65

Procedures..................................................................................... 21
Variations to Bank Account Terms and Conditions............................21
Closing Bank Accounts.......................................................................22
Bank Account Transactions................................................................22
Cash Banking................................................................................. 22
Credit Card Banking.......................................................................22
Direct Deposits.............................................................................. 22
Stale Cheques................................................................................ 22
Stop Cheques................................................................................. 23
Petty Cash Policy................................................................................... 24
Purpose of the Policy.........................................................................24
Procedures......................................................................................... 24
Issuing Petty Cash.........................................................................24
Reconciling Petty Cash..................................................................24
Use of Business Credit Card Policy.........................................................26
Purpose of the Policy.........................................................................26
Procedures......................................................................................... 26
New Supplier Policy................................................................................ 27
Purpose of the Policy.........................................................................27
Procedures......................................................................................... 27
Choosing a New Supplier...............................................................27
Supplier Selection Background Information...................................27
Supplier Selection Review Checklist..............................................27
Appointment of Supplier................................................................28
Supplier Payment Terms................................................................28
Purchasing Policy................................................................................... 29
Purpose of the Policy.........................................................................29
Procedures......................................................................................... 29
Request for Purchase.....................................................................29
Equipment Asset Purchases...............................................................30
Service Agreements.......................................................................30
Page 32 of 65

Receipt of Purchases..........................................................................30
Additional Policies for Purchasing..................................................30
Stock Control Policy............................................................................... 31
Purpose of the Policy.........................................................................31
Procedures......................................................................................... 31
Purchase of Stock..........................................................................31
Receiving Stock................................................................................. 31
Managing Stock................................................................................. 32
Additional Policies for Stock Control Policy........................................33
Supplier Payments Procedure................................................................34
Purpose of the Procedure...................................................................34
Procedures......................................................................................... 34
Reconciliations and Checks...........................................................34
Prepare Supplier Payments............................................................34
Pay Suppliers................................................................................. 34
Chief Financial Officer to provide 2nd authorisation........................34
Reporting....................................................................................... 34
Storage.......................................................................................... 35
New Customer Policy............................................................................. 36
Purpose of the Policy.........................................................................36
Procedures......................................................................................... 36
Choosing a New Customer.............................................................36
Customer Background Information................................................36
Customer Review checklist............................................................36
Appointment of Customer..............................................................36
Customer Credit Terms......................................................................37
Additional Policies for Customers...................................................37
Customer Credit Limit Policy..................................................................38
Purpose of the policy.........................................................................38
Procedures......................................................................................... 38
Review outstanding orders and sale history..................................38
Page 33 of 65

Credit limit is breached due to outstanding payments..................38
Review payment terms for the customer.......................................39
Customer Debt Collection Policy............................................................40
Purpose of the Policy.........................................................................40
Procedures......................................................................................... 40
Doubtful Debts............................................................................... 41
Accounting principles and assumptions.................................................42
Purpose of the Policy.........................................................................42
‘Bookkeeping’ or ‘Accounting’ Entity Principle...............................42
Historical cost principle..................................................................42
Matching principle.........................................................................42
Principle of double entry................................................................42
The accounting period convention.................................................42
The going concern principle...........................................................43
Principle of control.........................................................................43
Principle of materiality...................................................................43
Principle of conservatism...............................................................43
Principle of consistency.................................................................43
Principle of disclosure....................................................................43
Monetary convention.....................................................................43
Page 34 of 65

Introduction
The Charlie’s Charter Services Financial Policy and Procedure Manual provides the
policies and procedures for finance transactions within the business which must be
followed by all staff. It also provides guidelines Charlie’s Charter Services will use to
administer these policies, with the correct procedure to follow.
Charlie’s Charter Services will keep all financial policies current and relevant. From
time to time it will be necessary to modify and amend some sections of the policies
and procedures, or to add new procedures.
Any suggestions, recommendations or feedback on the policies and procedures in
this manual are welcome.
These policies and procedures apply to all employees.
Page 35 of 65

Finance and Reporting
Authorisation Policy
Policy Number: FIN-1
Policy Date: 1st January 2015
Purpose of the Policy
All finance transactions as noted in this policy are to be authorised by the noted
authorised person prior to the transaction being undertaken.
This policy is to be read in conjunction with other specific finance policies where
relevant.
Procedures
Prior to any of the following finance transactions being undertaken, the authorising
person noted must authorise the transaction.
Where additional policy is noted, this policy must also be adhered to when
undertaking the finance transaction.
Finance Transaction Authorised Person Additional Policy
Bank Accounts Chief Financial Officer Bank Account Policy, FIN-2
Issuing Petty Cash Bookkeeper Petty Cash Policy, FIN-3
Business Credit Card Chief Financial Officer Use of Business Credit Card,
FIN-4
Authorising New
Customers
Bookkeeper New Customer Policy, FIN-8
Authorising New
Suppliers
Bookkeeper New Supplier Policy, FIN-5
Purchasing Stock Bookkeeper Purchasing Policy, FIN-6
Purchasing Assets/
Equipment
Chief Financial Officer Purchasing Assets and
Equipment Policy, FIN-11
Page 36 of 65

Finance Transaction Authorised Person Additional Policy
Debt Collection Bookkeeper Customer Debt Collection
Policy, FIN-10
Payment of Invoices Chief Financial Officer Payments Policy, FIN-12
Preparation of financial
reports:
 Income Statement
 Balance Sheet
 Statement of cash
flows
Chief Financial Officer Accounting Principles and
assumptions, BK-1
Page 37 of 65

Bank Account Policy
Policy Number: FIN-2
Policy Date: 1st January 2015
Purpose of the Policy
This policy sets out the requirements for use of bank accounts, including opening,
closing authorisation, variations to terms and conditions, reconciliation of bank
accounts and bank account transactions.
Procedures
Opening Bank Accounts
Any new bank accounts to be opened for the business must have the authorisation of Chief
Financial Officer.
For each new bank account opened, the financial system must be updated and the
bank account registered by Bookkeeper.
Bank Account Authorisations
For monies withdrawn from any bank account, whether by cheque, EFT or other
online payment method, there must be two persons authorising for each payment.
The authorised persons for bank account payments are:
Chief Financial Officer
Bookkeeper
Each payment made must be supported by invoice, receipt or other appropriate
documentation and the authorisations must be attached to this documentation prior
to payment.
Variations to Bank Account Terms and
Conditions
Any variations to banking arrangements can be made or varied by Chief Financial Officer.
Bookkeeper is responsible for updating the financial system and/or bank account
register with the new information.
Page 38 of 65

Closing Bank Accounts
Where it is decided that a bank account is no longer necessary, Chief Financial Officer
will authorise the closure of the bank account.
The Bookkeeper will then be required to complete the following:
 ensure all transactions with respect to the account (including cheques drawn)
have been completed;
 lodge with the bank a letter, signed by two authorised signatories advising of
the closure of the account;
 meet the bank's requirements with respect to account closure; and
 update the financial system and bank account register.
Bank Account Transactions
Cash Banking
End of Day Reconciliation of the POS system is to have 2 staff involved. The Sales
Manager to reconcile the day’s takings and the Accounts Clerk to review and
perform the banking.
All deposits received must be banked within two days from receipt.
Deposit books are stored in the locked Finance filing cabinet. Bookkeeper and Chief
Financial Officer hold keys and are responsible to ensure this cabinet is locked at all
times.
Credit Card Banking
Credit Card payments are receipted and deposited same business day.
Direct Deposits
Unallocated direct deposits of more than one month will be investigated fully to
determine source of deposit. Where the source cannot be identified, the deposit
will be allocated to Suspense account, to keep these funds separate and
identifiable.
Stale Cheques
Cheques outstanding for more than twelve months will be reallocated back to the
business through the financial system.
Page 39 of 65

Stop Cheques
Where a payment stop on a cheque is required, this will be authorised by Chief Financial
Officer.
Bookkeeper will be responsible for carrying out the following duties in regards to
payment stop on a cheque:
 ensuring the cheque has not already been presented at the bank;
 getting authorisation to action the stop payment using appropriate forms
from the bank;
 ensuring the bank receives notification of the stop payment notice;
 receiving confirmation of action from the bank of the stop payment; and
 ensuring the details of the stop payment are kept in the stop payment folder.
Page 40 of 65

Petty Cash Policy
Policy Number: FIN-3
Policy Date: 1st January 2015
Purpose of the Policy
Petty cash should be used to pay for small business expenses up to $100 where
payments through accounts payable or credit card are not justified or appropriate.
Procedures
Issuing Petty Cash
Erbal Remedies allows a Petty Cash Float of $200.
Petty cash vouchers must be completed before any cash is taken from the petty
cash float.
Only up to $100 can be disbursed at any one time.
All petty cash vouchers issued must be approved by Bookkeeper.
Once the petty cash is spent, a receipt or invoice should be attached to the voucher
and returned to petty cash with any balance of monies unspent.
All completed vouchers must have the following details included:
 Issue date of voucher;
 Name of person issued the voucher;
 Amount of monies disbursed;
 Details of expense;
 Invoice or receipt; and
 Signature of approval person,
Reconciling Petty Cash
Petty cash float is to be reconciled monthly. This is the responsibility of Bookkeeper.
All petty cash expenditure must be entered into the financial system once the petty
cash has been reconciled.
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The balance of monies and vouchers must equal the petty cash float amount before
reimbursement can be made.
Reimbursement of petty cash will be authorised by Chief Financial Officer.
Page 42 of 65

Use of Business Credit Card Policy
Policy Number: FIN-4
Policy Date: 1st January 2015
Purpose of the Policy
This policy provides guidelines for the issue and use of business credit cards.
Procedures
An employee will only be issued a credit card once the Credit Card Authorisation
Form has been completed.
The business credit card can only be used for travel, authorised entertainment and
purchases of small value expenses or equipment up to the value of $ 500.
No cash advances are to be taken using the business credit card unless authorised by Chief
Financial Officer.
Where a business credit card is lost or stolen, then the owner of this card is to notify
Bookkeeper who is responsible for notifying the issuing agency and ensuring the
card is cancelled.
The use of the business credit card is not to be used for personal expenses.
All holders of business credit cards are required to reconcile the monthly credit card
statement to the expense form, attach all receipts for payments made on the credit
card and have the expense statement authorised by their manager.
Upon completion and authorisation of the monthly expense statement, these documents are to
be forwarded to Bookkeeper for payment of the credit card statement.
All business credit cards are to be returned to the business when the person is
requested to by Bookkeeper or where they are no longer an employee of the
business.
Page 43 of 65

New Supplier Policy
Policy Number: FIN-5
Policy Date: 1st January 2015
Purpose of the Policy
All new suppliers to the business must be reviewed and accepted in accordance
with this policy to ensure that the supplier service is aligned with the business
objectives.
Procedures
Choosing a New Supplier
A new supplier must provide our business with quality product, great service,
competitive pricing, and efficient delivery.
For each new supplier the following information table must be completed prior to
agreeing services
Supplier Selection Background Information
Business Name of Supplier: _______________________________________________________
Location of Supplier: ______________________________________________________________
Products/Services provided by supplier: ___________________________________________
(Attach a list if necessary)
Name of business owner/ sales representative:____________________________________
How many years has the supplier been trading?:__________________________________
Supplier Selection Review Checklist
For each new supplier being considered the following checklist must be completed
Is the supplier pricing competitive? Attach list to this checklist: ___________________
What are the payment terms for this supplier? ____________________________________
What is the return policy for this supplier? ________________________________________
Does the supplier provide warranties, guarantees etc.? ___________________________
Are the suppliers representatives knowledgeable of the products/ services and
industry? _________________________________________________________________________
Page 44 of 65

Is there an alternative to this supplier, has the alternative supplier been
considered? ______________________________________________________________________
What are the delivery services of the supplier? ____________________________________
Has a credit check been undertaken for the supplier (attach to this checklist)? ____
Has the Personal Property Securities Register (PPSR). been reviewed? _____________
Has the supplier been trade checked (attach this to this checklist)? _______________
Appointment of Supplier
The appointment of a new supplier will be authorised by Bookkeeper.
Accounts Clerk will enter all relevant details of the supplier into the financial system
once approval is obtained from Bookkeeper.
Bookkeeper will review information entered into the financial system and
independently verify the bank account or other payment details of the supplier to
ensure payments made are to the correct supplier.
The purchasing department will be notified within one week of the new supplier
being approved
Supplier Payment Terms
All purchases from suppliers must be supported by a purchase order – refer to the
Purchasing and Stock control policy
Payment terms for all suppliers must be reviewed by Bookkeeper at least once a
year. Following this review each supplier must be approached to seek improved
payment terms by Bookkeeper.
All supplier payment terms must be a minimum of 14 days.
Any variation to the above must be authorised by Chief Financial Officer.
All supplier payments are to be reviewed at least once a quarter to ensure that
payment terms are adhered to. For payments made to any suppliers earlier or later
than the agreed terms Bookkeeper will prepare a report that details the reasons
why payment terms have not been adhered to.
This report will be reviewed and authorised by Chief Financial Officer.
Additional Policies for Suppliers
Purchasing Policy
Stock Control Policy
Page 45 of 65

Purchasing Policy
Policy Number: FIN-6
Policy Date: 1st January 2015
Purpose of the Policy
This policy provides guidelines for the purchase of goods, services, equipment and
assets for the business.
This policy is applicable for all purchases over $100.
Where items to be purchased are less than $100, then the petty cash policy is to be
used.
Procedures
Request for Purchase
All purchases for business items must be requested through a purchase order.
All items over the value of $500 must be supplied by authorised suppliers – refer to
the New Suppliers Policy where the supplier is not an existing supplier.
For items over the value of $1,000 three quotations must be provided.
A request for purchase must address the following criteria:
 Purchasing that promotes environmental sustainability;
 Value for money; and
 Preference to Australian/locally produced.
All purchase orders must be authorised within the following guidelines:
Items Purchased Persons Authorised Second Authorisation
Retail Stock Bookkeeper Sales Manager
Spare parts,
components etc.
Bookkeeper Spare Parts Manager
Equipment Chief Financial Officer Financial Accountant
Assets Chief Financial Officer Financial Accountant
Page 46 of 65

All authorised purchase orders are to be copied and one distributed to accounts
payable with estimated payment date and one to Bookkeeper who will check receipt
of purchase against the purchase order when received.
Equipment Asset Purchases
All equipment and asset purchases must be entered in the financial system by
Bookkeeper with the following details included:
 Date of purchase;
 Supplier; and
 Make, model, warranty/guarantee information.
Service Agreements
All agreements for the provision of services to the business in excess of $500 are to
abide by this policy.
Receipt of Purchases
All purchases received are to be checked against purchase order and noted as
correctly supplied.
Once correct receipt has been recorded, this will be recorded on purchase order and
forwarded to accounts payable for payment of purchase.
Additional Policies for Purchasing
Petty Cash Policy
Use of Business Credit Card Policy
Stock Control Policy
Page 47 of 65

Stock Control Policy
Policy Number: FIN-7
Policy Date: 1st January 2015
Purpose of the Policy
This policy provides guidelines for monitoring and managing the amount of stock
within the business to ensure that there are suitable levels of stock available to
customers at all times. This policy covers stock on board, stock in store, stock in
storage, and stock in distribution centre.
It is the Stock Control Manager’s responsibility to ensure that all employees adhere
to the stock control policy.
Procedures
Purchase of Stock
It is Stock Purchases Manger responsibility to:
1) Identify core stock and ensure that appropriate levels are held at all times
2) Monitor all stock levels and ‘stock turns’ (twice a year)
3) For fast-moving stock negotiate with suppliers for ‘just in time’ deliveries where
possible
4) Regularly review sales budgets and order necessary stock in line with budgets
5) Negotiate with suppliers for best price, quality, delivery methods and returns
policy
6) Order all stock required
7) Maintain “preferred suppliers” list
8) Keep up to date with customer and market trends and seek out new product for
recommendation to the Stock Manager
Purchase of all stock must be authorised by Stock Control Manager and Bookkeeper.
All stock purchases must be requested by using a purchase order form and adhere
to the purchasing policy.
Page 48 of 65

Receiving Stock
When stock is received from the supplier, it is Stock Control Manger responsibility
to:
 Review delivered items to delivery docket, including quantity, quality and
completeness of order
 Match delivery docket to purchase order
 Follow up and ensure correct stock order will be received where there is a
possible issue on delivery such as under/over-supply, damaged goods etc.
 Store the stock securely and in appropriate area
 Update all stock records for receipt of goods
 Inform Sales Manager of any under/over supply or damaged goods
Managing Stock
It is Stock Control Manager’s responsibility to:
 Identify core stock and ensure that appropriate levels are held at all times
 Monitor all stock levels and stock turns
 Regularly review sales budgets and ensure that stock is ordered in line with
budgets
 Understand each stock item – which items are the fast and slow moving stock
 Monitor re-order levels and ensure orders are placed in adequate time to
reduce non-availability of core or necessary stock items
 Ensure that all stock items are priced in line with Pricing Policy and Mark-up
Policy
 Ensure that all marked down and discontinued stock items are marked down
in line with Discounting Stock Policy and Mark-downs Policy
 Meet weekly with Stock Purchases Manager and Sales Manager to co-ordinate
stock purchases, review stock performance, sales performance and any other
matters that should be addressed regularly in regards to monitoring stock
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 Ensure that all staff are aware of new product, price changes and procedures
for accurate recording of all stock movements
 Ensure that there are adequate controls (physical and administrative) in
place to minimise theft and/or waste of all stock items
 Organise and oversee physical stock take twice a year and match records of
stock take to administrative and financial records
Page 50 of 65

It is all sales employees’ responsibility to:
 Identify core stock and ensure that appropriate levels are held at all times
 Raise purchase orders for low levels of stock
 Adhere to Mark-downs Policy, Discounting Stock Policy, Visual Display Policy
 Understand the importance of good stock control
 Keep up to date with stock pricing and new products
 Ensure that all stock records are kept accurately
 Ensure that all stock is securely stored to minimise theft and wastage
Additional Policies for Stock Control Policy
Purchasing Policy
Finance Authorisation Policy
New Supplier Policy
Pricing Policy
Mark-up Policy
Discounting Stock Policy
Mark-downs Policy
Visual Display Policy
Page 51 of 65

Supplier Payments Procedure
Procedure Number: BK-2
Procedure Date: 1st January 2015
Purpose of the Procedure
This procedure lists the steps taken by and provides provides guidelines for Erbal
Remedies in relation to the handling, recording, payment, reporting and storage of
supplier invoices.
It is Bookkeeper responsibility to ensure that all employees adhere to the supplier
payments Procedure.
Procedures
Reconciliations and Checks
Reconcile outstanding suppliers against supplier statements.
Check supplier credit notes have been received and entered.
Validate supplier ABN.
Confirm banking details for payment are correct.
Confirm supplier terms are as agreed.
Prepare Supplier Payments
Bookkeeper to email Chief Financial Officer the list of suppliers to pay.
Process supplier payments as per list.
Create bank supplier payment file.
Pay Suppliers
Bookkeeper to gain authorisation from Chief Financial Officer to upload supplier
bank file to process supplier payment.
Chief Financial Officer to provide 2nd authorisation.
If a cheque payment is to be made, follow the same process. Bookkeeper to draw
the cheque and Chief Financial Officer to provide 2nd authorisation.
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Reporting
Email supplier remittances
Email Chief Financial Officer outstanding suppliers still to pay
Storage
Accounts clerk to file supplier invoices and related documents electronically on
server for auditing purposes. H:\Finance\Supplier Invoices\Supplier Name.
Documents are filed as Date (backwards), Doc No, Amount (no special characters or
decimal points).
For example:
H:\Finance\Supplier Invoices\Supplier Name\20150815 INV123 5500.
Each financial year the Finance drive will be archived, keeping the current financial
year and the previous financial year.
Page 53 of 65

New Customer Policy
Policy Number: FIN-8
Policy Date: 1st January 2015
Purpose of the Policy
All new customers to the business must be reviewed and accepted in accordance
with this policy. This policy is to be read together with Customer Credit Limits
Policy.
Procedures
Choosing a New Customer
A new customer must support our business with good credit quality, and prompt
payment history.
For each new customer the following information table must be completed prior to
agreeing services
Customer Background Information
Business Name of Customer:
Location of Customer:
Products/Services required by customer:
( Attach a list if necessary)
Name of business owner/ sales representative:
How many years has the customer been trading?:
Customer Review checklist
For each new customer being considered the following checklist must be completed
Have trade references been sourced for the new customer:
(Attach copies)
Has the customer been informed of the trade terms of payment terms e.g. 7 days
from invoice and agreed to these terms? :
Has the new customer completed a credit application form? :
(Attach completed form)
Has the Personal Property Securities Register (PPSR) been reviewed?:
Page 54 of 65

Appointment of Customer
The appointment of a new customer will be authorised by Bookkeeper.
Each new customer will have a credit limit set. This credit limit will be set in
accordance with the Customer Credit Limits policy
All new customers must be given the New Customer Letter, which must be signed
and returned by the customer before any sales are to take place.
Accounts Clerk will enter all relevant details of the new customer into the financial
system once approval is obtained from Bookkeeper.
Bookkeeper will review information entered into the financial system to ensure all
information is correct.
The sales department will be notified within one week of the new customer being
approved
Customer Credit Terms
All customer payment terms must be 7 days.
Where a customer has requested longer payment terms than the policy, this should be referred
to and authorised by Chief Financial Officer.
All customer payments are to be reviewed once a quarter to ensure that payment
terms are adhered to. For payments made outside of the agreed terms Bookkeeper
will prepare a report that details the reasons why payment terms have not been
adhered to.
This report will be reviewed and authorised by Chief Financial Officer.
Additional Policies for Customers
Customer Credit Limits Policy
Customer Debt Collection Policy
Customer Service Policy
Page 55 of 65

Customer Credit Limit Policy
Policy Number: FIN-9
Policy Date: 1st January 2015
Purpose of the policy
This policy is to make sure a customer doesn’t get too far into debt with you without
a payment plan being put into place or work stopped.
Procedures
Reports on customer credit must be run every monthly.
When a credit limit is breached all relevant staff will be notified. This includes sales,
distribution, accounts collection.
Any current outstanding orders should be stopped until the breach in the credit limit
has been rectified. All staff working on the order or sale e.g. sales, distribution,
accounts collection for the customer should not carry out further work until
authorised by Bookkeeper or accounts collection.
Review outstanding orders and sale history
If the customer has a large number of orders outstanding or has increased the
volume of orders since the last credit review, then a review of the credit limit must
be undertaken.
This is the responsibility of Sales Manager.
If the credit limit needs to be increased, Chief Financial Officer must approve this.
Once this has been approved, all staff working on outstanding orders must be
notified to restart the customer’s orders.
Credit limit is breached due to outstanding payments
Bookkeeper must make a list of all outstanding payments.
Bookkeeper must ring the customer and explain that further orders cannot be
processed until the account has been paid. Explain that a payment will need to be
made before the next order can be processed.
If the customer is having difficulty, make a schedule of payments to bring them
back in line with their credit limit.
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Get the signoff of Chief Financial Officer before discussing this option with the customer.
Use the following script to assist with the call:
“Hi John, how are you? Just thought I would give you a ring about your outstanding
orders. Unfortunately we have noticed that payments for previous sales have fallen
behind on your account and these will need to be paid for before we can process
the next set of orders. Are you able to fix this up today so we can continue on your
order?”
If they cannot pay on the day of the phone call, then get an expected payment date
from them and confirm that any outstanding orders cannot start until the payment
is made.
Review payment terms for the customer
If the customer has increased the volume or value of orders since the last credit
review, the payment terms must also be reviewed by Bookkeeper.
Where large orders are being placed then the payment terms should include deposit
on order and/or progressive payments for each order. This must be discussed and
agreed with the Sales Manager and Bookkeeper.
Page 57 of 65

Customer Debt Collection Policy
Policy Number: FIN-10
Policy Date: 1st January 2015
Purpose of the Policy
This policy provides guidelines for the collection of late payments from customers.
Procedures
An aging debtor report is to be run every week. All overdue customer payments are
to be noted and the following procedures undertaken until recovery of outstanding
amounts.
Bookkeeper records each step in a collections table for the Chief Financial Officer’s
perusal.
Bookkeeper stores the all ageing and collections reports in the locked Finance filing
cabinet.
 First Contact: Once the payment is overdue phone or email the customer.
Remind them that payment is due and has not been received. Ask them
when they will be paying you and keep a record of the conversation or email.
Remember to be nice, they may have forgotten or paid into the wrong bank
account.
 Overdue reminder: If they do not respond to the phone call or email, try
contacting someone else in the business. Let them know who you are trying
to contact. This often results in a return response from either the person you
were trying to contact or someone else from the business. Make a note of all
conversation details on the overdue customer payment record.
 Final notice: When a payment is overdue for 45 days a final notice is to be
sent either by phone or email. A record of this notice must be entered onto
the overdue customer payment record
 Direct contact: Where there has been no response to the final notice within
7 days then Sales Manager must either visit the customer or phone where
previous contact has been by email. The purpose of this step is to secure a
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date of payment. A record of this notice must be entered onto the overdue
customer payment record.
Formal letter of demand: Where payment remains outstanding 60 days and there has been an
unsatisfactory response from the customer, authorisation from Chief Financial Officer for the
formal letter of demand to be issued must be obtained. Once authorised, this letter is to be sent
via registered mail and a record of this notice must be entered onto the overdue customer
payment record.
Debt collection agency: Where the amount outstanding is in excess of $300 and Chief
Financial Officer has approved, a debt collection agency is to be appointed to recover the debt.
Write off debt: Customer payments that remain outstanding for 120 days are to be written off
as bad debts and no further sales are to be undertaken with that customer without approval
from Chief Financial Officer.
Doubtful Debts
Using historical records and ageing reports, Erbal Remedies determines that 5% of
accounts typically will not be collected. This amount is reported on the Balance
Sheet by Bookkeeper.
Page 59 of 65

Accounting principles and
assumptions
Policy Number: BK-1
Policy Date: 1st January 2015
Purpose of the Policy
This policy provides guidelines for the application of various accounting
assumptions and principles regarding the treatment of various transactions that
impact the way they are recorded. These assumptions and principles ensure that
there is consistency within the Erbal Remedies accounting system, and also when
compared to another so that the information is reliable.
‘Bookkeeping’ or ‘Accounting’ Entity Principle
All transactions must be recorded from the point of view of Erbal Remedies, which is
regarded as a separate accounting entity from the owner, Charlie Morris. This
means that the accounting system is designed to produce financial information only
on the business.
Non-business (e.g. private) expenses paid from the business bank account will not
be classified as business expenses. Those payments will be recorded as Drawings.
They represent a reduction in the owner’s equity in the business and will not be
included in determining profit.
Historical cost principle
All transactions are initially recorded at cost. However, after initial recognition, the
accounting standards sometimes divert from this principle. For example, where an
item of stock cannot be sold at or above cost price, it must be valued at its net
realisable (net resale) value.
Matching principle
The costs of earning income (expenses) should be recorded in the same period as
the income they helped to earn. The result is the profit (or loss) for the period.
Principle of double entry
Each transaction has at least two parts, and affects at least two accounts. For every
debit there is an equal credit.
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The accounting period convention
The life of Erbal Remedies can be divided into equal time periods for the purpose of
determining profit. This is generally one year, but can be six months, a quarter or a
month.
The going concern principle
Erbal Remedies is assumed to have a continuing financial life. This means the entity
will be able to realise its assets and discharge its liabilities in the normal course of
business.
Principle of control
Internal controls over cash and the accounting system as a whole have the effect of
minimising error and fraud. As a result, the information generated from the
accounting system can be relied upon.
Principle of materiality
The materiality principle recognises that all information need not be separately
disclosed (reported) but may be grouped. For example, reporting salary and wages
expenses would be material but it would not be necessary to itemise salaries and
wages into gross wages, overtime and allowances.
Principle of conservatism
The conservatism principle recognises that when doubt exists for entries that
require judgment or estimates, you should choose the option that would result in
profit or assets being understated rather than overstated.
Principle of consistency
The consistency principle recognises that an accounting method, once adopted,
should not be changed during an accounting period. Ideally, methods should only
be changed at the beginning of a new accounting period. Generally, a method is
not changed unless there is a good reason for doing so.
Principle of disclosure
The disclosure principle recognises that all relevant information should be
communicated or disclosed to users.
Monetary convention
The monetary convention assumes that all the transactions are recorded in the
common monetary unit in use; for example, dollars and cents. This enables many
Page 61 of 65

unlike items to be added together, and often transactions must be given a value
before they can be recorded.
Income Statement and Balance Sheet Format
These reports should be presented in a vertical format using the following
headings and style:
Income Statement for period ending .................(date)
$ $
Sales
Less Cost of goods sold
Opening Inventory
Plus
Purchases
Less Closing inventory
GROSS PROFIT
$
Plus other Incomes
GROSS INCOME
Less Operating Expenses






NET PROFIT
$
Balance Sheet as at ............................(date)
Page 62 of 65

$ $
Current Assets





Other Assets





TOTAL ASSETS
$
Current Liabilities




Long Term Liabilities


Capital
Plus Net Profit
Less Drawings
TOTAL LIABILITIES
$
Statement of cash flows classifications
1. Cash flow from operating activities
2. Cash from from investing activities
3. Cash flows from financing activities
Income Statement for period ending .................(date)
Page 63 of 65

$ $
Sales
Less Cost of goods sold
Opening Inventory
Plus
Purchases
Less Closing inventory
GROSS PROFIT
$
Plus other Incomes
GROSS INCOME
Less Operating Expenses






NET PROFIT
$
Balance Sheet as at ............................(date)
$ $
Current Assets





Other Assets

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



Page 65 of 65