Management Accounting: Accrual Accounting and Financial Reporting

This article discusses accrual accounting and its benefits for financial reporting. It also includes a case study on ethical issues in accounting and journal entries for a company. The article covers topics such as stakeholders, management accounting practices, and adjusting entries. The subject is management accounting and the course code is not mentioned. The article is relevant for students studying accounting and finance.

Running Head: Management Accounting
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Project Report: Management Accounting

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Part A
Case 1
Accrual accounting is a form of accounting which records the expenses when they would
be incurred regardless of the time when cash has been paid and the revenues are recorded at the
time when it has been earned. The main idea of this accounting form is “regardless of the time
when cash has been paid”. It is revenue recognition principle which explains that revenue must
always be recognized and reported at the time of cash flow earnings. It goes hand in hand with
the matching principle.
This accounting method is quite beneficial for the financial reporting as it is quite
transparent in nature. The GAAP requires government entities and c-corporation to use the
accrual accounting as it mainly focuses on the output from the business rather than the input of
the business. It also enhances the accountability and offers the better financial management to
the business. This accounting method makes it easier for the companies and the government
funds to compare the performance (Ward, 2012). The shift to accrual accounting would append a
layer of government accountability and the transparency which was not visible at initial stage.
Accrual accounting is among those tools which are used by the management to assess
numerous company aspects. It enhances the data input integrity along with the resulting report
generation. Accrual accounting tracks all the items of the financial statement and sets the better
position of the organization in the industry which helps the financial statements to look better
with the transparency (Abdel-Kader and Luther, 2008).
Accrual accounting paints the true and fair picture of the financial statement of an
organization and permits the users of financial statement to know that everything which is listed
in the financial statement in a particular time period is accounted for. This accounting method is
one the best way to compare the performance and the stability of financial performance of an
organization from one period to next (Cadez and Guilding, 2008). In end, it has been evaluated
that the accrual accounting improves the usefulness of the financial statement of an organization
and it improves the understandability of final financial accounts of an organization among the
users and the stakeholders of the company.
Case 2
Case overview:
In the given case, ABC home media is an organization which is controlled by me and due
to the homesickness, assistant has handled all the process of accounting records. The financial
accounts have been prepared and have been distributed among the creditors and the investors of
the company. Later, it has been found that the financial statement of the company is not correct

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and expenses have been overlooked due to which the net profitability level of the company has
been lower.
Stakeholders:
In the given case, it has been found that the main stakeholders of the business are the
investors and the creditors of the company. These stakeholders play the crucial role in the
organization life as well as the financial statement of the company are very important for them to
evaluate the performance of the company (Zimmerman and Yahya-Zadeh, 2011).
Ethical issues:
In the case, the main ethical issue of the business is not disclosing the exact information
after evaluating it. Management of the company should take a strict option and must consider the
option of renouncing the final statements of the company. The management should not use the
mistake as own benefits (Macintosh and Quattrone, 2010).
Controller:
Being a controller, I would take the decision of re issuing the financial statement of the
company. It would help the company to show the correct worth of the business as well as the
audit report of the business would also be fair and in favor of the organization.

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Part B
Journal entries
Journal entries
Amount (in $)
Date Particulars LF Debit Credit
1 Cash a/c 25000
Delivery truck 35000
Common stock a/c 60000
3 Supplies a/c 1000
Cash a/c 1000
4 Insurance expenses a/c 200
Prepaid Insurance expenses 2200
Cash a/c 2400
5 Cash a/c 2500
Service revenue 2500
6 Bank a/c 8000
Service revenue 8000
7 Salaries expenses a/c 6000
Cash a/c 6000
8 Cash a/c 55000
Service revenue 55000
9 Cash a/c 4000
Unearned Service revenue 4000
10 Bank a/c 3000
Accounts receivable 3000

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11 Fuel expenses a/c 1500
Accounts payable 1500
12 Bank a/c 4500
Service revenue 4500
13 Rent expenses a/c 2500
Cash a/c 2500
14 Accounts payable 500
Cash a/c 500
15 Dividend a/c 10000
Cash a/c 10000
Ledger accounts
Cash a/c
Particulars Amt Particulars Amt
Common Stock a/c 25000 Supplies a/c 1000
Service revenue 2500 Insurance expenses a/c 200
Service revenue 55000 Salaries expenses a/c 6000
Unearned Service
revenue 4000 Rent expenses a/c 2500
Service revenue 4500 Accounts payable 500
Accounts receivable 3000 Dividend a/c 10000
Prepaid Insurance
expenses 2200
Service revenue 8000 Balance c/d 79600
102000 102000
Accounts receivable a/c
Particulars Amt Particulars Amt
Balance c/d 3000 Bank a/c 3000

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3000 3000
Supplies a/c
Particulars Amt Particulars Amt
Cash a/c 1000 Balance c/d 1000
1000 1000
Prepaid insurance a/c
Particulars Amt Particulars Amt
Cash a/c 2200 Balance c/d 2200
2200 2200
Delivery truck a/c
Particulars Amt Particulars Amt
Common stock a/c 35000 Balance c/d 35000
35000 35000
Accounts payable a/c
Particulars Amt Particulars Amt
Cash a/c 500 Fuel expenses a/c 1500
Balance c/d 1000
1500 1500
Unearned Service revenue a/c
Particulars Amt Particulars Amt
Cash a/c 4000 Balance c/d 4000
4000 4000
Common Stock a/c
Particulars Amt Particulars Amt
Balance c/d 60000 Cash a/c 25000
Delivery truck 35000
60000 60000
Dividend a/c
Particulars Amt Particulars Amt
Cash a/c 10000 Balance c/d 10000
10000 10000

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Service revenue a/c
Particulars Amt Particulars Amt
Balance c/d 70000 Cash a/c 2500
Bank a/c 8000
Cash a/c 55000
Bank a/c 4500
70000 70000
Insurance expenses a/c
Particulars Amt Particulars Amt
Cash a/c 200 Balance c/d 200
200 200
Fuel expenses a/c
Particulars Amt Particulars Amt
Accounts payable 1500 Balance c/d 1500
1500 1500
Rent expenses a/c
Particulars Amt Particulars Amt
Cash a/c 2500 Balance c/d 2500
2500 2500
Salaries expenses a/c
Particulars Amt Particulars Amt
Cash a/c 6000 Balance c/d 6000
6000 6000
Trial balance
Trial Balance
Particulars JF Debit Credit
Cash a/c 79600
Accounts receivable a/c 3000
Supplies 1600
Prepaid insurance 1400
Delivery truck 35000
Accumulated depreciation 150
Accounts payable 1000

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Salaries payable 2200
Unearned service revenue 2500
Common stock 60000
Dividends 10000
Service revenue 68500
Salaries expenses 6000
Depreciation expenses 150
Insurance expenses 200
Fuel expenses 1500
Rent expenses 2500
Income summary 600
137950 137950
Final accounts
Income statement
Particulars Amount
Service Revenue 71000
Less:
Insurance expenses a/c 2400
Fuel expenses a/c 1500
Rent expenses a/c 2500
Salaries expenses a/c 6000
Depreciation a/c 150
Net Profit 58450
Statement of retained earnings
Common stock 60000
Add: Net profit 58450
Add: Income summary 600
Less: Dividend 10000
Net common stock 109050
Balance Sheet

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Liabilities Amount Assets Amount
Accumulated
depreciation 150 Cash 79600
Accounts payable 1000
Accounts
receivable
Salaries payable 2200 Supplies 1000
Unearned service
revenue 4600 Prepaid insurance 1400
Common stock 109050 Delivery truck 35000
Net Profit 117000 117000
Adjusting entries
Adjustment entries
Amount (in $)
Date Particulars L
F
Debit Credit
Salaries expenses a/c 2200
Salaries payable a/c 2200
Depreciation a/c 150
Accumulated depreciation a/c 150
Insurance a/c 800
Prepaid insurance a/c 800
Supplies a/c 600
Income summary a/c 600
Unearned service revenue a/c 1500
Service revenue a/c 1500
Salaries expenses a/c
Particulars Amt Particulars Amt
Salaries payable a/c 2200 Balance c/d 2200

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2200 2200
Salaries expenses a/c
Particulars Amt Particulars Amt
Balance c/d 2200
Salaries expenses
a/c 2200
2200 2200
Accumulated depreciation a/c
Particulars Amt Particulars Amt
Balance c/d 150 Depreciation a/c 150
150 150
Depreciation a/c
Particulars Amt Particulars Amt
Accumulated
depreciation a/c 150 Balance c/d 150
150 150
Insurance a/c
Particulars Amt Particulars Amt
Prepaid insurance 800 Balance c/d 800
800 800
Prepaid insurance
Particulars Amt Particulars Amt
Balance c/d 800 Insurance a/c 800
800 800
Supplies a/c
Particulars Amt Particulars Amt
Income Summary 600 Balance c/d 600
600 600
Income Summary
Particulars Amt Particulars Amt
Balance c/d 600 Supplies a/c 600
600 600
Unearned Service revenue a/c

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Particulars Amt Particulars Amt
Service revenue 1500 Balance c/d 1500
1500 1500
Service revenue
Particulars Amt Particulars Amt
Balance c/d 1500
Unearned Service
revenue a/c 1500
1500 1500
Closing entries
Closing entries
Amount (in $)
Date Particulars LF Debit Credit
Service Revenue 71000
Income Summary 71000
Income summary a/c 12550
Supplies expenses a/c 12550
Income summary a/c 58450
Retained earnings 58450
Income Summary a/c
Particulars Amt Particulars Amt
Supplies expenses a/c 12550 Service Revenue 71000
Retained earnings 58450
71000 71000
Service Revenue
Particulars Amt Particulars Amt
Income Summary 71000 Balance b/d 142000
71000 142000
Supplies expenses a/c
Particulars Amt Particulars Amt
Balance b/d 12550 Income Summary a/c 12550

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12550 12550
Retained earnings
Particulars Amt Particulars Amt
Balance b/d 58450 Income Summary a/c 58450
58450 58450
Post closing trial balance
Trial Balance
Particulars JF Debit Credit
Service revenue 71000
Supplies expenses 12550
Retained earnings 58450
Cash 79600
Accounts receivable 0
Supplies 1000
Prepaid insurance 1400 0
Delivery truck 35000 0
Accumulated depreciation 150
Accounts payable 1000
Salaries payable 2200
Unearned service revenue 4600
Common stock 109050
188000 188000

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References:
Abdel-Kader, M. and Luther, R., 2008. The impact of firm characteristics on management
accounting practices: A UK-based empirical analysis. The British Accounting Review, 40(1),
pp.2-27.
Cadez, S. and Guilding, C., 2008. An exploratory investigation of an integrated contingency
model of strategic management accounting. Accounting, organizations and society, 33(7-8),
pp.836-863.
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Ward, K., 2012. Strategic management accounting. Routledge.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and
control. Issues in Accounting Education, 26(1), pp.258-259.