Management Accounting: Financial Position and Earnings Statement

This article provides a detailed analysis of the financial position and earnings statement of a company. It includes a statement of financial position and earnings statement, along with journal entries, an adjustment worksheet, depreciation computation, and inventory value. Additionally, the article includes a memo on internal control weaknesses and recommended solutions. The memo highlights the weaknesses in the debtor policy and cash receiving and recording system of the company and suggests measures to improve the internal control of the company.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Requirement 1:.................................................................................................................................2
Statement of Financial Position:..................................................................................................2
Statement of Earnings:.................................................................................................................3
Requirement 2:.................................................................................................................................4
Reference.........................................................................................................................................6
Appendix..........................................................................................................................................7
Journal Entries:............................................................................................................................7
Adjustment Worksheet:...............................................................................................................8
Depreciation Computation:........................................................................................................10
Inventory Value:........................................................................................................................10

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Requirement 1:
Statement of Financial Position:
Particulars Amount Amount
Current Assets:
Cash $14,73,178
Accounts Receivable $34,600
Prov. For Bad & Doubtful Debts -$10,250
Prepaid Insurance $125
Inventory $2,92,100
TOTAL CURRENT ASSETS $17,89,753
Non-Current Assets:
Machinery $73,280
Accum. Depr. - Machinery -$53,184 $20,096
Furniture & Fixtures $98,000
Accum. Depr. - Furniture & Fixtures -$46,500 $51,500
Computer & Printers $8,750
Accum. Depr. - Computer & Printers -$2,625 $6,125
Patent $6,500
Accum. Amort. - Patent -$325 $6,175
TOTAL NON-CURRENT ASSETS $83,896
TOTAL ASSETS $18,73,649
Current Liabilities:
Accounts Payable $23,500
Dividends Payable $16,000
Accrued Wages $7,917
Tax Payable $4,05,893
Unearned Revenue $3,000
TOTAL CURRENT LIABILITIES $4,56,310
TOTAL NON-CURRENT LIABILITIES $0
TOTAL LIABILITIES $4,56,310
NET ASSETS $14,17,339
Capital:
Contributed Capital $98,000
Retained Earnings $1,08,410
Add: Net Profit $12,10,929 $13,19,339
TOTAL CAPITAL $14,17,339
In the books of….
Balance Sheet
as on 31 December 2017

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Statement of Earnings:
Particulars Amount Amount
Revenue-Food $28,72,000
Revenue-Beverages $2,86,000
TOTAL REVENUE $31,58,000
Purchases-Food $7,72,600
Purchases-Beverages $87,380
Total Purchases $8,59,980
Add: Opening Inventory $75,900
Cost of Goods Available for Sale $9,35,880
Less: Closing Stock $2,92,100
Cost of Goods Sold -$6,43,780
GROSS PROFIT $25,14,220
Operating Expenses:
Salaries & Wages Expense -$7,04,154
Marketing Expense -$13,500
Repairs & Maintenance -$6,380
Rent Expense -$75,360
Linens Laundry Expense -$21,350
Property Tax Expense -$6,750
Utilities Expense -$15,396
Insurance Expenses -$2,875
Depreciation Expense -$27,924
Amortization Expenses -$325
Bad Debt Expense -$18,650
Waste Removal Expense -$6,984
TOTAL OPERATING EXPENSES -$8,99,647
NET PROFIT BEFORE TAX $16,14,573
Less: Income Tax -$4,03,643
NET PROFIT FOR THE PERIOD $12,10,929
In the books of….
Income Statement
for the period ending 31 December 2017

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Requirement 2:
Memo
To: Helmut Schneider
From: General
Date: 20th March 2018
RE: Internal Control Weaknesses and Recommended Solutions
The main purpose of this memo is to point out the internal control weaknesses which are
present in the business of Helmut’s Wurst Inc. One of the weakness in the policies of the
company is that the debtor policy of the company. The company allows credit sales of its food
products items which are purchased in bulk and no fixed time period is set for the collection of
such debts. The company is in tremendous needs of a proper debt collection policy which can
ensure that no part of the revenue of the company becomes a bad debt. The debt policy will be
including a period in which the debtors of the company has to pay back to the company. Another
weakness in the internal control system of the company is the cash receiving and recording
system of the business. The cash which is received by the stores are not properly recorded and
just a traditional journal for all receipts and payments are kept with the manager of the company
(Skaife, Veenman & Wangerin, 2013). All the cash which is generated from the operations of the
store are kept in the sealed drawer whose keys are with the manager of the store and such cash
generated are monthly deposited in banks. This is a weakness in the internal control system of
cash recording and maintenance.
If the management of the business does not look into the matter of debt management and
cash management then the company can face serious losses in the long run. If proper debt policy
is not implemented than the business will be having trouble to maintain the funds which are with

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the debts and also the overall liquidity of the business. There is also a chance of incurring losses
in the form of bad debts which can affect the business. In the case of cash management system of
the company, the journal which is maintained in the store can easily be tampered and
manipulated by employees or even by the manager. All it requires to engage in unethical
behavior is the opportunity to get away with the same (Klamm, Kobelsky & Watson, 2012). In
addition to this the company also needs to improve the deposit scheme which is followed for the
store. The cash which is kept in drawer can easily be misplaced or embezzled depending on the
access to the keys of the drawer. There is a risk of loss of money for the entire month which will
leave the shop in a devastated state.
The measures which can be suggested for improving the overall internal control of the
company are given below:
1. The management needs to incorporate debt collection strategies into the processes. The
credit period allowable will be depending on the level of purchases and dependence on
the buyer which can be of 60 days, 30 days or even more. Moreover, the business can
incorporate discounting techniques for early payments.
2. The management needs to implement computer-based recording of transaction techniques
with proper receipt available to the customers and the cash deposits of the company
should be made on a weekly basis for proper security of cash of the business.

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Reference
Klamm, B. K., Kobelsky, K. W., & Watson, M. W. (2012). Determinants of the persistence of
internal control weaknesses. Accounting Horizons, 26(2), 307-333.
Skaife, H. A., Veenman, D., & Wangerin, D. (2013). Internal control over financial reporting and
managerial rent extraction: Evidence from the profitability of insider trading. Journal of
Accounting and Economics, 55(1), 91-110.

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Appendix
Journal Entries:
Dr. Cr.
Date Particulars Amount Amount
31-12-2017 Property Tax Expenses A/c. Dr. 2250
To, Tax Payable A/c. 2250
Insurance Expenses A/c. Dr. 2875
To, Prepaid Insurance A/c. 2875
Machinery A/c. Dr. 5280
To, Repairs & Maintenance A/c. 5280
Depreciation Expenses A/c. Dr. 27923.75
To, Accum. Dep. - Machinery A/c. 6698.75
To, Accum Dep. - Furniture & Fixtures 18600
To, Accum Dep. - Computer & Printers A/c. 2625
Amortization Expense A/c. Dr. 325
To, Accum Amortization - Patent A/c. 325
Salaries & Wages Expense A/c. Dr. 7916.667
To, Accrued Wages A/c. 7916.667
Revenue - Food A/c. Dr. 3000
To, Unearned Revenue A/c. 3000
Bad Debt Expenses A/c. Dr. 18650
To, Provision for or Bad & Doubtful Debts A/c, 18650
Provision for or Bad & Doubtful Debts A/c, Dr. 8400
To, Accounts Receivable A/c. 8400
Income Tax Expenses A/c. Dr. 403643.1
To, Tax Payable A/c. 403643.1

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Adjustment Worksheet:

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Particulars Debit Credit Debit Credit Debit Credit
Cash $14,73,178 $14,73,178
Accounts Receivable $43,000 $8,400 $34,600
Prov. For Bad & Doubtful Debts $8,400 $18,650 $10,250
Prepaid Insurance $3,000 $2,875 $125
Inventory $75,900 $75,900
Machinery $68,000 $5,280 $73,280
Accum. Depr. - Machinery $46,485 $6,699 $53,184
Furniture & Fixtures $98,000 $98,000
Accum. Depr. - Furniture & Fixtures $27,900 $18,600 $46,500
Computer & Printers $8,750 $8,750
Accum. Depr. - Computer & Printers $2,625 $2,625
Patent $6,500 $6,500
Accum. Amort. - Patent $325 $325
Accounts Payable $23,500 $23,500
Dividends Payable $16,000 $16,000
Accrued Wages $7,917 $7,917
Tax Payable $4,05,893 $4,05,893
Unearned Revenue $3,000 $3,000
Contributed Capital $98,000 $98,000
Retained Earnings $1,08,410 $1,08,410
Revenue - Food $28,75,000 $3,000 $28,72,000
Revenue - Beverages $2,86,000 $2,86,000
Purchases - Food $7,72,600 $7,72,600
Purchases - Beverages $87,380 $87,380
Salaries & Wages Expense $6,96,237 $7,917 $7,04,154
Marketing Expense $13,500 $13,500
Repairs & Maintenance $11,660 $5,280 $6,380
Rent Expense $75,360 $75,360
Linens Laundry Expense $21,350 $21,350
Property Tax Expense $4,500 $2,250 $6,750
Utilities Expense $15,396 $15,396
Insurance Expenses $2,875 $2,875
Depreciation Expense $27,924 $27,924
Amortization Expenses $325 $325
Bad Debt Expense $18,650 $18,650
Profit on Adjustment of Inventory
Income Tax Expenses $4,03,643 $4,03,643
Waste Removal Expense $6,984 $6,984
TOTAL $34,81,295 $34,81,295 $4,80,264 $4,80,264 $39,33,604 $39,33,604
Unadjusted Trial
balance Adjustment Adjusted Trial balance

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Depreciation Computation:
Particulars Machinery Furniture Computer
Cost 68000 98000 8750
Less: Residual Value 10000 5000 0
58000 93000 8750
Estimated Life 8 5 5
Depreciation Rate 25.00% 40.00%
Accumulated Depreciation -46485 0
Machinery-New Crank 5280 0
Net Cost of Machinery 26795 8750
Total Usage (in months) 12 12 9
Depreciation on 2017 6698.75 18600 2625
Inventory Value:
Particulars
Net Realizable
Value
Raw Meat 180000
Condinments 4200
Wurst Ingredients 5900
Beverage 102000
Totral Closing Inventory 292100