Financial Accounting Methods- PDF

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ADst ract
The assignment is intended to use financial accounting methods to verify the financial
parameters of AC&DC Ltd as an accounting assistant. The accounting methods are
mainly used by preparing Journal, Ledger and Trial balance. The results are accurate
financial statements of AC&DC Ltd. Company.

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Explain an accounting cycle
Accounting cycle is the process of processing and recording all financial transactions of
an organization. This cycle is closed into one cycle from transaction taking place, to
generating financial statements, until closing the transaction. This cycle is repeated
every fiscal year as long as the company is still active. And the main task of the financial
accountant is to follow the full accounting cycle from start to finish.
The accounting cycle usually has eight basic steps:
1. Transactions: The process begins with financial transactions. Financial
transactions can include any asset purchases, sales or maintenance
expenses, and debt payments are all financial transactions that will initiate the
process.
2. Journal Entries: After the transactions are established. It will be logged into the
company’s journal entry chronologically. When there are either debits or
credits, they should always be in balance with each other on the journal entry.
Journal entry is a record of the company’s financial transactions. During a fiscal
year cycle, the journal entry records financial activities chronologically.
3. Posting to the General Ledger: The entries are then posted to a general
ledger, where summaries of all transactions for individual accounts can be
seen. The ledger, also known as the end-of-period storage book. Ledger
entries are changes made to each account in your ledger. Using your log,
organize transactions into different accounts. For example, if the customer
pays for the product with cash, enter the transaction with the cash account in
your books.
4. Trial Balance: At each end of the accounting cycle (known as a fiscal year), the
total balances are charged to the accounts. These debit or credit accounts must
be equal to produce accurate results. Can use an unadjusted trial balance to
check. If the total balance of all debits and credits is not equal to each other,
then you have made an error and need to adjust the above items.
5. Adjusting Entries: At the end of the accounting period, there may be unpaid
expenses incurred. Or, maybe you have more income but haven’t really earned
it yet. At that time, use the adjusting entries to record financial transactions that
have taken place but have not yet been recorded.
6. Adjusting Trial Balance: After completion of adjusting entries, the next step
needs to be done is to check debited and credited fit together or not. This step is
called the adjusting trial balance.
7. Financial Statement: After completing the above steps, the next step is to
create your statement. Some of the popular financial reports are:
- Income statement
- Accounting balance sheet
- Statements of cash flows
These financial statements are prepared using the correct balances.
8. Closing: After the end of an accounting period, the revenue and expense
accounts will be closed. Because accounts for revenue and expenses
are

accounts that report business results for a specific period of time.
However, the balance sheet accounts will not be closed because it shows
the company’s financial position at a given time.
PATRIOT

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Date Particulars Amount (Dr) Amount (Cr)
1 Materials Account 5000
A/c Payable 4500
Discount Received 500
2 A/c Receivable 2000
Revenue A/c 2000
Cash A/c 4000
Bank loan 4000
4 Cash A/c 2000
Shared Capital A/c 2000
Insurance expense 65
Cash A/c 65
6 Cash A/c 10000
Bad debts A/c 10000
Account receivable 20000
7 Tax expense 500
Cash A/c 500
Salary expense 3000
Cash A/c 3000
9 Insurance expense 1000
Cash A/c 1000
10 Dividend expense 200
Cash A/c 200
11 Depreciation on machine expense 1000
Machine A/c 1000
12 Interest expense 20000
Cash A/c 20000
13 Cash A/c 300
Dividend income 300
14 Cash A/c 900
A/c receivable
Revenue A/c
2100
3000
15 Bank loan 4000
Cash A/c 4000
16 Loss on sale machinery 300
Machinery A/c 300
17 Cash A/c 800
Discount paid 200
Revenue A/c 1000
18 Rent A/c 55
Outstanding rent expense 55
19 Cash A/c 800
Revenue A/c 800
20 Cash A/c 10000
Bad debts recovered A/c 10000

Doing T account
Cash account
(3) 4,000 (5) 65
(4) 2,000 (7) 500
(6) 10,000 (8) 3,000
(13) 300 (9) 1,000
(14) 900 (10) 200
(17) 800 (12) 2,000
(19) 800 (15) 4,000
(20) 10,000
28,800 | 10,765
8 0 5
For the Cash account, the debit is 28,800 and the credit is 10,765. Can see
a larger number of debit with credit (28,800 — 10,765 = 18,035).
Material urchased account
1 5,000
5,500 0
5 000
For Material account, the debit is 5,000 and the credit does not exist. Can see
a larger number of debit with credit (5,000 — 0 = 5,000).
Account a able
0 1
4,500
4,500
5400
For Account payable, the credit is 4,500 and the debit does not exist. Can see a
larger number of credit with debit (4,500 — 0 = 4,500).
Discount recieved
1 500
0 500
500
For Discount recieved, the credit is SOO and the debit does not exist. Can see a
larger number of credit with debit (500 — 0 = 500).

Account
received 2
2,000
14 2,100
4,100
7 20,000
20,000
5 900
For the Account received, the debit is 4,100 and the credit is 20,000. Can see a
larger number of credit with debit (20,000 — 4,100 = 15,900).
Revenue account
2,000
14 3,000
17 1,000
19 800
6,800
6,800
For Revenue account, the credit is 6,800 and the debit does not exist. Can see a
larger number of credit with debit (6,800 — 0 = 6,800).
Bank loan
15 4,000 3 4,000
4,000 4,000
00
For Bank loan, the debit is 4,000 and the credit is 4,000. It can be seen that the
debit has the same amount as the credits (4,000 — 4,000 = 0).
Share ca ital account
4 2,000
0 2,000
000
For Share capital account, the credit is 2,000 and the debit does not exist. Can
see a larger number of debit with credit (2,000 — 0 = 2,000).
Insurance ex ense
5 65
9 1,000
1,065 0
650
For Insurance expense, the debit is 1,650 and the credit does not exist. Can see
a larger number of debit with credit (1,650 — 0 = 1,650).

Bad debt
6 10,000
10,000 0
0 000
For Bad debt, the debit is 10,000 and the credit does not exist. Can see a larger
number of debit with credit (10,000 — 0 = 10,000).
Tax ex ense
(7) 500
500 0
500
For Tax account, the debit is 500 and the credit does not exist. Can see a
larger number of debit with credit (500 — 0 = 500).
Salar account
(8) 3,000
3,000 0
00
For Salary account, the debit is 3,000 and the credit does not exist. Can see
a larger number of debit with credit (3,000 — 0 = 3,000).
Dividend ex
ense (10) 200
200 0
200
For Dividend expense, the debit is 200 and the credit does not exist. Can
see a larger number of debit with credit (200 — 0 = 200).
De reciation account
11 1,000
1,000 0
000
For Depreciation account, the debit is 1,000 and the credit does not exist.
Can see a larger number of debit with credit (1,000 — 0 = 1,000).

Machine account
11 1,000
300
0 1,300
00
For Machine account, the credit is 1,000 and the debit does not exist. Can see
a larger number of debit with credit (1,000— 0 = 1,000).
Interest account
12 2,000
2,000 0
2 000
For Interest account, the debit is 2,000 and the credit does not exist. Can
see a larger number of debit with credit (2,000— 0 = 2,000).
Dividend income
(13) 300
0 300
300
For Dividend income, the credit is 300 and the debit does not exist. Can see
a larger number of debit with credit (300— 0 = 300).
Loss on sale machine
(16) 300
300 0
300
For Loss on sale machinery, the debit is 300 and the credit does not exist.
Can see a larger number of debit with credit (300— 0 = 300).
Discount aid
17 200
200 0
200
For Discount paid, the debit is 200 and the credit does not exist. Can see a
larger number of debit with credit (200— 0 = 200).
Rent account
(18) 55
55 0
55
For Rent account, the debit is 55 and the credit does not exist. Can see a
larger number of debit with credit (55— 0 = 55).

Outstandin rent ex ense
18 55
0 55
55
For Dividend income, the credit is 55 and the debit does not exist. Can see a
larger number of debit with credit (55 — 0 = 55).
Bad debts recovered
20 10,000
0 10,000
0 000
For Dividend income, the credit is 10,000 and the debit does not exist. Can see
a larger number of debit with credit (10,000 — 0 = 10,000).

Tasl‹ 2 ! Prepare Trial Balance
Trial Balance
Dr Cr
Cash account 18,035
Material purchased
account
5,000
Bank loan 0 0
Share capital account 2,000
Insurance account 1,065
Account receivable 15,900
Bad debts 10,000
Tax account 500
Salary expense 3,000
Dividend account 100
Depreciation account 1,000
Machine account 1,300
Interest expense 2,000
Revenue account 6,800
Loss and sold machinery 300
Discount payable 200
Rent account 55
Outstanding rent expense 55
Bad debts recovered 10,000
Account payable 4,500
Discount receivable 500
41,355 41,355

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SL
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Income statement
Income — Depreciation = P/L
I . Income — 4,000 = P/L I . Income — 9,000
2. Income — 4,000 = P/L 2. Income —
3. Income — 4,000 = P/L 3. Income — 2250
4. Income — 4,000 = P/L 4. Wait —+ 250
Balance sheet
1. I 8,000
SLM
— 4,000 = 14,000
RBM
1. I 8,000 — 9,000 = 9,000
2. 15,000 - B,000 = 10,000 2. I 8,000 — I 3,500 = 4,500
3. I 8,000 — 12,000 = 6,000 3. I 8,000 — I 5,575 = 2,250
4. I 8,000 — I 6,000 = 2,000 4. End of 2,000

s of
Foot note
• SLM
An nual depreciation = C t of ax sc t — Es timatc d sa lvagc va luc _1a,0o0—” = 4, 000/per yearNo. of us cful life 4
- First year = 4,000 x 1 = 4,000 — 1 = 18,000 — 4,000 = 14,000
- Second year = 4,000 x 2 = 8,000 — 2 = 18,000 — 8,000 = 10,000
- The third year = 4,000 x 3 = 12,000 —• 3 = 18,000 — 12,000 = 6,000
- Fourth year = 4,000 x 4 = 16,000 — 4 = 18,000 — 16,000 = 2,000
• RBM
Cost of the asset — Esti ma te d sal va ge val ue
A straight-line depreciation rate = No of use ful life x 100%
Co t ax xc t — Ex t mate d xal vagc value
1 x 1 00 0/ 0 = i x 1 00 0 /0 =25%
No.o f u sc fu l life 4
but according to the topic is using double the straight-line method
rate depreciation rate = 2x 25% = 50%
First year: 1 = rate 50% x Cost of the asset = rate 50% x 18,000 = 9,000
-• 1 = 18,000 — 9,000 = 9,000
Second year: 2 = (18,000 — 9,000 ) x rate 50% = 4,500
— 2 = 18,000 — (9,000 + 4,500 ) = 4,500
The third year: 3= (18,000 — 9,000 — 4,500 ) x rate 50% = 2,250
— 3 = 18,000 — (9,000 + 4,500+ 2,250 )= 2,250
Fourth year: Because AC & DC hopes the machine will have a salvage
value of E 2,000 when the 4-year life expires -• 4 = 2,250 —2,000 =
250
4 = 18,000 — (9,000 + 4,500+ 2,500+ 250) = 2,000

P re pa re Income s:a:ensen: a nc Ba I a me shee: ’.• i:h aJj ris:men:s
What is the meaning of final account?
The final account is the final stage of the accounting process, in which the
various ledgers maintained in the trading organization’s Trial Balance (Book of
Accounts) are presented in a specific way to provide. profitability and financial
position of the entity over a particular period for its stakeholders and other
interested parties.
What is the meaning of adjustment?
An adjustment is a process of adjustment at the end of each accounting period that
needs to be implemented to ensure adequate revenue and expense identification and
measurement, and account preparation for financial statements.
Prepare final account with adi••‹ ment and calculation
1. Closing stock
Profit or Loss account
t Balance Sheet
2. Outstanding expense
t Profit or Loss account
t Balance Sheet
3. Prepaid expense
Profit or Loss account
t Balance Sheet
4. Income received in
advance Profit or
Loss account
t Balance Sheet
5. Depreciation expense
t Profit or Loss account
Balance Sheet
6. Bad debts
t Profit or Loss account

C’.ross profit = Total revenue — Cost of goods
sold
Balance Sheet
7. Discount on account received
t Profit or Loss account
I Balance Sheet
8. Discount received on account payable
t Profit or Loss account
Balance Sheet
Calculate
Income statement
Total revenue = Sales + Discount received (account payable) + Discount received +
Apprentice premium
Total revenue = 70,176 + 120 + 360 + 630 = 71,286
• Footnote:
Sales = Total revenue — sales return = E71,436 — E1,260 = E70,176
Discount received = E360
According to additional information is discount on account payable was 2% that
Accounts payable equal E6,000
Discount received ( account payable) = 6,000 x2% = E120
In apprentice premium E120 are unearned
Apprentice premium = 750 — 120 = 630
—• Gross profit = 71,286 — 60,486= 10,800

Net Profit = C’.ross Profit — Operating Profit
• Footnote:
Open Inventory is Stock on January 1, 2020
Open Inventory = 8,760
Purchased and return is 62,172 and 1,746
Other Factory Expense is Garriage
• Other Facto ry Expense = 4 ,500
According to additional information is The closing stock on December 31 is Closing
Inventory
Closing Inventory = E10,200
Gost of goods sold = [Open Inventory + (Purchased — Return) +
Other Factory Expense ] — Glosing Inventory
= [8,760 + ( 62,172 — 1,746) + 1,500 ] — E10,200 = 60,486
Net Profit = 10,800 — 7,712 = 3,088
• Footnote:
According to additional information is Provision for bad debts is 5% on accounts
receivables
—• Bad Debts = bad debts in trial balance — Account Received in trial balance x 5%
— Provision for bad debts
= 1,032 — 19,200 x 5% — 600 = 1,392
According to additional information is Outstanding rent was E160
Outstanding rent = £160 + 720 = 880
According to additional information is Taxes paid in advance was E320

— Taxes = 1,200 — 320 = 880
According to additional information is Depreciation on furniture was 10%
— Furniture = 5,700 x 10% = 570
According to additional information is Interest on capital was 5%
—• Capital = 27,000 x 5% = 1,350
Operating Profit = Bad Debts + Outstanding rent + Taxes + Fruniture + Capital +
Salary
= 1,392 + 880 + 880 + 570 +1,350 + 2,640 = 7,712
Balance Sheet as on the year ended 31 December 2020
Fixed Assets:
Furniture — Depreciation 5,130 5,130
Current Assets:
Cash 288
Account Received — Bad 18,240
Debts 1,440
Bills receivables 320
Prepaid expense 10,200 30,488
Closing Stock
Total assets
• Footnote:
Because the Furniture Depreciation is 10% equal to 570 ( 5,700 x 10%) Furniture
= 5,700 — 570= 5,130
And the provision for bad debts is 5% of the receivable, equal to 960 ( 19,200 x 5%) —
Account Received — Bad Debts = 19,200 — 960 = 18,240

— Current Assets = Total Assets = Cash Account+ ( Received — Bad Debts)+
Bills receivables + Prepaid expense + Closing Stock = 288+ 18,240 +
1,440+ 320+10,200 = 35,618
Noncurrent liability: 0
Current liability:
Accounts payable 5,880
Outstanding rent 160
Apprentice premium (unearned) 120
Bills payables 1080
Bank overdraft 1200 8440
Equity:
Capital 27,000
Net profit — Drawing (1,172)
Interest on capital 1,350
Total liability and Equity 27,178
• Footnote:
Because according to the topic the discount on the payable account is 2%, equal to
120 ( 6,000 x 2%). — Accounts payable = 6,000 — 120 = 5,880
According to the topic Outstanding rent was E160 and in apprentice premium E120
are unearned —• Outstanding rent = E160 and apprentice premium = E120
respectively Net profit = 3,088 (has been calculated above), drawing = 4,260
(According to the
topic)
Net profit — drawing = 3,088 — 4,260 =(1,172)
According to the topic Return on capital is 5%, equal to 1,350 ( 27,000 x 5%).

Prepaid Insurance account 1,250
Insurance expense account Cr 1,250
— Current liability = Accounts payable + Outstanding rent + Apprentice
premium(unearned) + Bills payables + Bank overdraft = 5,880 + 160
+120
+ 1080 +1200 =8,440
— Equity = Capital +( Net profit — Drawing) + Interest on capital =27,000 + (1,172)
+1,350 +27,178
Total liability and Equity = Noncurrent liability + Current liability + Equity = 0 +
8,440 +27,178 =35,618
Prepayments:
Calculate how much is prepaid Insurance
A firm pays insurance premium, E5 000, to cover the year 1 April 2020 to 31 March
2021
The insurance payable for one month is:
Insurance for the one month = f S OOD 1,2 S 0
12 mon th s 3
The insurance for the three months, January to March is prepaid for the year 2021
equal:
Insurance for the three months = 1 “* x 3 months =
1,250 Journal entry

Pre aid insurance account
1,250
1,250
1,250
Insurance exnse account
1,250
1,250
1,250
T account
Accruals:
Calculate how much is accruals revenue?
Commissions receivable for each quarter of 2014 are as follows: E 3 000 for the first
time
quarter; E 3,300 for the second quarter; E 2,600 for the third quarter; and E 3,700 for
the fourth quarter and Commission revenue in Q4 , E3,700 , not received by December
31, 2020.
— accruals revenue = £3,700
Journal entry
Accrued revenue common account Dr 3,700
Common revenue account Cr 3,700

T account
Accrued revenue common
account
3,700
3,700
3,700
Accrued revenue common
account
3,700
3,700
3,700

Concuson
The accounting methods used enable AC&DC Ltd to accurately record financial
transactions, analyze and verify accounts. From these things, financial accounting is
one of the important roles determining the success of a business, at the same time
building a solid relationship between the business and its stakeholders.

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