Principles of Accounting: Preparation of Financial Statements and Closing Entries
VerifiedAdded on 2023/03/23
|17
|3154
|90
AI Summary
This document discusses the principles of accounting, specifically focusing on the preparation of financial statements, closing entries, and the use of a worksheet. It also explores the importance of source documents in a manual accounting system and how computerized accounting packages can assist in making better business decisions. The case study of Samantha Kennedy, owner of Magic Thread, is used as an example throughout the document.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Principles of Accounting
5/16/2019
5/16/2019
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Accounting 1
Contents
Case 1...............................................................................................................................................2
Preparation of worksheet, financial statements, and closing entries...........................................2
HNM Medical Service Income Statement...................................................................................4
Statement of changes in equity....................................................................................................5
Balance Sheet...............................................................................................................................5
Case 2...............................................................................................................................................8
Background of the case................................................................................................................8
Source documents would be required in a manual accounting system.......................................9
Computerised accounting package help Samantha make better decisions and manage her
business better............................................................................................................................11
Case 3.............................................................................................................................................12
Stakeholders...............................................................................................................................12
Derek appear to be doing anything wrong.................................................................................13
Ethical issues involved in the case.............................................................................................14
References......................................................................................................................................15
Contents
Case 1...............................................................................................................................................2
Preparation of worksheet, financial statements, and closing entries...........................................2
HNM Medical Service Income Statement...................................................................................4
Statement of changes in equity....................................................................................................5
Balance Sheet...............................................................................................................................5
Case 2...............................................................................................................................................8
Background of the case................................................................................................................8
Source documents would be required in a manual accounting system.......................................9
Computerised accounting package help Samantha make better decisions and manage her
business better............................................................................................................................11
Case 3.............................................................................................................................................12
Stakeholders...............................................................................................................................12
Derek appear to be doing anything wrong.................................................................................13
Ethical issues involved in the case.............................................................................................14
References......................................................................................................................................15
Accounting 2
Case 1
Preparation of worksheet, financial statements, and closing entries
The ledger of the HNM medical service is provided which include the account and their balance
based on 30 June 2017. Considering the ledger the 10 column worksheet, financial statements,
and closing entries are prepared which are given below: -
Particulars Debit Credit
Cash at Bank 12,600
Accounts Receivable 11,800
Prepaid Insurance 1,800
Land 180,200
Building 196,000
Accumulated Depreciation – Building 86,900
Equipment 32,300
Accumulated Depreciation –
Equipment 8,800
Accounts Payable 16,400
Mortgage Payable 64,000
Owner, Capital 236,950
Owner, Drawings 86,500
Fees Earned 262,430
Rent Revenue 14,400
Salaries Expense 124,600
Telephone Expense 4,520
Interest Expense
Case 1
Preparation of worksheet, financial statements, and closing entries
The ledger of the HNM medical service is provided which include the account and their balance
based on 30 June 2017. Considering the ledger the 10 column worksheet, financial statements,
and closing entries are prepared which are given below: -
Particulars Debit Credit
Cash at Bank 12,600
Accounts Receivable 11,800
Prepaid Insurance 1,800
Land 180,200
Building 196,000
Accumulated Depreciation – Building 86,900
Equipment 32,300
Accumulated Depreciation –
Equipment 8,800
Accounts Payable 16,400
Mortgage Payable 64,000
Owner, Capital 236,950
Owner, Drawings 86,500
Fees Earned 262,430
Rent Revenue 14,400
Salaries Expense 124,600
Telephone Expense 4,520
Interest Expense
Accounting 3
3,080
Insurance Expense 36,480
Total 689,880 689,880
HNM Medical Service
Financial Statement- 10 Columns Worksheet
Account
Title
Unadjusted trial
Balance Adjustments
Adjusted trial
balance
Income
statement Balance sheet
Debit Credit Debit
Credi
t Debit
Credi
t
Debi
t
Credi
t Debit
Credi
t
Cash at
Bank 12,600
1260
0 12600
Accounts
Receivable 11,800
1180
0 11800
Prepaid
Insurance 1,800 1340 460 460
Land 180,200
1802
00
18020
0
Building 196,000
1960
00
19600
0
Accumulat
ed
Depreciati
on –
Building
86,900
9600
9650
0
9650
0
Equipment 32,300
3230
0 32300
Accumulat
ed
Depreciati
on –
Equipment
8,800
3680
1248
0
1248
0
Accounts
Payable 16,400
1640
0
1640
0
Mortgage
Payable 64,000
6400
0
6400
0
Owner,
Capital 236,950
2369
50
2369
50
Owner,
Drawings 86,500
8650
0 86500
Fees
Earned 262,430 600
2618
30
2618
30
3,080
Insurance Expense 36,480
Total 689,880 689,880
HNM Medical Service
Financial Statement- 10 Columns Worksheet
Account
Title
Unadjusted trial
Balance Adjustments
Adjusted trial
balance
Income
statement Balance sheet
Debit Credit Debit
Credi
t Debit
Credi
t
Debi
t
Credi
t Debit
Credi
t
Cash at
Bank 12,600
1260
0 12600
Accounts
Receivable 11,800
1180
0 11800
Prepaid
Insurance 1,800 1340 460 460
Land 180,200
1802
00
18020
0
Building 196,000
1960
00
19600
0
Accumulat
ed
Depreciati
on –
Building
86,900
9600
9650
0
9650
0
Equipment 32,300
3230
0 32300
Accumulat
ed
Depreciati
on –
Equipment
8,800
3680
1248
0
1248
0
Accounts
Payable 16,400
1640
0
1640
0
Mortgage
Payable 64,000
6400
0
6400
0
Owner,
Capital 236,950
2369
50
2369
50
Owner,
Drawings 86,500
8650
0 86500
Fees
Earned 262,430 600
2618
30
2618
30
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Accounting 4
Rent
Revenue 14,400
1440
0
1440
0
Salaries
Expense 124,600 2360
1269
60
126
960
Telephone
Expense 4,520 4520
452
0
Interest
Expense 3,080 260 3340
334
0
Insurance
Expense 36,480 1340
3782
0
378
20
Total 689,880 689,880
Depreciati
on
Expense-B 9,600 9600
960
0
Depreciati
on
Expense-E 3,680 3680
368
0
Interest
Payable 260 260 260
Salaries
Payable 2,360 2360 2360
Rates
Payable 4,820 4820 4820
Unearned
Fees 600 600 600
Rates
Expense 4,820 4820
482
0
Total 22,66
0
22,66
0
710,6
00
710,6
00
190,
740
276,
230
519,8
60
434,3
70
85,4
90
276,
230
276,
230
519,8
60
434,3
70
HNM Medical Service Income Statement
HNM Medical Service
Income Statement
For the year ended 30 June 2017
INCOME $ $
Rent
Revenue 14,400
1440
0
1440
0
Salaries
Expense 124,600 2360
1269
60
126
960
Telephone
Expense 4,520 4520
452
0
Interest
Expense 3,080 260 3340
334
0
Insurance
Expense 36,480 1340
3782
0
378
20
Total 689,880 689,880
Depreciati
on
Expense-B 9,600 9600
960
0
Depreciati
on
Expense-E 3,680 3680
368
0
Interest
Payable 260 260 260
Salaries
Payable 2,360 2360 2360
Rates
Payable 4,820 4820 4820
Unearned
Fees 600 600 600
Rates
Expense 4,820 4820
482
0
Total 22,66
0
22,66
0
710,6
00
710,6
00
190,
740
276,
230
519,8
60
434,3
70
85,4
90
276,
230
276,
230
519,8
60
434,3
70
HNM Medical Service Income Statement
HNM Medical Service
Income Statement
For the year ended 30 June 2017
INCOME $ $
Accounting 5
Fees Earned
26183
0
Rent Revenue 14400
EXPENSES
Salaries expense
$126,96
0
Telephone expense $4,520
Interest expense $3,340
Insurance expense $37,820
Depreciation expense- building $9,600
Depreciation expense-
equipment $3,680
Rates expense $4,820
19074
0
PROFIT 85490
Statement of changes in equity
HNM Medical Service
Statement of Changes in Equity
For the year ended 30 June 2017
Owner Capital – 1 July 2016 $ 236,950
Profit for the year $ 85,490
$ 322,440
Drawings during the year $ (86,500)
Owner Capital – 30 June 2017 $ 235,940
Balance Sheet
HNM Medical Service
Balance sheet
Particulars Amount
Current assets $ $
Cash at Bank $
Fees Earned
26183
0
Rent Revenue 14400
EXPENSES
Salaries expense
$126,96
0
Telephone expense $4,520
Interest expense $3,340
Insurance expense $37,820
Depreciation expense- building $9,600
Depreciation expense-
equipment $3,680
Rates expense $4,820
19074
0
PROFIT 85490
Statement of changes in equity
HNM Medical Service
Statement of Changes in Equity
For the year ended 30 June 2017
Owner Capital – 1 July 2016 $ 236,950
Profit for the year $ 85,490
$ 322,440
Drawings during the year $ (86,500)
Owner Capital – 30 June 2017 $ 235,940
Balance Sheet
HNM Medical Service
Balance sheet
Particulars Amount
Current assets $ $
Cash at Bank $
Accounting 6
12,600
Accounts Receivable $
11,800
Prepaid Insurance $
460
Total Current Assets $
24,860
Non-Current assets
Building $
196,000
Less: Accumulated
Deprication
$
(96,500)
$
99,500
Land $
180,200
$
180,200
Equipment $
32,300
Less: Accumulated
Deprecation
$
(12,480)
$
19,820
Total Assets $
324,380
Current Liabilities
Account payable $
16,400
Interest Payable $
260
Salaries Payable $
2,360
Rates Payable $
4,820
Unearned Fees $
600
Total currrent liabilities $
24,440
Non-current liabilities
Mortgage payable $
64,000
$
64,000
Total liabilities $
88,440
Net assets $
235,940
12,600
Accounts Receivable $
11,800
Prepaid Insurance $
460
Total Current Assets $
24,860
Non-Current assets
Building $
196,000
Less: Accumulated
Deprication
$
(96,500)
$
99,500
Land $
180,200
$
180,200
Equipment $
32,300
Less: Accumulated
Deprecation
$
(12,480)
$
19,820
Total Assets $
324,380
Current Liabilities
Account payable $
16,400
Interest Payable $
260
Salaries Payable $
2,360
Rates Payable $
4,820
Unearned Fees $
600
Total currrent liabilities $
24,440
Non-current liabilities
Mortgage payable $
64,000
$
64,000
Total liabilities $
88,440
Net assets $
235,940
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Accounting 7
Equity
Owner capital 235940
Total equity 235940
Journalise the closing entries
Adjusting entries
Debit Credit
1. Rates expense 4820
Rates payable 4820
2. Depreciation Expense- Equipment 3680
Accumulated Depreciation-E 3680
Depreciation on equipment
Depreciation Expense- Building 9600
Accumulated Depreciation -B 9600
Depreciation on building
3.. Fees earned 600
Unearned fees 600
Sugary fee no earned
4 Interest expense 260
Interest payable 260
Interest payable on loan
5. Insurance Expense 1340
Prepaid Insurance 1340
Prepaid insurance expired
6. Salaries Expense 2360
Salaries Payable 2360
Salaries incurred but not paid yet
Closing entries
Rent Revenue 14400
Profit /Loss Summary 14400
Close income accounts
Equity
Owner capital 235940
Total equity 235940
Journalise the closing entries
Adjusting entries
Debit Credit
1. Rates expense 4820
Rates payable 4820
2. Depreciation Expense- Equipment 3680
Accumulated Depreciation-E 3680
Depreciation on equipment
Depreciation Expense- Building 9600
Accumulated Depreciation -B 9600
Depreciation on building
3.. Fees earned 600
Unearned fees 600
Sugary fee no earned
4 Interest expense 260
Interest payable 260
Interest payable on loan
5. Insurance Expense 1340
Prepaid Insurance 1340
Prepaid insurance expired
6. Salaries Expense 2360
Salaries Payable 2360
Salaries incurred but not paid yet
Closing entries
Rent Revenue 14400
Profit /Loss Summary 14400
Close income accounts
Accounting 8
Fees Earned 261830
Profit/Loss Sumarry 261830
Close income accounts
Profit/Loss Summary 190740
Interest Expense 3340
Salaries Expense 126960
Rates Expense 4820
Telephone Expense 4520
Insurance Expense 37820
Depreciation Expense-B 9600
Depreciation Expense-E 3680
Close expense accounts
Profit/Loss Summary 85490
Owner Capital 85490
Transfer profit to capital
Owner Capital 86500
Owner Drawings 86500
Transwer drawings to capital
Fees Earned 261830
Profit/Loss Sumarry 261830
Close income accounts
Profit/Loss Summary 190740
Interest Expense 3340
Salaries Expense 126960
Rates Expense 4820
Telephone Expense 4520
Insurance Expense 37820
Depreciation Expense-B 9600
Depreciation Expense-E 3680
Close expense accounts
Profit/Loss Summary 85490
Owner Capital 85490
Transfer profit to capital
Owner Capital 86500
Owner Drawings 86500
Transwer drawings to capital
Accounting 9
Case 2
Background of case
The case talks about the Samantha Kennedy who owns as well as manages the craft as well as
the material shop that is known with the name of Magic Thread. The shop of Samantha majorly
remain dependent on the huge number of dealers with the minor sums of various craft resources
due to this they are unable to keep the track of all of her account payables (Libby, 2017). The
owner is not well organised due to which she fights to send out the outcomes to her consumers to
gather currency from them. She is allowing for applying the computerised bookkeeping system
so that they can manage the business effectively.
Source documents would be required in a manual accounting system
Every company who makes the financial transaction generate the record of the transaction done
by them with the help of paper trail. The paper trails in which the accountants record their
transaction are treated as the source of document (Peavler, 2018). Source document is considered
as vital part of bookkeeping as well as bookkeeping process as it offers the indication that a
monetary deal has happened. Considering the case of Samantha, it is essential to keep the source
documents to record the sales clients and receiving of money, and to safeguard accurate expense
of currency to dealers. The types of documents that are required include -
Cash receipt tape: - Cash receipt tape can be used as a source document for recording
the cash sales that assist recording of sales deal of the business. This source document
can be used by the company in order to check the cash sales done by them.
Sales invoices: - The sales invoice works as the source documents that offer a record for
every sale made by the company. For the control purposes, the sales invoice are required
Case 2
Background of case
The case talks about the Samantha Kennedy who owns as well as manages the craft as well as
the material shop that is known with the name of Magic Thread. The shop of Samantha majorly
remain dependent on the huge number of dealers with the minor sums of various craft resources
due to this they are unable to keep the track of all of her account payables (Libby, 2017). The
owner is not well organised due to which she fights to send out the outcomes to her consumers to
gather currency from them. She is allowing for applying the computerised bookkeeping system
so that they can manage the business effectively.
Source documents would be required in a manual accounting system
Every company who makes the financial transaction generate the record of the transaction done
by them with the help of paper trail. The paper trails in which the accountants record their
transaction are treated as the source of document (Peavler, 2018). Source document is considered
as vital part of bookkeeping as well as bookkeeping process as it offers the indication that a
monetary deal has happened. Considering the case of Samantha, it is essential to keep the source
documents to record the sales clients and receiving of money, and to safeguard accurate expense
of currency to dealers. The types of documents that are required include -
Cash receipt tape: - Cash receipt tape can be used as a source document for recording
the cash sales that assist recording of sales deal of the business. This source document
can be used by the company in order to check the cash sales done by them.
Sales invoices: - The sales invoice works as the source documents that offer a record for
every sale made by the company. For the control purposes, the sales invoice are required
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Accounting 10
to be sequentially prenumbered to provide the assistance in order to help the business
owner with the amount (Accounting tools, 2017).
Lockbox check images: - These images assist recording of the money receipts that are
attained by the company from the customers.
Packing slip: - This packing slip is considered as the source of the documents as it shows
the items shipped to the customers and due to which it provide the assistance to the
recording of the sale transaction done by the company.
Supplier invoice: - The supplier invoice is documents that provide the assistance to the
issuance of the cash, check, and other mode of payment to the suppliers. This invoice also
provides the support to the business in order to record the expenses, inventory item, and
many other amounts (Cliff Notes, 2019). This invoice can be used by the business at the
time of making the payment to the suppliers as through this they can check the amount
that they are paying to their suppliers.
Cash receipts: - The cash receipts are one of the sources of document journal that is
specialized accounting journal. It is related to major entry book that is majorly used in the
physical accounting system to keep track of sales of items when the amount is received
by crediting the sum of sales as well as debiting cash and some other transactions that are
link to the receipts of cash.
Bank statement: - The bank statement is considered as one of source document that is
required in manual account ting for recording the transaction. It contains the adjustment
to the business’s book balance of cash on hand that corporation should locate to get the
records align with the bank amount.
to be sequentially prenumbered to provide the assistance in order to help the business
owner with the amount (Accounting tools, 2017).
Lockbox check images: - These images assist recording of the money receipts that are
attained by the company from the customers.
Packing slip: - This packing slip is considered as the source of the documents as it shows
the items shipped to the customers and due to which it provide the assistance to the
recording of the sale transaction done by the company.
Supplier invoice: - The supplier invoice is documents that provide the assistance to the
issuance of the cash, check, and other mode of payment to the suppliers. This invoice also
provides the support to the business in order to record the expenses, inventory item, and
many other amounts (Cliff Notes, 2019). This invoice can be used by the business at the
time of making the payment to the suppliers as through this they can check the amount
that they are paying to their suppliers.
Cash receipts: - The cash receipts are one of the sources of document journal that is
specialized accounting journal. It is related to major entry book that is majorly used in the
physical accounting system to keep track of sales of items when the amount is received
by crediting the sum of sales as well as debiting cash and some other transactions that are
link to the receipts of cash.
Bank statement: - The bank statement is considered as one of source document that is
required in manual account ting for recording the transaction. It contains the adjustment
to the business’s book balance of cash on hand that corporation should locate to get the
records align with the bank amount.
Accounting 11
The above given are the few source documents which are considered as vital document to record
the transactions to clients and receiving of cash, and to ensure right payment of cash to dealers.
Computerised accounting package help for better decisions
In the case, this has been found that Samantha is not able to manage the business operations
effectively because she is not well organised due to which she send out the outcomes to her
customers with the motive to collect the money majorly from them. Thus, this is the reason due
to which she took the step to apply the computerised accounting. In the computer course, she
gains the knowledge that focus in accounting should not be only on the bookkeeping but it
should also include use of information present inside computer.
Computerised accounting package supports her to make the better decisions that can contribute
in improving its business operations (Atar & Birman, 2017). The system of the computerised
accounting is software that provides the support to the businesses in order to manage the big
financial transactions that include reports, data, and statement with the presence of high
efficiency, speed as well as the better accuracy (Lin, Yang & Wang, 2018). Below are some of
the advantages of the computerized accounting that help the Samantha to make the better
decisions for their company.
Automation: - The computerized accounting do all the calculation with the use of
software computerized that majorly eliminate the time that is consumed generally in the
manual accounting. This will help the Samantha in making the quick decision for this
business that is possible because of the computerized accounting as it saves the time in
accounting (Amanamah, Morrison, & Asiedu, 2016).
The above given are the few source documents which are considered as vital document to record
the transactions to clients and receiving of cash, and to ensure right payment of cash to dealers.
Computerised accounting package help for better decisions
In the case, this has been found that Samantha is not able to manage the business operations
effectively because she is not well organised due to which she send out the outcomes to her
customers with the motive to collect the money majorly from them. Thus, this is the reason due
to which she took the step to apply the computerised accounting. In the computer course, she
gains the knowledge that focus in accounting should not be only on the bookkeeping but it
should also include use of information present inside computer.
Computerised accounting package supports her to make the better decisions that can contribute
in improving its business operations (Atar & Birman, 2017). The system of the computerised
accounting is software that provides the support to the businesses in order to manage the big
financial transactions that include reports, data, and statement with the presence of high
efficiency, speed as well as the better accuracy (Lin, Yang & Wang, 2018). Below are some of
the advantages of the computerized accounting that help the Samantha to make the better
decisions for their company.
Automation: - The computerized accounting do all the calculation with the use of
software computerized that majorly eliminate the time that is consumed generally in the
manual accounting. This will help the Samantha in making the quick decision for this
business that is possible because of the computerized accounting as it saves the time in
accounting (Amanamah, Morrison, & Asiedu, 2016).
Accounting 12
Improve efficiency: - The computerized accounting brings improvement in efficiency
that helps business of Samantha to take efficient decision for business.
Accuracy: - The computerised accounting system is intended to be correct as it removes
all the errors from the calculation that supports the decision of the Samantha, as they will
not get fail in their decisions (Al Bataineh & Bataineh, 2018). In addition to this, this is
clear that there are large numbers of suppliers to whom Samantha make the payment that
will be effectively possible with the presence of the accuracy.
Facilitates better control: - Considering it from the opinion of the management, the
computerized accounting provide the better control as well as organised record with the
use of the computer in accounting. This ensures the efficient performance in the records
of accounting which further helps in making the better and improved decision, which is
the reason behind the success of the business.
Simple and integrated: - Computerized accounting is considered as one of the simple as
well as integrated system that helps the business by automating as well as integrating all
the business activities. These activities might include the sales, finance, inventory, and
many other. The use of the method will lead to the arrangement of accurate as well as up-
to-date information that is used by Samantha for the effective decision related to business
suppliers and the customers.
Case 3
This section of the report includes the issue of partnership. This section will provide the answers
to actions of co-workers that are satisfactory while performing business activities.
Improve efficiency: - The computerized accounting brings improvement in efficiency
that helps business of Samantha to take efficient decision for business.
Accuracy: - The computerised accounting system is intended to be correct as it removes
all the errors from the calculation that supports the decision of the Samantha, as they will
not get fail in their decisions (Al Bataineh & Bataineh, 2018). In addition to this, this is
clear that there are large numbers of suppliers to whom Samantha make the payment that
will be effectively possible with the presence of the accuracy.
Facilitates better control: - Considering it from the opinion of the management, the
computerized accounting provide the better control as well as organised record with the
use of the computer in accounting. This ensures the efficient performance in the records
of accounting which further helps in making the better and improved decision, which is
the reason behind the success of the business.
Simple and integrated: - Computerized accounting is considered as one of the simple as
well as integrated system that helps the business by automating as well as integrating all
the business activities. These activities might include the sales, finance, inventory, and
many other. The use of the method will lead to the arrangement of accurate as well as up-
to-date information that is used by Samantha for the effective decision related to business
suppliers and the customers.
Case 3
This section of the report includes the issue of partnership. This section will provide the answers
to actions of co-workers that are satisfactory while performing business activities.
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Accounting 13
Stakeholders
The stakeholders are those who affect or affected by the organisation objectives, policies and
other plans. Some of the stakeholders include creditors, directors, employees and many other
people who are considered as major role player in the business. These people remain involved in
the implementation as well as the formation of the project. These people can take the direct
interest and can occur with the situation in order to affect the implementation. They can
influence a company in the positive as well as in the negative manner (Burns, 2016).
In the case study, Derek Brown and Kate Wilson are the two stakeholders who are owners of the
business. Both are the owners of the company as they work in the partnership in order to run the
small business. In addition to this, Derek brown has contributed approximately $60,000 and on
the other hand, Kate contribution was approx. $50,000. Derek brown is more self-assured with
the numbers as well as with the accounting terms. On the other hand, Kate prefers to deal with
the individuals and to avoid anything that is linked to the accounting or with the numbers. Thus,
the major stakeholders of the company are its owners only.
Derek appear to be doing anything wrong
In the case study, this has been found that Derek is the one who is good with the financial part
due to which he is responsible for all the kind of profit sharing and other financial data. In the
partnerships, the partners of the company are permitted to make the extractions so long as the
withdrawal is not exceeding the capital that is contributed by the partner (Collis, Holt & Hussey,
2017). This has been found that Derek is not doing anything wrong as he is just making the
drawings that are from his capital account. In this case, Derek contribution was $60,000 and out
of this capital he has withdrawn an amount of $40,000 due to which this is simple that he is not
doing anything wrong within the operations.
Stakeholders
The stakeholders are those who affect or affected by the organisation objectives, policies and
other plans. Some of the stakeholders include creditors, directors, employees and many other
people who are considered as major role player in the business. These people remain involved in
the implementation as well as the formation of the project. These people can take the direct
interest and can occur with the situation in order to affect the implementation. They can
influence a company in the positive as well as in the negative manner (Burns, 2016).
In the case study, Derek Brown and Kate Wilson are the two stakeholders who are owners of the
business. Both are the owners of the company as they work in the partnership in order to run the
small business. In addition to this, Derek brown has contributed approximately $60,000 and on
the other hand, Kate contribution was approx. $50,000. Derek brown is more self-assured with
the numbers as well as with the accounting terms. On the other hand, Kate prefers to deal with
the individuals and to avoid anything that is linked to the accounting or with the numbers. Thus,
the major stakeholders of the company are its owners only.
Derek appear to be doing anything wrong
In the case study, this has been found that Derek is the one who is good with the financial part
due to which he is responsible for all the kind of profit sharing and other financial data. In the
partnerships, the partners of the company are permitted to make the extractions so long as the
withdrawal is not exceeding the capital that is contributed by the partner (Collis, Holt & Hussey,
2017). This has been found that Derek is not doing anything wrong as he is just making the
drawings that are from his capital account. In this case, Derek contribution was $60,000 and out
of this capital he has withdrawn an amount of $40,000 due to which this is simple that he is not
doing anything wrong within the operations.
Accounting 14
Ethical issues involved in the case
Considering partnership act, any spouse of company is allowable to make the drawing from
partnership until time when the amount of the drawings is not more than the amount of the
capital contributed by the partners (Zona, 2015).
Derek as a partner is therefore permitted to conduct drawing that he has made that the amount to
$40,000 due to this quantity is comparatively less than his own capital when it comes to
partnership.
In the case, there is particular ethical problem that is presented in the time. From the initial
information, it has been found that Derek has identifies that distribution of profit will hang on
majorly on initially or starting influence. During business, the contribution of Derek reduced by
over 60% and at the same time there was no withdraw from Kate from the business in which
Kate made the investment. As per the case review, I believe that distribution of the profit is not
done by Derek in the fair manner, as there is need to divide the profit as per the principles of the
partnership that was set by them in the initial stage according to which they will share the profit
contributed by both the partner. The amount, which is withdrawn by the Derek, is withdrawn
from the capital of the company due to which the contribution in terms of capital declined
according to which the distribution is required to done by Derek. Presently, Kate has the higher
own contribution than Derek does so for distributing the profit there should be presence of the
new established division method for distributing the profit (Weygandt, Kieso, Kimmel & Aly,
2018).
Ethical issues involved in the case
Considering partnership act, any spouse of company is allowable to make the drawing from
partnership until time when the amount of the drawings is not more than the amount of the
capital contributed by the partners (Zona, 2015).
Derek as a partner is therefore permitted to conduct drawing that he has made that the amount to
$40,000 due to this quantity is comparatively less than his own capital when it comes to
partnership.
In the case, there is particular ethical problem that is presented in the time. From the initial
information, it has been found that Derek has identifies that distribution of profit will hang on
majorly on initially or starting influence. During business, the contribution of Derek reduced by
over 60% and at the same time there was no withdraw from Kate from the business in which
Kate made the investment. As per the case review, I believe that distribution of the profit is not
done by Derek in the fair manner, as there is need to divide the profit as per the principles of the
partnership that was set by them in the initial stage according to which they will share the profit
contributed by both the partner. The amount, which is withdrawn by the Derek, is withdrawn
from the capital of the company due to which the contribution in terms of capital declined
according to which the distribution is required to done by Derek. Presently, Kate has the higher
own contribution than Derek does so for distributing the profit there should be presence of the
new established division method for distributing the profit (Weygandt, Kieso, Kimmel & Aly,
2018).
Accounting 15
References
Accounting tools. (2017). Source documents. Retrieved from:
https://www.accountingtools.com/articles/what-are-source-documents-in-accounting.html
Al Bataineh, I., & Bataineh, A. (2018). The Relationship Between Computerized Accounting
Information Systems and Rationalizing the Government Expenditures at the General
Budget of Jordan. Research Journal of Finance and Accounting, 9(8), 171-178.
Amanamah, R. B., Morrison, A., & Asiedu, K. (2016). Computerized accounting systems usage
by small and medium scale enterprises in Kumasi Metropolis, Ghana. Research Journal
of Finance and Accounting, 7(16), 16-29.
Atar, N., & Birman, S. (2017). U.S. Patent No. 9,600,536. Washington, DC: U.S. Patent and
Trademark Office.
Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited.
Cliff Notes. (2019). Recording Sales. Retrieved from: https://www.cliffsnotes.com/study-
guides/accounting/accounting-principles-i/accounting-for-a-merchandising-company/
recording-sales
Collis, J., Holt, A., & Hussey, R. (2017). Business accounting. Palgrave.
Libby, R. (2017). Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
Lin, Z. J., Yang, D. C., & Wang, L. (2018). Accounting and auditing in China. Routledge.
References
Accounting tools. (2017). Source documents. Retrieved from:
https://www.accountingtools.com/articles/what-are-source-documents-in-accounting.html
Al Bataineh, I., & Bataineh, A. (2018). The Relationship Between Computerized Accounting
Information Systems and Rationalizing the Government Expenditures at the General
Budget of Jordan. Research Journal of Finance and Accounting, 9(8), 171-178.
Amanamah, R. B., Morrison, A., & Asiedu, K. (2016). Computerized accounting systems usage
by small and medium scale enterprises in Kumasi Metropolis, Ghana. Research Journal
of Finance and Accounting, 7(16), 16-29.
Atar, N., & Birman, S. (2017). U.S. Patent No. 9,600,536. Washington, DC: U.S. Patent and
Trademark Office.
Burns, P. (2016). Entrepreneurship and small business. Palgrave Macmillan Limited.
Cliff Notes. (2019). Recording Sales. Retrieved from: https://www.cliffsnotes.com/study-
guides/accounting/accounting-principles-i/accounting-for-a-merchandising-company/
recording-sales
Collis, J., Holt, A., & Hussey, R. (2017). Business accounting. Palgrave.
Libby, R. (2017). Accounting and human information processing. In The Routledge Companion
to Behavioural Accounting Research (pp. 42-54). Routledge.
Lin, Z. J., Yang, D. C., & Wang, L. (2018). Accounting and auditing in China. Routledge.
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Accounting 16
Peavler, R. (2018). Source Document Role in an Accounting Transaction. Retrieved from:
https://www.thebalancesmb.com/the-source-document-in-an-accounting-transaction-
393005
Weygandt, J. J., Kieso, D. E., Kimmel, P. D., & Aly, I. M. (2018). Managerial Accounting:
Tools for Business Decision-making. John Wiley & Sons Canada, Limited.
Zona, F. (2015). Board ownership and processes in family firms. Small Business
Economics, 44(1), 105-122.
Peavler, R. (2018). Source Document Role in an Accounting Transaction. Retrieved from:
https://www.thebalancesmb.com/the-source-document-in-an-accounting-transaction-
393005
Weygandt, J. J., Kieso, D. E., Kimmel, P. D., & Aly, I. M. (2018). Managerial Accounting:
Tools for Business Decision-making. John Wiley & Sons Canada, Limited.
Zona, F. (2015). Board ownership and processes in family firms. Small Business
Economics, 44(1), 105-122.
1 out of 17
Your All-in-One AI-Powered Toolkit for Academic Success.
+13062052269
info@desklib.com
Available 24*7 on WhatsApp / Email
Unlock your academic potential
© 2024 | Zucol Services PVT LTD | All rights reserved.