Unit 5 Accounting Principles PDF

RECORDING AND FEEDING BACK ON LEARNER ACHIEVEMENT
Course / Award Pearson BTEC HND Level 5 in Business
Management
Unit 5 Accounting Principles
Student Name Nguyen Huu BaoTran_20BM40211
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Assignment Brief
Student Name/ID Number Nguyen Huu BaoTran_20BM40211
Unit Number and Title Unit 5: Accounting Principles
Academic Year 2021-2022
Unit Tutor Sumit Dhull
Assignment Title 1/2: Accounting in Context and Budgetary Control
Issue Date 03 December 2021
Submission Date 03 January 2022
Internal Verifier Dang Quang Vang
Date of IV 02 January 2022
Student declaration
I certify that the work submitted for this assignment is my own. I have clearly referenced any
sources used in the work. I understand that false declaration is a form of malpractice.
Student signature: Nguyễn Hữu Bảo Trân Date: 02th January, 2022
TABLE OF CONTENTS
2

I/ INTRODUCTION..........................................................................................................4
II/ EXAMINE THE CONTEXT AND PURPOSE OF ACCOUNTING..............................5
A. The purpose of the accounting function.............................................................5
1. The accounting function.......................................................................................5
2. Difference between management accounting and finance accounting...............5
3. Types of Various users for private university.......................................................5
B. The accounting function within the organization in the context of regulatory
and ethical constraints..........................................................................................5
1. The structure of the cost allocation method.........................................................5
2. Calculation formula of cost allocation method......................................................6
3. Inventory management system............................................................................7
III/ BASIC FINANCIAL STATEMENTS FOR UNINCORPORATED AND SMALL
BUSINESS ORGANIZATIONS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES,
CONVENTIONS, AND STANDARDS.............................................................................9
A. Accounting principles, conventions, and standards........................................9
1. Source documents................................................................................................9
2. Journals................................................................................................................10
3. Ledger (‘T’ account) .............................................................................................11
4. Trial Balance.........................................................................................................11
B. Financial statement................................................................................................12
1. Journals................................................................................................................12
2. Ledger (‘T’ account) .............................................................................................14
3. Trial Balance.........................................................................................................17
IV/ CONCLUSION...........................................................................................................18
V/ APPENDIX..................................................................................................................19
1. The accounting function.........................................................................................19
2. Difference between management accounting and finance accounting.................19
3. Types of Various users for private university........................................................21
VI/ REFERENCE.............................................................................................................22
I. INTRODUCTION
3

In the field of finance, accountants can understand and apply concepts and methods of
financial analysis accurately. The problems raised are scientifically arranged with
detailed solutions.
In this report, I will talk about the context, purpose of the accounting function in an
organization, Types of accounting and difference between management accounting and
financial accounting, Different types of users for private universities. The accounting
function within the organization in the context of regulatory and ethical constraints
includes the structure of the cost allocation method, the Calculation formula of the cost
allocation method, and the Inventory management system.
Next, I will evaluate the accounting function in the organization in the context of
regulatory and ethical constraints including what are the methods of cost allocation?
Explain these two methods in detail with their structure to calculate profit then calculate
and use a table to show the calculation. Moreover, I will explain JIT & JIC, order cost,
implementation cost, EOQ (with graph) and then I will calculate for JIT and JIC.
Finally prepare the basic financial statements for small business and unincorporated
organizations in accordance with accounting principles, conventions and standards by
preparing the financial statements from a certain trial balance for sole traders,
partnerships, and nonprofits, to meet accounting principles, conventions, and standards.
Next, I will explain the accounting cycle in great detail. About rules for the journal, steps
for the journal, 'T' Account, steps like prepare format, transfer log and find balance, trial
balance, and trial balance rule and then is to show the calculations on the following with
explanations.
II. EXAMINE THE CONTEXT AND PURPOSE OF ACCOUNTING
A. The purpose of the accounting function
4

See appendix page 18
B. The accounting function within the organization in the context of regulatory
and ethical constraints
1. The structure of the cost allocation method
2. Calculation formula of cost allocation method
5
Cost allocation
method
By operations
Manufacturing cost
Direct material Raw material
Direct labor Working on
machine
Overhead
Indirect material
Indirect labor
Indirect expense
Non-Manufacturing
cost
Marketing
Advertising
Transportation
Administration Salary, insurance,
rent, depriciation
By behavior
Variable cost
Manufacturing
variable cost
Direct material,
labor
Non-Manufacturing
variable cost
Packaging,
advertising, labeling
transportation
Fixed cost
Manufacturing
fixed cost Rent
Non-Manufacturing
fixed cost Administration cost

Absorption costing
• Sales - Cost Of Goods Sold= Gross Profit - Non-manufacturing Cost = Net Profit
Or Loss
• Opening Inventory (Unit) +Production (Unit) - Closing Inventory (Unit) = COGS In
Unit x Manufacturing Cost per Unit (Direct & Indirect) = COGS In $
January February March
Sales(1) 16500 22000 22000
Cost Of Goods Sold(2) 12000 16000 16000
Gross Profit 4500 6000 6000
Non-manufacturing
Cost
0 0 0
Net Profit 4500 6000 6000
(1) Sales= sales unit x selling price per unit = 1,500 x £11 = 16500
(2) COGS= units sold x manufacturing cost per unit (variable cost per unit + fixed cost
per unit) = 1,500 x 8 = 12000
Marginal costing
• Sales - Variable Manufacturing Cost - Variable Non-manufacturing Cost =
Contribution Margin - Fix Manufacturing Cost - Fix Non-manufacturing = Net
Profit Or Loss
January February March
Sales (1) 16500 22000 22000
Cost Of Goods Sold
(2)
7500 10000 10000
Variable non-
manufacturing cost
0 0 0
Contribution margin
(3)
9000 12000 12000
Fix manufacturing
cost (4)
9000 9000 9000
Fix non-
manufacturing cost
0 0 0
Net profit or loss 0 3000 3000
(1) Sales= sales unit x selling price per unit = 1,500 x £11 = 16500
(2) COGS= sales unit x variable cost per unit = 1,500 x £5 = 7500
(3) Contribution margin= Sales – COGS= 16500 – 7500= 9000
6

(4) Fix manufacturing cost= Fixed factory overhead for the year / 12 month = £108,000 /
12= 9000
3. Inventory management system
Carrying Cost
Carrying Cost of Inventory an accounting phrase that refers to all of the costs of keeping
goods on hand. Total expenses include depreciation, loss, and opportunity costs, as
well as warehousing, wages, shipping and handling, taxes, and insurance.
(vietnambiz, 2020)
Ordering Cost
Ordering cost is the expenses of purchasing or other expenses including security,
electricity, rotation, and factory rent
EQQ
Economic order quantity (EOQ) or “optimal shipment size” is a formula that is used to
determine the optimal order quantity for organizations to save logistical expenses,
storage space, inventory, and inventory expenditures. (Esther, 2021)
7

Just-In-Time
Just-in-time procurement is a method of managing orders and items from suppliers just
when they are required to meet immediate consumer needs. These orders originate
from "just-in-time" suppliers, meaning that the goods are processed and dispatched as
soon as possible to fulfill the orders, no sooner or later than the agreed-upon period
customer's request
Just in Case
Just-in-case inventory management is a strategy for decreasing the risk of backorders
in the face of supply and demand volatility. Large inventory mitigates the drawbacks of
JIT by reducing business interruption in the face of potentially damaging events such as
supplier dependency, weather, traffic, fuel prices, or orders that fall outside of the
forecast window.
JIT JIC
Material inspection cost £75,000 £75,000
Material Storage cost 0 £30,000
Material movement cost (1) £15,000 £25,000
Process 1 & 2 cost £80,000 0
Factory overhead apportion cost £75,000 £50,000
Total £245,000 £180,000
(1) Material movement cost= Additional cost – (Additional cost for JIT x 40% of
material movement cost) = £25,000 - (£25,000 x 40%) = £15,000
Choose JIC because it's cheap and saves money
8

III. BASIC FINANCIAL STATEMENTS FOR UNINCORPORATED AND SMALL
BUSINESS ORGANIZATIONS IN ACCORDANCE WITH ACCOUNTING
PRINCIPLES, CONVENTIONS, AND STANDARDS.
A. Accounting principles, conventions, and standards.
1. Source documents
Assets:
Current assets: cash, closing inventory (unsold), account receivable, prepaid expense
Non- current assets: land & building, plant & machine, vehicle & tools, equipment,
furniture
Liability:
Current liability (pay with year): accounts payable (purchase on credit), accounts
receivable (sell on credit), unearned income, outstanding expense
Non-current liability: purchase (cash: pay now), supplier (credit: pay later)
Equity:
Share capital: sell share to raise finance
Income:
9

Selling product & service for revenue, rent income, interest income, dividend income,
etc.
Expense:
Material, labor, marketing, electricity, water, tax, interest expense, dividend expense,
etc.
2. Journals
Rules: Debit (Dr), Credit (Cr)
Assets ↑ Dr ↓ Cr
Liability ↓ Dr ↑ Cr
Equity ↓ Dr ↑ Cr
Income Always ↑ Cr
Expense Always ↑ Dr
Assets= Liability + Equity
Profit= Income – Expense
Steps
1. Find source documents
2. Find 2 items or 2 account affected
3. Check items ↑ or ↓
4. Convert ↑ or ↓ into Debit or Credit
5. Make final journal entry (Dr always top, Cr always bottom)
Other journal entries
 Depreciation:
The value of assets reduce time to time → expense → always Dr
E.g. The depreciation on car $1000
-Depreciation expense account debit $1000
10

-Car account credit $1000
 Bad debts:
When your account receivable don’t turn your money → loss → always Dr
E.g. Account receivable valued $1500 turned to bad debts
-Bad debts account debit $1500
-Account receivable account credit $1500
3. Ledger (‘T’ account)
Classification: classify into a separate account
E.g.
Borrow from bank $100
-Cash account debit $100
-Bank loan account credit $100
Paid interest bank $100
-Interest expense account debit $100
-Cash account credit $100
Debit side > Credit side = Debit Balance (100-60=40 → 40 Dr.Bal)
Credit side > Debit side = Credit Balance (100-30=70 → 70 Cr.Bal)
4. Trial Balance
In order to check whether Dr side is equal to Cr side
11
Cash account
Bank loan
$100
0
Interest
expense $100
0
Bank loan
Cash $100
$100
Interest
expense
Cash $100
$100→ Credit $100 → Debit $100

E.g.
Dr Cr
Cash 0 0
Bank loan 0 100
Interest expense 100 0
TOTAL 100 100
If the trial balance is an equal → right
B. Financial statement
1. Journal entry
1. Bought raw material on credit from Mr. X amount of £5,000 at 10% discount
Purchase material account Dr £5,000 Material is expense, expense always Dr
Account payable account Cr £4,500 Liabilities increase so it will be Cr
Discount receivable account Cr £500 Discount is income, it always Cr
2. Sold material to Mr. P on credit £2,000
Account receivable account Dr £2,000 Assets increase so it will be Dr
Revenue account Cr £2,000 Revenue is income, it always Cr
3. Borrow money from ACB bank £4,000
Cash account Dr £4,000 Cash is an assets, assets increase so it will be Dr
Bank loan account Cr £4,000 Bank loan is a liability, it increase so it will be Cr
4. Issued share to investor amount of £$2,000
Cash account Dr £2000 Cash is an assets, assets increase so it will be Dr
Share capital account Cr £2000 Share capital is equity, it increase so it will be Cr
5. Paid insurance £65
Insurance expense account Dr £65 Expense always Dr
Cash account Cr £65 Cash is an assets, assets decrease so it will be Cr
6. Out of £20,000 sales, only 50% money received from Account receivable amount
Bad debts account Dr £10,000 Bad debts are liability, it decrease so it will be Dr
Account receivable account Cr £10,000 Liabilities increase so it will be Cr
Cash account Dr £10,000 Cash is an assets, assets increase so it will be Dr
Account receivable account Cr £10,000 Liabilities increase so it will be Cr
7. Paid income tax to government amount of £500
Tax expense account Dr £500 Expense always Dr
Cash account Cr £500 Cash is an assets, assets decrease so it will be Cr
12

8. Paid salary to employees £3,000
Wages expense account Dr £3000 Expense always Dr
Cash account Cr £3000 Cash is an assets, assets decrease so it will be Cr
9. £1,000 paid as insurance expense
Insurance expense account Dr £1000 Expense always Dr
Cash account Cr £1000 Cash is an assets, assets decrease so it will be Cr
10. Dividend paid to shareholder amount of £200
Dividend expense account Dr £200 Expense always Dr
Cash account Cr £200 Cash is an assets, assets decrease so it will be Cr
11. Depreciation on machinery 10% of £10,000
Depreciation expense account Dr £1000 Expense always Dr
Machinery account Cr £1000 Machinery is an assets, it decrease so it will
be Cr
12. 10% interest paid to bank on £20,000 borrowings
Interest expense account Dr £2000 Expense always Dr
Cash account Cr £2000 Cash is an assets, assets decrease so it will be Cr
13. Dividend received from Company B, £300
Cash account Dr £300 Cash is an assets, assets increase so it will be Dr
Dividend income Cr £300 Income always Cr
14. £3000 value product sold to customer on 70% credit and 30% cash
Cash account Dr £900 Cash is an assets, assets increase so it will be Dr
Revenue account Cr £900 Revenue is income, it always Cr
Account receivable account Dr £2100 Assets increase so it will be Dr
Revenue account Cr £2100 Revenue is income, it always Cr
15. £4000 borrowed money, returned to ACB bank
Bank loan account Dr £4000 Bank loan is a liability, it decrease so it will be Dr
Cash account Cr £4000 Cash is an assets, assets decrease so it will be Cr
16. Machinery sold and got £300 loss
Lost account Dr £300 Because depreciation so it will be Dr
Machinery account Cr £300 Machinery is an assets, it decrease so it will be Cr
13

2. Ledger
Purchase material account
No. Transaction Amount (£) No. Transaction Amount (£)
1. Account payable 4,500
1. Discount receivable 500
Balance 5,000
Account payable account
No. Transaction Amount (£) No. Transaction Amount (£)
1. Material 4,500
Balance 4,500
Discount receivable account
No. Transaction Amount (£) No. Transaction Amount (£)
1. Material 500
Balance 500
Account receivable account
No. Transaction Amount (£) No. Transaction Amount (£)
2. Revenue 2,000 6. Bad debts 10,000
14. Revenue 2,100 6. Cash 10,000
Balance 15,900
Revenue account
No. Transaction Amount (£) No. Transaction Amount (£)
2. Account receivable 2,000
14. Cash 900
14. Account receivable 2,100
Balance 5,000
Bank loan account
No. Transaction Amount (£) No. Transaction Amount (£)
15. Cash 4,000 3. Cash 4,000
Balance 0 Balance 0
14

Share capital account
No. Transaction Amount (£) No. Transaction Amount (£)
4. Cash 2000
Balance 2000
Insurance expense account
No. Transaction Amount (£) No. Transaction Amount (£)
5. Cash 65
9. Cash 1,000
Balance 1,065
Bad debts account
No. Transaction Amount (£) No. Transaction Amount (£)
6. Account receivable 10,000
Balance 10,000
Tax account
No. Transaction Amount (£) No. Transaction Amount (£)
7. Cash 500
Balance 500
Wages expense account
No. Transaction Amount (£) No. Transaction Amount (£)
8. Cash 3,000
Balance 3,000
Dividend expense account
No. Transaction Amount (£) No. Transaction Amount (£)
10. Cash 200
Balance 200
Depreciation expense account
No. Transaction Amount (£) No. Transaction Amount (£)
11. Machine account 1,000
Balance 1,000
15

Machine account
No. Transaction Amount (£) No. Transaction Amount (£)
11. Depreciation expense 1,000
16. Lost 300
Balance 1,300
Interest expense account
No. Transaction Amount (£) No. Transaction Amount (£)
12. Cash 2,000
Balance 2,000
Dividend income
No. Transaction Amount (£) No. Transaction Amount (£)
13. Cash 300
Balance 300
Lost account
No. Transaction Amount (£) No. Transaction Amount (£)
16. Machinery expense 300
Balance 300
Cash account
No. Transaction Amount (£) No. Transaction Amount (£)
3. Bank loan 4,000 5. Insurance expense 65
4. Share capital 2,000 7. Tax expense 500
6. Account receivable 10,000 8. Wages expense 3,000
13. dividend income 300 9. Insurance expense 1,000
14. revenue 900 10. Dividend expense 200
12. Interest expense 2,000
Balance 6,435 15. Bank loan 4,000
16

3. Trial balance
Debit (£) Credit (£)
Purchase material account 5,000
Account payable account 4,500
Discount receivable account 500
Account receivable account 15,900
Revenue account 5,000
Bank loan account 0 0
Share capital account 2,000
Insurance expense account 1,065
Bad debts account 10,000
Tax account 500
Wages expense account 3,000
Dividend expense account 200
Depreciation expense account 1,000
Machine account 1,300
Interest expense account 2,000
Dividend income 300
Lost account 300
Cash account 6,435
TOTAL £29,500 £29,500
IV. CONCLUSION
17

Regarding the context and purpose of the accounting function in an organization, three
types have been listed, Types of accounting include management accounting and
financial accounting and the difference between them is clearly compared through the
table, Different types of users for private universities include internal and external. The
accounting function in the organization in the context of legal and ethical constraints
including the structure of the cost allocation method is detailed with SmartArt, The
calculation formula for the cost allocation method is includes absorption costing and
marginal costing along with some definitions in the Inventory management system
Next, the accounting function in the organization and the context of regulatory and
ethical constraints including cost allocation methods, these two methods with their
structure for calculating profit are also highlighted. Then calculate and use a table to
display the calculation. JIT & JIC definitions, ordering cost, execution cost, EOQ (with
graph) are listed and then JIT and JIC calculation results.
Finally I show information about accounting principles, conventions and standards with
Source Documents, Journal, Ledger ('T' account), Trial Balance and Complete Financial
Statements with specific steps and figures.
V. APPENDIX
18

1. The accounting function
Accounting has 3 functions:
• Reflection function: Accountants maintain track of all economic and financial
phenomena that arise during business operations by calculating, documenting,
classifying, processing, and summarizing data relating to the enterprise's
operation and usage of capital.
• Director function: This is represented in the fact that accountants will
systematically grasp the complete process and operational results of the unit
through reflected data; assist incorrect analysis and evaluation to bring efficiency
in production and business activities.
• Information-gathering role: This is accounting's most significant function.
Accountants gather information about financial and economic events, process
them, and use scientific methodology units for many subjects to make suitable
judgments based on information to provide information about a company's
financial state and outcomes of commercial operations.
(Ytho, 2015)
2. Difference between management accounting and finance accounting
Accountants are classified into two groups based on their function of giving information.
Management accountant: This is an accounting position that provides economic data to
help managers make business decisions. As a result, the internal personnel of the
company is the target audience for management accounting. The information offered by
management accounting is utilized to make choices; it is generally forward-looking.
The following decisions are made by the manager:
- Planning: the power that determines which aim to pursue and how to achieve it.
- Decision-making: The manager must monitor everyday activities and ensure that
everything runs well, such as assigning work, managing disagreements, answering
queries, and so on, according on the plans.
-Controlling decisions: managers must guarantee that plans are adhered to and that
required adjustments are made as socioeconomic conditions change. Managers
compare actual and planned results to track how plans are implemented.
(Danny's, 2014)
Financial accountant: Financial accountants will mostly work with people outside of the
company, such as shareholders, banks, and tax authorities. The goal of financial
accounting is to give historical data so that outsiders may see the company's financial
situation.
19

Table comparing the difference between management accounting and financial
accounting
Financial accounting Management accounting
Purpose Provide information for the
preparation of financial
statements.
Information is provided to
assist in the management
of production and
commercial operations.
Information users Including business
managers and objects
outside the business
(external). Specifically:
investors, banks, tax
authorities, financial
agencies, statistical
agencies
Includes business
managers (internal).
Specifically: the business
owner, the board of
directors, the head of the
department
Foundation for reporting Based on accounting
standards regulations and
advice, different
companies' reports can be
compared, and users will
have the same
understanding of
accounting information,
particularly financial
statements, monetary
statements
As a result of each
company's internal
policies, the financial
statements may not be
comparable.
About the system of books
and data
Comply with all applicable
legal requirements.
Follow the company's
internal policies.
Information characteristics Past transactions are
recorded in this section.
Information that is based
on anticipated future
events and is typically not
available.
Report form Includes the following
financial statements:
Balance Sheet, Income
Statement, Statement of
Cash Flows, and Financial
Statement Notes.
The report will reflect in
detail on each department,
each stage of the
business, at the request of
management: Report on
manufacturing costs and
expenses, obligations, and
imports. Inventory export
and inventory
Period Quarter, year Quarter, year, month,
week, day
(Crowe, 2021)
20

3. Types of Various users for private university.
Internal:
 President: To run university and use resources in school.
 Department head: They have responsibility analysis, supervision and adjustment
of the work of an entire department.
 Administrative staff: Support school and do administrative work.
 Academic staff: Their basic responsibilities include scheduling classes,
supervising students, completing enrollment activities, and planning student-
attractive events.
 Other staff: Maintain the school and help other departments.
External:
 Government: They will profit by collecting taxes.
 Suppliers: Provide any equipment or services the school needs such as textbook,
stationary.
 Investors: They will look for schools that need investment and will provide
resources.
 Lenders: They are money lenders like banks
Internal and external: is a student who participates in courses and collaborates in school
21

VI. REFERENCE
References
Crowe. (2021, 5 10). Retrieved from https://www.crowe.com/vn/vi-vn/insights/accounting-
publications/faq/a2-financial-accounting-and-management-accounting
Danny's. (2014, 2 14). Retrieved from
https://www.facebook.com/ketoanquantridanny/posts/706111819419682/
Esther, D. (2021, 9 29). Retrieved from https://isinhvien.com/eoq-la-gi/
vietnambiz. (2020, 3 16). Retrieved from https://vietnambiz.vn/chi-phi-bao-ton-hang-ton-kho-carrying-
cost-of-inventory-la-gi-dac-diem-va-vi-du-20200316102259412.htm
Ytho. (2015, 11 18). Retrieved from https://ytho.com.vn/blogs/kien-thuc/chuc-nang-cua-ke-toan
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