Accounting Assignment Solution: Financial Statement and Reporting

This accounting assignment solution provides a detailed analysis of various accounting concepts. It begins with an introduction to accounting, defining its purpose and scope. The main body of the assignment is divided into two scenarios. Scenario 1 covers different types of business transactions, single and double-entry bookkeeping, the trial balance, and its importance. It includes journal entries, ledger accounts, and a trial balance. Scenario 2 delves into the differences between financial statements and financial reports, the requirements for financial reporting, and the various users of financial reports. The solution also provides journal entries, ledger accounts, and a trial balance for the second scenario. The assignment concludes with a summary of the key takeaways and a list of references used.

Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
SCENARIO 1..................................................................................................................................1
QUESTION 1..............................................................................................................................1
QUESTION 2..............................................................................................................................3
QUESTION 3..............................................................................................................................7
QUESTION 4..............................................................................................................................9
QUESTION 5..............................................................................................................................9
SCENARIO 2................................................................................................................................10
QUESTION 1............................................................................................................................10
QUESTION 2............................................................................................................................11
QUESTION 3............................................................................................................................12
QUESTION 4............................................................................................................................13
QUESTION 5............................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Accounting is a structured method for defining, documenting, evaluating, classifying,
checking, analysing, interpreting and sharing financial information(Barron, Chung and Yong,
2016). It discloses the revenue or loss over a period and the value of the property of the assets,
liabilities and equity of the business. Accounting is the practice of reporting business transactions
related to a company. The financial reporting process involves summarizing, evaluating and
monitoring these transfers to supervisory agencies, regulatory agencies and tax collectors. This
report cover the several topics such as record business transactions by using single and double
entry book keeping system, prepare final accounts by using appropriate accounting principles
and perform bank reconciliation. In addition, it covers the control and suspense account and why
it is required for drafting.
MAIN BODY
SCENARIO 1
QUESTION 1
Different types of business transactions:
There are numerous types of business transactions which are used to record in the books
of accounts and further classify the amount of the basis of it. Some of them are as follow:
 Sales transactions are under which the goods are sold to the buyer in exchange of cash or
on credit basis. Selling proceeds are reported in the sales accounts a debit to cash or
receivable accounts and a credit to the selling account.
 Purchases are the transfers which are needed by a company to purchase the goods or
services necessary to achieve the objectives of the organization (Edwards, Schwab and
Shevlin, 2015). Purchases of goods made in cash result in an inventory account debit and
a cash credit. If goods purchased on credit basis then credit the account, the debit would
still be put into the inventory account and the refund would be inserted into the accounts
payable.
 Receivables are receipts that relate to the company being charged for the delivery of
goods to some other firm. The invoice transaction occurs in the vendor's journal as a cash
debit and a credit to the receivable.
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 Payments are exchanges that attribute to a company that receives money for just a good
or service. Individuals are recorded in the company's accounting journal allowed to issue
the payment as a cash credit and a debit to the trade payables.
Define single entry book keeping:
It is an accounting system that used to keep every business transaction of a business.
There has been one entry for every money transfer and most of the entries register either inbound
or outbound funds. Exchanges are reported in the "cash book"—a report of columns that include
financial transactions such as the time, explanation and whether it is a cost or revenue.
Define double entry book keeping:
It is premised on the reality that each transaction seems to have two aspects and therefore
will have an impact on two accounting books (Chan, 2015). Each activity includes a debit entry
into one account and a credit entry into another account. It ensures that any transaction will be
reported in two accounts; one party will be debited since it collects value and the other party will
be credited since it has value.
Explain trial balance and its importance:
The trial balance is a workbook wherein the balances of all ledgers are combined into the
sums of the debit and credit side and balance the amount with each other (Jiang, Wang and Xie,
2015). The business used to prepare trial balance periodically, generally at the end of each
accounting period. Importances of trial balance are as follow:
Checking accuracy: This indicates that now the trial balance is being used to check the
exact sum deposited on the right side of the new account when transferring data from different
records such as buy records, selling books, cash books, etc. Trial Balance apart from account in
the general ledger, it is often helpful to determine the validity of specific purpose accounting
records.
Helps in preparing financial statements: The income statement, the balance sheet and
the cash flows must be prepared at the end of each financial reporting year. The balance of all the
accounts used to compile the financial reports is also accessible in the trial ledger, making it easy
to plan and interpret the financial information.
Rectifying errors: The total debit of both the trial balance shall be equivalent to the
combined credit of the trial balance. The whole checks the integer accuracy of the booklets. If
that's not the situation, the bookkeeper will find and correct the mistake. Accounting
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professionals consequently feel glad when the totals of the debit balance and the totals of the
credit balance are matched.
Help in adjustment: Adaptation accounts, such as prepaid costs, accrued obligations,
closing shares, etc., must be adjusted during the planning of the jury balance. This helps to make
adjustments that are only important in the current accounting year (Drexler, Fischer and Schoar,
2014). Businesses usually file the change reports at the close of the financial year. There really is
no limitation on the opening of alteration accounts as individuals occur.
QUESTION 2
Journal entries for each transaction:
Date particulars Dr. Cr.
01-06-20 Cash account 65,000
To capital account 65,000
02-06-20 Purchase account 8,000
To creditor account 8,000
07-06-20 Cash account 4,000
To sales account 4,000
08-06-20 Creditor account 4000
To bank account 4000
14-06-20 Insurance account 75
To bank account 75
15/06/2020 Debtor account 12,000
To sales account 12,000
16-06-20 Purchase account 10,000
To creditor account 10,000
18-06-20 Computer equipment account 3,000
To cash account 3,000
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20-06-20 Rent account 150
To bank account 150
21-06-20 Cash account 10,000
To sales account 10,000
25-06-20 Cash account 100
To bank account 100
30-06-20 Stationary account 30
To cash account 30
Ledger accounts:
Sales account
Date Particulars Amount Date Particulars Amount
30-06-20 To balance
c/d
26,000 07-06-20 By cash a/c 4,000
15-06-20 By debtor a/c 12,000
21-06-20 By cash a/c 10,000
26,000 26,000
Purchase account
Date Particulars Amount Date Particulars Amount
2-06-20 To creditor
a/c
8,000 30-06-20 By balance c/d 18,000
16-06-20 To creditor
a/c
10,000
18,000 18,000
Computer equipment account
Date Particulars Amount Date Particulars Amount
18-06-20 To cash a/c 3,000 30-06-20 By balance c/d 3,000
3,000 3,000
Capital account
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Date Particulars Amount Date Particulars Amount
30-06-20 To balance
c/d
65,000 01-06-20 By cash a/c 65,000
65,000 65,000
Insurance account
Date Particulars Amount Date Particulars Amount
14-06-20 To bank a/c 75 30-06-20 By balance c/d 75
75 75
Creditor account
Date Particulars Amount Date Particulars Amount
8-06-20 To bank a/c 4,000 2-06-20 By purchase a/c 8,000
30-06-20 To balance
c/d
14,000 16-06-20 By purchase a/c 10,000
18,000 18,000
Cash account
Date Particulars Amount Date Particulars Amount
1-06-20 To capital
a/c
65,000 18-06-20 By computer equipment
a/c
3,000
7-06-20 To sales a/c 4,000 30-06-20 By stationary a/c 30
21-06-20 To sales a/c 10,000 30-06-20 By balance c/d 76,070
25-06-20 To bank a/c 100
79,100 79,100
Bank account
Date Particulars Amount Date Particulars Amount
30-06-20 To balance
c/d
4325 8-06-20 By creditor a/c 4000
14-06-20 By insurance a/c 75
20-06-20 By rent a/c 150
25-06-20 By cash a/c 100
4,325 4,325
Stationary account
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Date Particulars Amount Date Particulars Amount
30-06-20 To cash a/c 30 30-06-20 By balance c/d 30
30 30
Debtor account
Date Particulars Amount Date Particulars Amount
15-06-20 To sales a/c 12,000 30-06-20 By balance c/d 12,000
12,000 12,000
Purchase account
Date Particulars Amount Date Particulars Amount
2-06-20 To creditor
a/c
8000 30-06-20 By balance c/d 18000
16-06-20 To creditor
a/c
10000
18,000 18,000
Rent account
Date Particulars Amount Date Particulars Amount
20-06-20 To bank a/c 150 30-06-20 By balance c/d 150
150 150
Trial balance:
Trial balance
Particulars Dr. Cr.
Capital account 65,000
Stationary 30
Debtor 12,000
Bank overdraft 4,325
Computer equipment 3,000
Rent 150
Creditors 14,000
Insurance 75
Sales 26,000
Purchase account 18,000
Cash account 76,070
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109,325 109,325
QUESTION 3
Difference between financial statement and financial report:
Financial statement: The aim of the financial statements is to offer overview of the
financial situation, cash flows and performance of operational activities (Kaplan and Atkinson,
2015). This knowledge allows the users to decide things on the distribution of capital.
There are three very famous financial statements which are income statement, balance sheet and
the statement of cash flows.
 The Income statement which declare the revenue and expenses of the corporation to earn
income and shows the amount of revenues and the essence of the specific expenditures. It
may be used for the study of patterns.
 The balance sheet shall is being used to disclose on the existing position of the
organization as of the date of the balance sheet. It is used to predict such issues as
leverage, debt status, and financing.
 The cash flow statement is being used to consider the nature of cash receipts and
payments. Because cash balances do not necessarily suit the income and spending
displayed in the statement of cash flows, it is an extremely valuable financial statement.
As a whole, financial statements could be used for making several decisions such as credit
decisions, investment decisions, tax decisions and understanding customer decisions.
Financial reports: Financial reports collect relevant financial data for dissemination to the
public. Financial data is realised for all the public to start generating their interest in investing.
Quarterly earnings are distributed through news articles, video conference, or web sites.
Annual audits reports with regulatory bodies such as the Securities and Exchange
Commission. This is extremely critical that the annual records are reliable and timely. The above
allows the company to make informed business decisions and help them to keep compliance and
good reputation. A good financial reporting system should be simple, convenient to use it and
often reliable.
Financial reporting system can be integrated with the existing general ledger, providing with
strong and contemporary embedded analytics without the high cost of upgrading their GL or
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ERP. When the company has developed the right enduring relationship, owners see
the improvement in productivity (Kim and Zhang, 2016). The production, packaging and
distribution reports can be carried out with accuracy and control, even though data sources,
locations and exchange rates are consolidated. The technology to perform reports means that
reports are beautifully configured for the needs of either the committee or the SEC.
Requirement of financial reports and its users:
As per the GAAPs (Generally Accepted Accounting Principles) companies are
responsible for reporting on their cash flows, profit-making operations and overall monetary
policies. Under the GAAP, the following three main financial statements are required such
as Revenue statement, balance sheet and cash flow statement.
The declaration of earnings shall represent the profits received by the company over the
reporting period, along with the associated expenditures. It covers profits from operational and
non-operating operations, enabling creditors and borrowers to determine profitability. This is
often referred to as the statement of income and loss (P&L). Similarly, value of assets and
liabilities mentioned in the balance sheet and overall flow of cash represent in cash flow
statement. This information is used for the company’s stakeholders who have different interest in
the company’s financial performance. All are mentioned below:
Management: The management committee wants to consider the competitiveness,
liquidity and working capital of the enterprise monthly because it can make operating and
financial decisions more about product.
Competitors: Entities negotiating against a company may try to obtain access to their
financial records in order to identify their financial situation (Lara, Osma and Penalva, 2016).
Expertise that they acquire could change their strategic strategies.
Customers: While deciding which manufacturer to use for a big contract, the consumer
first wants to re-evaluate their financial statement to determine the financial capacity of the
manufacturer to stay in operation long enough to deliver the products or services required by the
contract.
Employees: A corporation may choose to start providing employees with its financial
statements, together with a thorough description of what the documents contain. This could be
used to boost the amount of employee participation in and understanding of the company.
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Governments: A state from whose jurisdiction the corporation is based shall submit a
financial statement to decide if the company has paid the right amount of tax or not.
Creditors: They are likely to demand the presentation of financial statements because they
are the shareholders of the company and want to appreciate the success of their money.
QUESTION 4
Different fundamental principle of accounting:
There are several accounting principles which are adopted by the organization at the time
of recording their business transactions and prepare accounts. Those are discussed below:
Accrual principle: It is the principle which financial records should be documented in the
financial period because once they actually occur, rather than in the periods when cash flows are
aligned with them (Mussari, 2014). This would be the foundation of the income statement for
accounting. It is essential for the development of financial performance of the company what
actually happened during the accounting period, instead of being artificial means delayed or sped
up by the affiliated cash flows.
Conservatism Principle: It is also the principle which wil allow the report to
record obligations as soon as possible, but only record sales and profits if they are confident they
will exist. This idea appears to promote the reporting of expenses early rather than later. This
idea can be pushed too far, if a company insistently mischaracterizes the outcomes to be lower
than is actually the case.
Principle of full disclosure: This is the principle that company should include in or along
with the annual reports of the companies all information that could have an effect on the user's
understanding of such statements. The accounting rules have greatly enhanced this concept by
defining an overwhelming amount of interactive disclosures.
QUESTION 5
Profit and loss account for the year ended 31st December 2017:
Profit and loss account
Particulars Amount Particulars amount
Opening stock 9,500 Sales 125,000
Purchase 75000 Less: Return (1000) 124,000
Less: Return (1500) 73,500 Closing stock 1,000
Wages and salaries 13,200
Gross profit 28,800
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125,000 125,000
Rent and rates 1500 Gross profit 28,800
Add: Out. Rates 340 1,160 Interest received 1,000
Postage 900 Rent received - 4850
Insurance - 7500 Less: Advance rent -
490
4,360
Less: Prepaid insurance -
411
7,089
Bad debt write off 650
Net profit 24,361
34,160 34,160
Balance sheet:
Balance sheet
Liabilities amount Assets Amount
Capital – 120,800 Bank 10,594
Less: Drawings
5,150
Cash 340
Add: Net profit -
24361
140,011 Prepaid insurance 411
Provision for bad
debts
934 Advance rent 490
Debtor - 12500
Creditor 3,900 Less: Bad debt write off -
934
11,850
Outstanding rates 340 Motor van at WDV - 19600
Less: Dep - 5000 14,600
Loan 100,000
Closing stock 1,000
145,185 145,185
SCENARIO 2
QUESTION 1
Meaning of bank reconciliation:
It is a declaration that individuals are prepared to identify, explain and recognize any
variations in between balance as per the bank statement and balance as per the accounting
records. All exchanges between the issuer and the bank are decided to enter independently in
their documents by both party leaders. Such documents can be unhappy for a number of reasons
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