Accounting Principles and Financial Reporting Assignment

This accounting assignment solution covers various key concepts in financial accounting. It begins with an explanation of the trial balance, its purpose, and limitations. The solution then delves into accrual accounting, contrasting it with the cash basis and emphasizing the matching concept. The assignment further explores the conceptual framework of accounting, highlighting qualitative characteristics such as verifiability, comparability, and understandability. It also discusses the impact of credit cards on financial management, particularly concerning accounts receivable. Depreciation methods, including the straight-line and diminishing value methods, are analyzed, along with asset revaluation. The solution provides detailed journal entries and explores inventory valuation methods, including perpetual systems and the lower of cost or net realizable value principle. Finally, the assignment touches upon revenue recognition and the importance of sustainability reporting.

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

1
ACCOUNTING
Table of Contents
Question 1........................................................................................................................................3
Requirement A.............................................................................................................................3
Requirement B.............................................................................................................................4
Question 2........................................................................................................................................4
Requirement A.............................................................................................................................4
Requirement B.............................................................................................................................5
Question 3........................................................................................................................................7
Requirement A.............................................................................................................................7
Requirement B.............................................................................................................................8
Question 4......................................................................................................................................10
Requirement A...........................................................................................................................10
Requirement B...........................................................................................................................11
Question 5......................................................................................................................................15
Requirement A...........................................................................................................................15
Requirement B – Journal Entries...............................................................................................18
Journal Entries...........................................................................................................................19
Question 6......................................................................................................................................20
Requirement A...........................................................................................................................20
Requirement B...........................................................................................................................23

2
ACCOUNTING
Reference.......................................................................................................................................24

3
ACCOUNTING
Question 1
Requirement A
A trail balance is an accounting report that lists the balances of general ledger account of
reporting entity. The amounts attributable to debit balances are listed in the column with heading
debit and the amounts attributable to credit balances are listed under the column within heading
credit balances. In other words, it makes use of closing balances of different ledger accounts
having credit and debit balances. There arise errors in the statements if the debt balances are not
equal to credit balances. Verifying the mathematic accuracy is the main objective of trail
balances as the transactions are recorded in the ledger accounts (Hoyle et al. 2015). However, if
the debit and credit balances are tallying, then this is indicative of the fact that there no errors in
calculation. It does not indicate that the books of accounts are free from material errors. For
example, whether the trail balance will tally or not is not identified by errors in the omission of
any entry into the account.

4
ACCOUNTING
Requirement B
Yes No Debit Credit
1. The Accrued Wages account with a
balance of $500 was omitted from the
Trial Balance
Yes Accrued Wages Accrued Wages of $500 should be
paosted in the credit side of trial
balance 500
2. A payment of $490 for Prepaid Rent was
only posted to the Cash at Bank account
and not to Prepaid Rent
Yes Prepaid Rent Debit side of Prepaid Rent should be
increased by $490
490
3. A debit of $458 to Cash at Bank was
posted as $485. The credit entry was
correct.
Yes Cash at Bank Debit Side of Cash at Bank should be
reduced by ($485 - $458) $27
-27
4. A credit of $600 to Accounts Payable
should have been made to Fees Revenue
No Accounts
Payable, Fees
Revenue
Accounts Payable should be debited
and Fees Revenue should be credited
by $600
5. A Dr. for a cash receipt of $500 from
customers in settlement their accounts
was posted twice as a Dr. to the Cash at
Bank and a Dr. to Accounts Receivable
accounts
Yes Cash at Bank,
Accounts
Receivable
Debit side of Cash at Bank should be
decreased by $500, whereas, the
debit balance of accounts receivable
should be reduced by ($500 x 2) $1000
-1500
6. The Prepaid Expense balance of $7280
was listed in the Trial Balance as $7820
Yes Prepaid Expense The prepaid expense balance in Trial
Balance should be reduced by ($7820 -
$7280) $540 -540
7. A $5210 credit to Fees Revenue was
posted as a $521 credit. The debit entry to
Accounts Receivable was made correctly.
Yes Fees Revenue The credit side of Fees Revenue
should be increased by ($5210-$521)
$4689. 4689
8. A purchase of offi ce equipment for
$3300 on credit was not recorded.
No Offi ce
Equipment,
Accounts Payable
Offi ce Equipment should be debited
and Accounts Payable should be
credited by $3300
9. A purchase of Furniture for $7500 using
a loan was posted as a debit to the Loan
Payable account and a debit to the
Equipment account.
Yes Loan Payable Credit side should be increased by
($7500 x 2) $15000
15000
10. The drawings account balance was
listed as a credit for $1500
Yes Drawings Drawings account should be replaced
to debit side of trial balance for $1500
1500
Would the error cause
the Trial Balance not to
balance
Which accounts
would be
affected and
how?
How would the error be corrected
Effect on Trial
Balance totals
Question 2
Requirement A
It is required to record all the expenses in the same period in which such expenses are
recorded according to the matching concept of accounting. Cash system of Recognizing and
Accrual system of recognizing are the two methods used for recording the expense as per
marching concept. Expenses under the accrual system are recognized in year when such
expenses have been incurred irrespective of whether the cash is paid for such transactions or not.

5
ACCOUNTING
This particular method does not depend on the matter whether the cash is paid or not. On other
hand, under the cash basis of accounting for expenses, expense are recorded when cash is
actually paid regardless of the fact that they have been incurred (Chen et al. 2017).
Requirement B
Part (i)

6
ACCOUNTING
Part (ii)

7
ACCOUNTING
Particulars Amount Amount
Profit before Adjustments $32,81,001Add:
Revenue from Commission not recorded $1,520
Unadjusted Prepaid Rent $21,000
Interest Revenue Due $375
Wrongly Debited Offi ce Expenses $6,000 $28,895
$33,09,896Less:
Accrued Wages Expenses $12,000
Unearned Revenue $8,400
Offcie Supplies Expenses $4,500 $24,900
Profit after Adjustments $32,84,996
Profit Adjustment:
Question 3
Requirement A
Conceptual framework is a system that is used for reporting items of accounting in
preparing annual report of organization along with complying with the established regulations
and rules. Some of the financial statements qualitative features are listed below:
 Verifiability- It is suggested by this principle that presented financial information in the
report should be verified easily. Fair presentation of financial information helps in
ensuring the fact that the presented information is verifiable.
 Comparability- Financial information in the financial report should be presented in a way
that it helps in facilitating the comparison between different reporting periods (Cooper et
al. 2016). This helps in ascertaining the trend of growth and performance.

8
ACCOUNTING
 Understandability- Disclosures of financial information should be presented with
appropriate notes and elaborations so that the presented information is easily
understandable (Scott 2015).
Requirement B
Part (i)
Part (ii)

9
ACCOUNTING
Question 4
Requirement A
 Risks related to the normal credit facilities will be certainly reduced by credit cards
usage. Such card facilities will make effective employment of e commerce platform by
organization. The facility of different pin codes acts as safety guard for customers or
individuals.
 The credit sales of company are associated with accounts receivables and the introduction
of credit cards will not impact the monitoring and recording of accounts receivables. One
of the effective management strategies is to keep a track of accounts receivables as this
helps to generate sales.
Requirement B
Part (i)

10
ACCOUNTING
Dr. Cr.
Date Amount Amount
Jun-18 Bad Debts Expenses A/c. Dr. 11510
To, Allowance for Doubtful Debts A/c. 11510
Allowance for Doubtful Debts A/c. Dr. 11510
To, Accounts Receivable A/c. 11510
Cash at Bank A/c. Dr. 19910
Accounts Receivable A/c. Dr. 79640
To, Sales A/c. 90500
To, GST Collected A/c. 9050
Cash at Bank A/c. Dr. 121600
To, Accounts Receivable A/c. 121600
Accounts Receivable A/c. Dr. 1870
To, Allowance for Doubtful Debts A/c. 1870
Cash at Bank A/c. Dr. 1870
To, Accounts Receivable A/c. 1870
Accounts Receivable A/c. Dr. 2200
To, Sales A/c. 2000
To, GST Collected A/c. 200
Profit & Loss A/c. Dr. 1565
To, Allowance for Doubtful Debts A/c. 1565
Journal Entries
(Being the balance of allowance for doubtful debts increased)
Particulars
(Being Bad debt expenses recorded)
(Being accounts receivable written off as bad debt)
(Being sales made in cash and credit both)
(Being dues received from customers)
(Being receivables, writted off previously, reinstated)
(Being dues received from reinstated receivables)
(Being unrecorded credit sales recorded properly)
In the books of Homewares Company Ltd.
Part (ii)

11
ACCOUNTING
Accounts Receivable A/c.
Date Particulars Debit Credit Balance
Jun-18 Opening Balance 265400 Dr.
Allowance for Doubtful Debts A/c. 11510 253890 Dr.
Sales A/c. 72400 326290 Dr.
GST Collected A/c. 7240 333530 Dr.
Cash A/c. 121600 211930 Dr.
Allowance for Doubtful Debts A/c. 1870 213800 Dr.
Cash at Bank A/c. 1870 211930 Dr.
Sales A/c. 2000 213930 Dr.
GST Collected A/c. 200 214130 Dr.
Allowance for Doubtful Debts A/c.
Date Particulars Debit Credit Balance
Jun-18 Opening Balance 15565 Cr.
Bad Debts Expenses A/c. 11510 27075 Cr.
Accounts Receivable A/c. 11510 15565 Cr.
Accounts Receivable A/c. 1870 17435 Cr.
Profit & Loss Adjustment A/c. 1565 19000 Cr.
Cash at Bank A/c.
Date Particulars Debit Credit Balance
Jun-18 Opening Balance 106000 Dr.
Sales A/c. 18100 124100 Dr.
GST Collected A/c. 1810 125910 Dr.
Accounts Receivable A/c. 121600 247510 Dr.
Accounts Receivable A/c. 1870 249380 Dr.
Sales A/c.
Date Particulars Debit Credit Balance
Jun-18 Opening Balance 878490 Cr.
Cash at Bank A/c. 18100 896590 Cr.
Accounts Receivable A/c. 72400 968990 Cr.
Accounts Receivable A/c. 2000 970990 Cr.
Profit & Loss Adjustment A/c. 970990 0 Cr.
Bad Debt Expenses A/c.
Date Particulars Debit Credit Balance
Jun-18 Allowance for Doubtful Debts A/c. 11510 11510 Dr.
Profit & Loss Adjustment A/c. 11510 0

12
ACCOUNTING
Part (iii)
Particulars Amount
REVENUE:
Sales Revenue 970990
OPERATING EXPENSES:
Allowance for Doubtful Debts 1565
Bad Debts Expenses 11510
Particulars Amount
ASSETS:
Current Assets:
Cash at Bank 249380
Accounts Receivable 214130
Allowance for Doubtful Debts -19000
In the books of Homewares Company Ltd.
Income Statement
for the period ended 30 June 2018
In the books of Homewares Company Ltd.
Balance Sheet
as on 30 June 2018
Part (iv)
The allowance of bad debts is estimated by using two methods that are listed below:
Percentage of receivable method- The required allowable size for uncollectible
accounts is estimated using this method and in this case, expenses are incurred in terms of
percentage. This method is used for allowance of doubtful debtors and in the event of any contra
entry related to the account (Lara et al. 2016).

13
ACCOUNTING
Percentage of sales method- The amounts attributable from credit sales of period that
are not collectible is computed from using this method. This method computes the existing
balance in adjustment and the yearend balance are not accounted for (Weygandt et al. 2014).
Question 5
Requirement A
Part (i)
Particulars Amount
Initial Price paid to Supplier 65000
Cost to deliver the machine to the site 3500
Amount paid to an engineer to fit the
machine ready for work 14500
Repairs made to replace bolts which
had dislodged during transit 1500
Depreciable Value of the Machine 84500
The initial machinery cost is considered for computing depreciation value and the amount
of $ 65000. Other cost that is considered is the cost of machines that is shown at $ 3500. Total
depreciable value of machinery comes to $ 84500. The expenses that are incurred due to
machinery entering the damaged floor and the amount of painting on machinery do not form the
part of cost of machinery.
Part (ii)
Diminishing value method and straight line method are the two methods that are used for
computation of depreciation. A fixed amount is charged as depreciation under straight line
method and depreciation is charged as assets value under diminishing method. Under the

14
ACCOUNTING
diminishing method, the amount that is charged as depreciation keeps on changing. The
deduction in net profit will be done by the amount of depreciation under the straight line method.
Under later method, the amount of depreciation charged goes on diminishing and the profits
reported under this particular method will exceed profits under straight line method.
Part (iii)
Assets revaluation is performed when the historical value of assets is less than the market
value of assets. Depending upon the type of revaluation, the value of assets can be depreciated or
appreciated. It is likely that market value will be more than historical cost of assets because the
market value of assets is always fluctuating. Hence, it is up to the discretion of management to
revalue the assets or to value the assets at historical costs and the same is done at revalued costs.

15
ACCOUNTING
Requirement B – Journal Entries
Dr. Cr.
Date Amount Amount
01-07-2014 Truck 2 A/c. Dr. 108000
To, Cash at Bank A/c. 108000
30-06-2015 Depreciation Expenses A/c. Dr. $27,000
To, Accum Dep. - Truck 2 A/c. $27,000
Profit & Loss A/c. Dr. $27,000
To, Depreciation Expenses A/c. $27,000
30-06-2016 Depreciation Expenses A/c. Dr. $20,250
To, Accum Dep. - Truck 2 A/c. $20,250
Repairs Expenses A/c. Dr. 7000
To, Cash at Bank A/c. 7000
Profit & Loss A/c. Dr. $27,250
To, Depreciation Expenses A/c. $20,250
To, Repairs Expenses A/c. 7000
30-06-2017 Depreciation Expenses A/c. Dr. $15,188
To, Accum Dep. - Truck 2 A/c. $15,188
Profit & Loss A/c. Dr. $15,188
To, Depreciation Expenses A/c. $15,188
01-03-2018 Truck 3 A/c. Dr. 130000
GST Paid A/c. Dr. 13000
To, Cash at Bank A/c. 143000
31-03-2018 Depreciation Expenses A/c. Dr. $8,543
To, Accum Dep. - Truck 2 A/c. $8,543
Cash at Bank A/c. Dr. 44000
Accum Dep. - Truck 2 A/c. Dr. $70,980
Loss on Sale of Assets A/c. Dr. $33,020
To, Truck 2 A/c. 108000
To, GST Collected A/c. 40000
30-06-2018 Depreciation Expenses A/c. Dr. $3,900
To, Accum Dep. - Truck 2 A/c. $3,900
Profit & Loss A/c. Dr. $45,463
To, Depreciation Expenses A/c. $12,443
To, Loss on Sale of Assets A/c. $33,020
Particulars

16
ACCOUNTING
Journal Entries
Date Amount Amount
01-07-2014 Truck 2 A/c. Dr. 108000
To, Cash at Bank A/c. 108000
30-06-2015 Depreciation Expenses A/c. Dr. $12,000
To, Accum Dep. - Truck 2 A/c. $12,000
Profit & Loss A/c. Dr. $12,000
To, Depreciation Expenses A/c. $12,000
30-06-2016 Depreciation Expenses A/c. Dr. $12,000
To, Accum Dep. - Truck 2 A/c. $12,000
Repairs Expenses A/c. Dr. 7000
To, Cash at Bank A/c. 7000
Profit & Loss A/c. Dr. $19,000
To, Depreciation Expenses A/c. $12,000
To, Repairs Expenses A/c. 7000
30-06-2017 Depreciation Expenses A/c. Dr. $12,000
To, Accum Dep. - Truck 2 A/c. $12,000
Profit & Loss A/c. Dr. $12,000
To, Depreciation Expenses A/c. $12,000
01-03-2018 Truck 3 A/c. Dr. 130000
GST Paid A/c. Dr. 13000
To, Cash at Bank A/c. 143000
31-03-2018 Depreciation Expenses A/c. Dr. $9,000
To, Accum Dep. - Truck 2 A/c. $9,000
Cash at Bank A/c. Dr. 44000
Accum Dep. - Truck 2 A/c. Dr. $45,000
Loss on Sale of Assets A/c. Dr. $59,000
To, Truck 2 A/c. 108000
To, GST Collected A/c. 40000
30-06-2018 Depreciation Expenses A/c. Dr. $3,900
To, Accum Dep. - Truck 2 A/c. $3,900
Profit & Loss A/c. Dr. $71,900
To, Depreciation Expenses A/c. $12,900
To, Loss on Sale of Assets A/c. $59,000
Particulars

17
ACCOUNTING
Opening Date Value
Residual
Value
Estimated
Life
Depreciation
Rate/Value p.a.
Period
(in months)
Depreciation
Amount
Closing
Balance
Closing
Date
01-07-2014 $1,08,000 $12,000 8 25% 12 $27,000 $81,000 30-06-2015
01-07-2015 $81,000 $12,000 7 25% 12 $20,250 $60,750 30-06-2016
01-07-2016 $60,750 $12,000 6 25% 12 $15,188 $45,563 30-06-2017
01-07-2017 $45,563 $12,000 5 25% 9 $8,543 $37,020 31-03-2018
01-03-2018 $1,30,000 $13,000 10 $11,700 4 $3,900 $1,26,100 30-06-2018
Depreciation Schedule:
TRUCK 2
TRUCK 3
Opening Date Value
Residual
Value
Estimated
Life
Depreciation
Rate/Value p.a.
Period
(in months)
Depreciation
Amount
Closing
Balance
Closing
Date
01-07-2014 $1,08,000 $12,000 8 $12,000 12 $12,000 $96,000 30-06-2015
01-07-2015 $96,000 $12,000 7 $12,000 12 $12,000 $84,000 30-06-2016
01-07-2016 $84,000 $12,000 6 $12,000 12 $12,000 $72,000 30-06-2017
01-07-2017 $72,000 $12,000 5 $12,000 9 $9,000 $63,000 31-03-2018
01-03-2018 $1,30,000 $13,000 10 $11,700 4 $3,900 $1,26,100 30-06-2018
Depreciation Schedule:
TRUCK 2
TRUCK 3
Particulars Scenario 1 Scenario 2
Revenue $2,12,000 $2,12,000
Depreciation Expense $15,188 $12,000
Profit on 2017 $1,96,813 $2,00,000
Question 6
Requirement A
Part (i)

18
ACCOUNTING
Perpetual Periodic
Transaction Particulars DR. CR. Transaction Particulars DR. CR.
1 Inventory A/c……Dr. 1760 1 Purchases A/c……Dr. 1760
To, Accounts Payable A/c. 1760 To, Accounts Payable A/c. 1760
2 Accounts Payable A/c….Dr. 110 2 Accounts Payable A/c….Dr. 110
To, Inventory A/c. 110 To, Purchase Return A/c. 110
3 Accounts Receivable A/c….Dr. 10440 3 Accounts Receivable A/c….Dr. 10440
To, Sales A/c. 10440 To, Sales A/c. 10440
Cost of Goods Sold A/c….Dr. 2784
To, Inventory A/c. 2784
4 Sales Return A/c…..Dr. 360 4 Sales Return A/c…..Dr. 360
To, Accounts Receivable A/c. 360 To, Accounts Receivable A/c. 360
Inventory A/c….Dr. 96 Loss on Damage A/c…Dr. 99
To, Cost of Goods Sold A/c. 96 To, Inventory A/c. 99
Loss on Damage A/c…Dr. 96
To, Inventory A/c. 96
5 Loss of Inventory A/c…..Dr. 96 5 Loss of Inventory A/c…..Dr. 99
To, Inventory A/c. 96 To, Inventory A/c. 99
Part (ii)
INCOME STATEMENT (under Perpetual Method):
Particulars Amount Amount
Sales Revenue 10440
Less: Sales Return 360
Net Sales 10080
Cost of Goods Sold 2784
Less: Purchase Return 96
Net Cost of Goods Sold -2688
GROSS PROFIT 7392
Loss on Damage -96
Loss of Inventory due to Theft -96
NET OPERATING PROFIT 7200

19
ACCOUNTING
INCOME STATEMENT (under Periodic Method):
Particulars Amount Amount
Sales Revenue 10440
Less: Sales Return 360
Net Sales 10080
Purchases 1760
Less: Purchase Return 110
Net Purchase 1650
Add: Opening Inventory 4800
Cost of Goods Available for Sales 6450
Less: Closing Stock 3473
Cost of Goods Sold -2977
GROSS PROFIT 7103
Loss on Damage -99
Loss of Inventory due to Theft -99
NET OPERATING PROFIT 6905
Part (iii)
Measuring the inventory is done by the method of perpetual system as profits are
substantially more under this method as against periodic inventory system. There are several
advantage of this system such as updating of records of inventory.
Part (iv)
In valuation of inventory, the principle that is followed is net realizable value or lower
cost. Valuation of inventory should be done at lower of cost or net realizable value.
Requirement B
Part (i)
 Recognition of revenue is done at fair value depending upon the accrual base of
accounting.

20
ACCOUNTING
 Computation of depreciation is done using straight line method as disclosed in the notes
to financial statements.
 Recognition of inventory is done at lower of net realizable value or lower of cost.
Part (ii)
Sustainability report is prepared by company and it has won many rewards that are
profitable to business. Company intends to make its global supply chain efficient by ensuing that
products are sources in an ethical and environmentally responsible manner.

21
ACCOUNTING
Reference list:
Brown, R. ed., 2014. A history of accounting and accountants. Routledge.
Chen, W., Shroff, P.K. and Zhang, I., 2017. Fair value accounting: Consequences of booking
market-driven goodwill impairment.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What
determines accounting quality changes around IFRS adoption?. European Accounting
Review, 24(1), pp.31-61.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The
case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-1025.
Givoly, D., Hayn, C. and Katz, S., 2017. The changing relevance of accounting information to
debt holders over time. Review of Accounting Studies, 22(1), pp.64-108.
Gray, R., Adams, C. and Owen, D., 2014. Accountability, social responsibility and
sustainability: accounting for society and the environment. Pearson Higher Ed.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting.
Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of
Accounting Studies, 19(1), pp.506-538.
Lara, J.M.G., Osma, B.G. and Penalva, F., 2016. Accounting conservatism and firm investment
efficiency. Journal of Accounting and Economics, 61(1), pp.221-238.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
Wiley & Sons.

22
ACCOUNTING
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.