Financial Accounting: Flash Cleaning Services & ABC Learning Study

This assignment provides a comprehensive solution to accounting tasks related to Flash Cleaning Services, including the preparation of journal entries, T-accounts, an unadjusted trial balance, adjusting entries, a ten-column worksheet, and financial statements. It also includes ratio calculations and their evaluation, along with recommendations for the company. Furthermore, the assignment features an essay on the history of accounting and a case study analysis of ABC Learning, focusing on the reasons for its failure and the ethical issues involved. The detailed solutions and analysis make this document a valuable resource for understanding accounting principles and case study methodologies. Desklib offers similar solved assignments and past papers to aid students in their studies.

ASSIGNMENT

Contents
Solution – 1 - Preparation of accounting records – using spreadsheets......................................................2
Journal Entries.........................................................................................................................................2
T. accounts..............................................................................................................................................3
Unadjusted Trial Balance.........................................................................................................................5
Types of Adjusting Entries.......................................................................................................................6
Adjusting Entries for Flash Cleaning Services as at 31 July 2018..............................................................7
Ten Column Worksheet in the books of Flash Cleaning Services.............................................................8
Financial Statements...............................................................................................................................9
Ratio Calculation....................................................................................................................................11
Evaluation of ratios................................................................................................................................11
Change in ratio’s if company repays the bank loan...............................................................................12
Recommendation..................................................................................................................................12
Solution – 2 - History of accounting – essay..............................................................................................13
Solution – 3 - ABC Learning Case Study.....................................................................................................15
3 (1). Failure of ABC Learning................................................................................................................15
3(2) The Ethical Issues...........................................................................................................................16
References.................................................................................................................................................17

Solution – 1 - Preparation of accounting records – using
spreadsheets
Journal Entries
Journal Entries in the books of Flash Cleaning Services
For the month of July, 2018
Date Particulars Dr./Cr. Amount
1-Jul-18 Bank Dr. $30,000
Capital Cr. $30,000
(Being capital contribution recorded)
1-Jul-18 Bank Dr. $20,000
Loan Cr. $20,000
(Being loan taken from bank)
1-Jul-18 Motor Vehicle - Van Dr. $18,000
Bank Cr. $18,000
(Being vehicle purchased)
1-Jul-18 Insurance expense Dr. $3,600
Bank Cr. $3,600
(Being insurance paid for the period 1 July to 30 June)
1-Jul-18 Cleaning equipment Dr. $4,800
Bank Cr. $4,800
(Being paid for cleaning equipment)
9-Jul-18 Supplies Dr. $2,400
Accounts payable Cr. $2,400
(Being supplies purchased on credit)
13-Jul-18 Bank Dr. $500
Service revenue Cr. $500
(Being service revenue received)
20-Jul-18 Wages expense Dr. $1,600
Bank Cr. $1,600
(Being wages paid upto 20 July)
25-Jul-18 Bank Dr. $5,500
Unearned service revenue Cr. $5,500
(Being service revenue received in advance)
27-Jul-18 Accounts payable Dr. $2,000
Bank Cr. $2,000
(Being amount paid for purchase of supplies on 9th July)

31-Jul-18 Interest expense Dr. $300
Bank Cr. $300
(Being interest paid on loan)
31-Jul-18 Advertising expense Dr. $1,600
Bank Cr. $1,600
(Being advertising expense paid for the month)
T. accounts
General Ledgers
In the books of Flash Cleaning Services
For the month of July, 2018
Bank
Date Description Debit Date Description Credit
1-Jul-18 Capital $ 30,000 1-Jul-18 Motor Vehicle - Van $ 18,000
1-Jul-18 Loan $ 20,000 1-Jul-18 Insurance expense $ 3,600
13-Jul-18 Service revenue $ 500 1-Jul-18 Cleaning equipment $ 4,800
25-Jul-18 Unearned service revenue $ 5,500 20-Jul-18 Wages expense $ 1,600
27-Jul-18 Accounts payable $ 2,000
31-Jul-18 Interest expense $ 300
31-Jul-18 Advertising expense $ 1,600
31-Jul-18 Balance c/d $ 24,100
$ 56,000 $ 56,000
Cleaning Equipment
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 4,800 31-Jul-18 Balance c/d $ 4,800
$ 4,800 $ 4,800
Motor Vehicle - Van
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 18,000 31-Jul-18 Balance c/d $ 18,000
$ 18,000 $ 18,000
Supplies
Date Description Debit Date Description Credit
9-Jul-18 Accounts payable $ 2,400 31-Jul-18 Balance c/d $ 2,400

$ 2,400 $ 2,400
Capital
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 30,000 1-Jul-18 Bank $ 30,000
$ 30,000 $ 30,000
Loan
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 20,000 1-Jul-18 Bank $ 20,000
$ 20,000 $ 20,000
Accounts Payable
Date Description Debit Date Description Credit
27-Jul-18 Bank $ 2,000 9-Jul-18 Supplies $ 2,400
31-Jul-18 Balance c/d $ 400
$ 2,400 $ 2,400
Unearned Service Revenue
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 5,500 25-Jul-18 Bank $ 5,500
$ 5,500 $ 5,500
Service Revenue
Date Description Debit Date Description Credit
31-Jul-18 Balance c/d $ 500 13-Jul-18 Bank $ 500
$ 500 $ 500
Advertising Expenses
Date Description Debit Date Description Credit
31-Jul-18 Bank $ 1,600 31-Jul-18 Balance c/d $ 1,600
$ 1,600 $ 1,600

Wages Expenses
Date Description Debit Date Description Credit
20-Jul-18 Bank $ 1,600 31-Jul-18 Balance c/d $ 1,600
$ 1,600 $ 1,600
Interest Expense
Date Description Debit Date Description Credit
31-Jul-18 Bank $ 300 31-Jul-18 Balance c/d $ 300
$ 300 $ 300
Insurance expense
Date Description Debit Date Description Credit
1-Jul-18 Bank $ 3,600 31-Jul-18 Balance c/d $ 3,600
$ 3,600 $ 3,600
Unadjusted Trial Balance
Unadjusted Trial Balance for the month of July, 18
Trial Balance
Particulars Debit Credit
Bank $ 24,100
Capital $ 30,000
Loan $ 20,000
Motor Vehicle - Van $ 18,000
Cleaning equipment $ 4,800
Supplies $ 2,400
Accounts payable $ 400
Service revenue $ 500
Wages expense $ 1,600
Unearned service revenue $ 5,500
Interest expense $ 300
Advertising expense $ 1,600
Insurance expense $ 3,600
Total $ 56,400 $ 56,400
Types of Adjusting Entries
The adjusting entries are passed at the end of the accounting period. These entries are passed to adjust the revenue
and expenses with the accounting period to which they pertains. Hence, adjusting entries are passed to comply with

accrual method of accounting. As per generally accepted accounting principles, the financial statements are
mandated to be prepared as per accrual method, hence passing of adjusting entries is a mandatory step. It goes
beyond the cash system of accounting, which means that the transaction should be recorded as and when the cash is
received or paid. These entries helps to maintain the completeness of the financial statements and thus helps in
maintaining true and fair view. These entries generally include one balance sheet account and one P&L account.
("What are adjusting entries? | AccountingCoach", 2019)
There are five types of adjusting entries. These are:
1. Accrued revenues – Accrued revenue means the revenue which has been earned but not yet received and not
recorded till. It simply means goods sold or services provided against which the cash is yet to receive. The journal
entry in this case involves one asset side account and another revenue account. The journal entry of accrued
revenue is
Accounts receivable Dr.
To Sales / Service revenue Cr.
Example
ABS company has made a sale of $500 to Mr. A, the invoice is raised by the company, but the payment has not
been received. At the accounting period end, this will become an accrued revenue adjusting entry and the company
has to pass the above-mentioned journal entry in its books to ensure that the revenues are appropriately and
completely recorded and are reflecting true and fair view.
2. Accrued expenses – Similar to accrued revenues, accrued expenses means that the expense has been incurred but
has not been paid and not recorded in the journals yet. The recording of accrued expenses is important so that the
expenses reflects completeness. The journal entry of recording of accrued expenses is
Expenses Dr.
To Expenses payable Cr.
Example
During the month of December, the company has consumed electricity whose invoice is received on 30th
December. The electricity bill is due to be paid on 31st December. Hence, in this case, the company needs to
account for the electricity expense by passing the above-mentioned entry.
3. Deferred revenue – Deferred revenue means that the money has been received but services are not yet provided or
goods are not yet sold. It simply means the revenue has been received in advance. The journal entry to record such
type of transactions are:
Bank Dr.
To Unearned service revenue Cr.
Further, after receipt of amount, if any services are provided, then the adjusting entry will be:
Unearned service revenue Dr.
To Service revenue Cr.
Example

The company has received $3000 in advance from a customer for which the services are yet to be provided. At the
end of the accounting period, the services amounting to $1000 has been provided against the advance amount.
Hence, the adjusting entry will be:
Unearned service revenue Dr. $1000
To Service revenue Cr. $1000
4. Deferred expenses – Similar to deferred revenue, the deferred expenses are those expenses which have been paid in
advance for the services which are yet to be consumed. Its typical example contains Insurance expenses which are
generally paid for one year. The adjustment entry of deferred expenses is required so that the expenses pertaining
to next accounting period, is not involved in the current year P&L. The journal entry of deferred expenses is as
below:
Insurance expense Dr.
To Prepaid insurance Cr.
Example
The company has paid insurance from July 18 to June 2019 in the month of July, 2018 amounting to $1200. The
company’s accounting period ends at December. The journal entry to charge off expenses for the CY 2018 will be
as follows:
Insurance expense Dr. $600
To Prepaid insurance Cr. $600
5. Depreciation expenses – Another type of adjusting entry is recording of depreciation expense. Depreciation refers
to the reduction in the value of the asset due to normal wear and tear, technology obsolesces, passage of time, etc.
these entries are required to be passed so that the non-current assets reflects true and fair view. The adjusting entry
of recording depreciation expense is as below:
Depreciation expense Dr.
To Accumulated Depreciation Cr.
Adjusting Entries for Flash Cleaning Services as at 31 July 2018
Journal Entries in the books of Flash Cleaning Services
For the month of July, 2018
Date Particulars Dr./Cr. Amount
31-Jul-18 Wages expense Dr. $2,200
Wages payable Cr. $2,200
(Being wages accrued for the month of July recorded)
31-Jul-18 Accounts receivable Dr. $12,600
Service revenue Cr. $12,600
(Being services provided accrued)
31-Jul-18 Fuel expense Dr. $190
Telephone expense Dr. $100
Expenses payable Cr. $290

(Being expenses accrued for the month of July)
31-Jul-18 Supplies expense Dr. $300
Supplies Cr. $300
(Being supplies consumed recorded)
31-Jul-18 Unearned service revenue Dr. $500
Service revenue Cr. $500
(Being servcies provided transferred to revenue account)
31-Jul-18 Depreciation expense Dr. $208
Accumulated depreciation - Van Cr. $208
(Being depreciation charged for the month of July, refer WN-1)
31-Jul-18 Prepaid insurance Dr. $3,300
Insurance expense Cr. $3,300
(Being insurance for 11 months transferred to prepaid)
Ten Column Worksheet in the books of Flash Cleaning Services
Ten Column Worksheet in the books of Flash Cleaning Services
For the month of July, 2018
Particulars
Unadjusted Trial
Balance Adjustments
Adjusted Trial
Balance
Income
Statement Balance Sheet
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Bank
$
24,100
$
-
$
-
$
-
$
24,100
$
-
$
24,100
$
-
Capital
$
-
$
30,000
$
-
$
-
$
-
$
30,000
$
-
$
30,000
Loan
$
-
$
20,000
$
-
$
-
$
-
$
20,000
$
-
$
20,000
Motor
Vehicle -
Van
$
18,000
$
-
$
-
$
-
$
18,000
$
-
$
18,000
$
-
Accumulate
d
depreciation
- Van
$
-
$
208
$
-
$
208
$
-
$
208
Cleaning
equipment
$
4,800
$
-
$
-
$
-
$
4,800
$
-
$
4,800
$
-
Accounts
receivable
$
12,600
$
-
$
12,600
$
-
$
12,600
$
-
Supplies
$
2,400
$
-
$
-
$
300
$
2,100
$
-
$
2,100
$
-
Prepaid
insurance
$
3,300
$
-
$
3,300
$
-
$
3,300
$
-

Accounts
payable
$
-
$
400
$
-
$
-
$
-
$
400
$
-
$
400
Expenses
payable
$
-
$
290
$
-
$
290
$
-
$
290
Wages
payable
$
-
$
2,200
$
-
$
2,200
$
-
$
2,200
Unearned
service
revenue
$
-
$
5,500
$
500
$
-
$
-
$
5,000
$
-
$
5,000
Service
revenue
$
-
$
500
$
-
$
13,100
$
-
$
13,600
$
13,600
Wages
expense
$
1,600
$
-
$
2,200
$
-
$
3,800
$
-
$
3,800
Interest
expense
$
300
$
-
$
-
$
-
$
300
$
-
$
300
Advertising
expense
$
1,600
$
-
$
-
$
-
$
1,600
$
-
$
1,600
Insurance
expense
$
3,600
$
-
$
-
$
3,300
$
300
$
-
$
300
Fuel expense
$
190
$
-
$
190
$
-
$
190
Telephone
expense
$
100
$
-
$
100
$
-
$
100
Supplies
expense
$
300
$
-
$
300
$
-
$
300
Depreciation
expense
$
208
$
-
$
208
$
-
$
208
Total
$
56,400
$
56,400
$
19,398 $ 19,398
$
71,698
$
71,698
$
6,798
$
13,600
$
64,900
$
58,098
Profit / (loss)
$
6,802
$
-
$
-
$
6,802
Total
$
13,600
$
13,600
$
64,900
$
64,900
Financial Statements
Flash Cleaning Services
Income Statement
For the month ended July, 2018
Particulars Amount ($)
Service revenue $13,600
Total income $13,600
Less: Expenses
Wages expense $3,800
Interest expense $300

Advertising expense $1,600
Insurance expense $300
Fuel expense $190
Telephone expense $100
Supplies expense $300
Depreciation expense $208 $6,798
Net Loss $6,802
Flash Cleaning Services
Statement of Changes in Equity
For the month ended July, 2018
Particulars Amount ($)
Capital
Opening balance $0
Add: Capital introduced $30,000
Less: Drawings $0 $30,000
Retained earnings
Opening balance $0
Add: Loss for the year $6,802 $6,802
Total $36,802
Flash Cleaning Services
Balance Sheet
As on 31 July, 2018
Particulars Amount ($)
(I) Assets
Non-Current Assets
Cleaning equipment $4,800
Motor Vehicle - Van $18,000
Less: Accumulated Depreciation -$208 $22,592
Total non-current assets $22,592
Current Assets
Bank $24,100
Accounts receivable $12,600
Supplies $2,100
Prepaid insurance $3,300 $42,100
Total current assets $42,100
Total Assets $64,692

(II) Liabilities
Non-Current Liabilities
Bank Loan $20,000 $20,000
Current Liabilities
Accounts Payable $400
Expenses payable $290
Wages payable $2,200
Unearned service revenue $5,000 $7,890
Equity
Capital $30,000
Retained earnings $6,802 $36,802
Total Liabilities and Equities $64,692
Ratio Calculation
(a) Current Asset Ratio = Current assets/Current Liabilities
= 5.34
(b) Debt Ratio = Total Debt / Total assets
= 31%
Evaluation of ratios
Current Ratio
The current ratio is a major liquidity ratio which shows the company's ability to meet its short -term obligations
from its short-term assets. It is calculated by dividend current assets with current liabilities. Current assets are those
assets which can be converted into cash readily. Similarly, current liabilities are those liabilities which are payable
within 12 months of reporting period. The ideal current ratio should be 2:1.
In the given case, the company’s current ratio is 5.34 which means that the company’s current assets are 5 times of
its current liabilities. The company has kept much amount in bank and with accounts receivable, so the company
needs to improve upon this ratio.
Debt Ratio
The debt ratio shows the proportion of the company's assets financed by its debts. It shows the dependency of
company’s debt over its assets.