Introduction to Financial Accounting

Published: 2021-07-16 12:05:06
essay essay

Category: Business and Finance

Type of paper: Essay

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Hey! We can write a custom essay for you.

All possible types of assignments. Written by academics

GET MY ESSAY
Question 1Interpreting the Trial BalanceTrial balance provided by the accountant reflects the sum of all financial transaction performed by the Toff from October 2016 to 30 September 2017. The trial balance is divided into two sides; the right and left side. The right side includes the sum of all funds which is received by the business while the left side includes the sum of the funds the business used. For example, the right side includes money that is received for selling furniture’s while the left side includes money used for buying materials and paying workers. To know if the transactions are recorded correctly, the sum on the right side should equal the amount on the left side. In this case, the right side sum is £601,260, and the corresponding left side total is £601,260, and this means that the accountant recorded all the transactions correctly.In preparation for the Trial Balance, the accountant used basic steps of the accounting which include a recording of all transactions which was carried out by the business. Transaction recording included listing transactions in order of dates to make future references easier (Atrill & McLaney, 2016). Below is a step by step explanation of the events that occurred on the month of September 2017 and recorded by the accountant.The Day BooksDaybook in accounting contains a record of all day business activities which involve money and deliveries.Toff Sales Day Book September 2017It includes furniture and other services sold on the promise to pay later. Each sale is recorded on the day it was offered to the customer and the exact amount which the customer is expected to pay back at a later date. In September, Toff had a total of 10,360 which the customer owed the business.Toff Sales Returns Day Book September 2017It contains detailed information about the goods returned by customers to Toff due to either poor quality, or any other business-related reasons. All the returned goods are recorded at the end of the business day.Toff Purchase Day Book September 2017Refers to an accounting record of Toff where purchasing activities are recorded with their corresponding date. The September purchases of Toff totaled to £10,020.Toff Purchase Returns Day Book September 2017It shows the goods returned by Toff to its suppliers for certain reasons. On the purchase contract, the buyer is expected to return goods which are unsatisfactory accompanied by a note to the seller for compensation.Toff Cash Receipts Book September 2017This represents a record of all cash collections and payments from sales and banks as well as other cash sources. A cash receipts book keeps track of all cash received by Toff from any source in September 2017Toff Cash Payments Book September 2017Cash Payment Book records all cash payments made by Toff. It contains major cash payments made by Toff. For instance, payments to its supplier, cash payments to cover expenses such as rent, wages, and salaries, electricity bills, etc., and cash withdraw by the owner as well as other cash payments.Toff Journals September 2017:Journal 1: this record was made to correct the electricity expense of £1,000 which was wrongly recorded as money withdrawn by the owner. This was done by recording the amount as an electricity expense and subtracting the exact amount from the owner’s income.Journal 2: the record was made to indicate the incurred September wages of £500 which was not paid and yet to be recorded.Journal 3: it is a record of the prepaid amount of rent by Toff to its landlord which is to be used to cover the rent owed.Journal 4: this indicates the amount which Toff sets aside to cover the declining value of assets as they age.Journal 5: indicates the total amount which Toff have set aside to cover the customers owed by Toff which are not likely to meet their debt payment obligations.The remaining balance of raw materials of £62,000 which was not recorded is to be included as the ending value of raw materials in 30th September 2017.General ledger:Sales accountThis account contains all sales operations in September 2017. It includes the total of the money which Toff has gained from selling goods. It also indicates the total amount of items which were returned by customers. This amount is subtracted from the total amount of sales to get the net sum of sales.Purchases AccountIt is an accounting record which records the raw materials purchased by Toff. It reflects the amount of raw material available for sale at 30 September 2017. In the calculation of the total raw material, the accountant added the remaining total of raw materials on 31 August 2016 to the purchases made in September; to be paid later and the one paid in cash.Carriage inwards AccountThis account indicates the amount which is received from customers as money charged from transportation associated with the purchase of furniture at Toff. The business charges for delivery of goods to costumes and the received money is recorded in this account.Returns Outwards AccountEntails the total amount of goods returned to suppliers by Tuff. The amount is then added to the balance on 31 August 2016 to get the total amount of goods returned by Toff.Wages Expense AccountThis account includes the total amount of wage as at 30 September 2017. It includes the total wage as at 31 August 2016 added to the wage paid in cash in September and the wages expected to be paid to Toff workers for the month of September 2017.Rent expense AccountIt shows the total amount of rent owed by the business. In this case, the rent is £38,480 which is a balance as at 31 August 2016 added to £4,100, being a cash payment for rent. The total rent is subtracted from the rent paid in advance to attain the rent which the business is yet to pay.Electricity Expense AccountIt sums up the total electricity fee for the year ended 30 September 2017. It indicates the balance as on September 1st, the electricity expense paid in September and the corrected amount which was wrongly recorded as owner’s income. The total electricity cost is to be recorded and transferred to the next year.Inventory AccountIt represents the raw materials on 1 October 2016 which is to be included in the trial balance.Loan Liability AccountIt shows the amount which lenders have lent to Toff, and it is supposed to be paid within a specified timeframe. The total amount due is transferred to the year starting 1st October 2017.Trade Receivables AccountTrade receivables refer to the amount of money to be received for services and goods sold to customers. The goods sold on the promise to pay later, in the year ended 30 September 2017, are 45,860 while the amount sold on credit in September is 10,360. The balance transferred to the year starting 1st October 2017 is 47,120.Discount Allowed Expense AccountIt incorporates the amount of discount given by Toff to its customers.Allowance for Receivables AccountIt shows the increase in the amount which Toff has set aside to cater for debts which might not be paid. The total provision for doubtful debts (balance as at 1 September 2017 plus the increase) is transferred to the next year.Allowance Expense AccountIt represents the amount which Toff has increased to cater for debts which might not be paid. This is because the amount of debts to customers has increased. The increase will cover the new customers owed by Toff which are not likely to meet their debt payment obligations.Trade Payables AccountIt represents the amount which is to be paid to suppliers of Toff as at 1st October 2017.Discount Received Income AccountIt indicates the amount of discount which Toff received from suppliers. The business received a total of 210 for the purchases it made.Equipment AccountIt indicates the value of equipment which Toff owns as at 1st October 2017.Provision for Depreciation AccountThis account indicates the total declining price of all equipment owned by the business.Bank AccountIt represents all bank transactions with Toff for September 2017. It indicates the total bank balance which Toff has in its bank account.Drawings AccountIt’s an accounting record which shows the distributions made by Toff to the owner. This amount represents a reduction in Toff owner’s revenue.Capital AccountIt represents the amount of money that was paid to Toff by its owner in the form of investment. This account indicates that the business owes the owner £165,000Accruals AccountIt represents the wages which are supposed to be paid to Toff workers for work done in September 2017Prepayments AccountIt indicates the amount of rent which was paid in advance.Question 2Double entry accounting systemToff utilizes the double entry accounting model to record all businesses processes in at least two columns. In this system, there exist two columns in every transaction which has a right side; includes the total which the business is owned and left side which includes money and items which the business has. This model is grounded in the principle which highlights that for every right side record there must be an equal left side record. This system dictates that the total right side amount must match the corresponding total left side sums (Alan, 2016, p. 299).Regarding the nature of the transaction, that is, the money paid out by Toff for its daily operation and money earned from sales and delivery of services recorded on the corresponding column. Additionally, this method applies a general accounting equation (Assets=liabilities+ equity) to ensure a systematic and complete recording of each aspect of the transaction. For instance, when Toff borrowed a £50,000 loan from the bank, the company increased its cash by £50,000 and subsequently, the loan which Toff has to pay increased by the equal amount of £50,000.Toff accountant has employed all the basic principles to accurately record and document all business transactions since the records indicate correct and equal records. The value in the left side equals to the value in the right side column, and hence this indicates the accurate professional application of the double entry method. This method ensures that there exist mathematical accuracy based on the double-entry book-keeping principles and that correspond the reliability of the document for the owner to base his/her decisions.The Daybooks and JournalsThe Daybooks are books which record all processes in a business day chronologically. They provide records depending on the original transaction. Firms like Toff have different types of transaction and records are kept according to their specific categories depending on the business activity which took place. The types of Day Books in Toff include sales daybook which records daily credit sales, purchase daybook which records all credit purchases chronologically, return daybook inwards to record all goods returned by customers on specific days and lastly, return outwards daybook which records all merchandise returned to suppliers. Transactions are first recorded on the daybook and then transferred to the journal. Toff uses daybooks as the first data entry point for business activity. Daybooks are useful in pinpointing accounting processes and aid in verification of business activity to ensure accurate records.Journal is a record of business processes which are recorded as soon as they are conducted. Journals act as the second step of recording information from business activities after daybooks. Journals have two columns; one which indicates the amount earned by the business, and the other column which includes money paid out by the business and transaction information is balanced in pairs; that is, every record matches the corresponding item in the other column. This type of recording ensures that errors are minimized and corrected in the initial stages of the recording of the business activities. The business processes are formally recorded in the journal and then transferred to the other financial reports for permanent documentation and official usage.The General LedgerA general ledger is defined as a set of record which summarise all business transactions which involves money. The general ledger is used to aggregate the information collected from business activities and results to the formulation of business financial reports. The general ledger is summarised into the remaining totals from the business operation in a specific year. Since the general ledger is recorded using the double-entry method, it requires to enter an amount on the left side as well as to enter the same amount to the right side through which each transaction is detailed within it. The total amounts are required to be equal in both the columns. This ensures that the general ledger maintains its accuracy and be in balance (Wood, 2001). For instance, if a customer pays £500 for furniture, the accountant records the amount on the right side since it is money received by the business while if the business pays £5000 for raw materials to its suppliers, the accountant records the amount on the left side since it is money paid by the business. All detailed business transactions are recorded in their specific columns. Information from these columns is necessary for the preparation of all financial statements of the business.Trial balance and annual reportsThe trial balance is prepared after all business processes are recorded for the whole year. Trial balance report is prepared at the end of every year indicating the remaining amounts based on all business operations (Dyson, 2017). This report is generated from the business activities recorded throughout the year. Since the first trial balance report is subjected to be changed in order to include the business processes which were not recorded initially. This gives the need to generate another trial balance based on the changes made.Annual reports refer to a comprehensive report which entails all transaction of the business throughout the year. These reports aim at analyzing the financial health of the business and also to give the public an insight into financial and overall company operations. In legal perspective, it is the responsibility of the business to produce accurate annual reports. Additionally, the reports provide current and future financial performance of the business. They are prepared based on applicable laws in specific countries and according to the accounting principles in order to reduce errors and hence increasing their reliability.Question 3Toff FurnitureProfit and Loss statement ForThe Year Ended 30 September 2017£ £Sales 291,940Less: sales discount 500Sales-returns 2,700Net sales 288,740Cost of goods:ADD: Beginning inventory 51,600Purchases 143,420Carriage inwards 1,300Less: purchase outwards 10,300Ending inventory 62,000Discount received 210Cost of goods sold 123,810Gross profit 164,930EXPENSES:Wage Expense 56,890Rent Expense 37,230Electricity expense 19,000Allowance expense 770Depreciation expense 18,000NET PROFIT 33,040Toff FurnitureStatement Of Financial PositionSeptember 30, 2017Assets:Current Assets:Cash 27,180Inventory 62,000Receivables 47,120Prepayments 1,250Allowance for doubtful debts (3,770)Total current Assets 153,780Fixed Assets:Equipment 190,000Less: Acc. Depreciation 52,000Total Fixed Assets 138,000Total Assets 291,780Liabilities:Current liabilities:Trade Payables 27,540Accruals 500Total current liabilities 28,040Long-term liabilities:Bank loan 50,000Total long-term liabilities 50,000Total liabilities 78,040Owners equityDrawings 7,000Capital 165,000Retained earning 33,040Total equity 205,040Total equity and liabilities 283,080BibliographyAtrill, P and McLaney, E (2016) Accounting and Finance for Non-Accounting Specialists (10th edition), Pearson,Dyson, J (2017). Accounting for Non-Accounting Students (9th edition), PearsonSangster, Alan, and Wood, Frank (2015) Business Accounting 1 (13th edition), Pearson.Alan, S. (2016). The genesis of double-entry bookkeeping. Accounting Review, 2016, Vol 91 (issue1), p. 299 – 277Wood, Frank (2001). Book-keeping and Accounts, FT Prentice Hall Retrivied from https://primo.anglia.ac.uk/primo explore/fulldisplay?docid=44APU_ALMA2120516590002051&context=L&vid=ANG_VU1&lang=en_US&search_scope=CSCOP_APU_DEEP&adaptor=Local%20Search%20Engine&tab=default_tab&query=any,contains,Bookkeeping&sortby=rank&offset=0

Warning! This essay is not original. Get 100% unique essay within 45 seconds!

GET UNIQUE ESSAY

We can write your paper just for 11.99$

i want to copy...

This essay has been submitted by a student and contain not unique content

People also read