Principles of Accounting - Assignment Example

Running header: Accounting Assignment Student’s name: Instructor’s name: Subject code: Date of submission: Question 1 1. This is because the expense was incurred in the period ending June and hence it was recorded in the period it relates to according to the accrual basis of accounting. 2. Accrual basis of accounting is a basis of accounting that requires that revenues be recognized when earned, realized or when realizable while expenses be recognized when incurred and not necessarily when cash is paid out for them. - Another basis of preparing the financial statements is the cash basis of accounting 3. The money that you took out of the business was intended for personal use and not for business use and hence it should be treated as a drawing to avoid understating the firm’s profits. 4. Owner’s Equity implies the resources that the owner of a business has invested in the business or the residual claim against the business assets as creditors claims must be satisfied before that of owners. Changes in owner’s equity are caused by additional capital invested by the owner, profit earned by the business, losses and drawings. I.e. owners equity= assets – liabilities. 5. The word current implies the current financial period i.e. current assets are expected to be liquefied within the current financial period while current liabilities are expected to be settled within the current financial period. On the other hand non current assets are long-term and are expected to be in existent beyond the current period while non current liabilities are expected to take more than one year to settle. Question 1b. 1. Allocation means identification of costs with cost objectives and apportioning the overheads using a specific basis of allocation such as the rate of $40 per direct labor hour. 2. Inventoriable product costs imply the cost of inventory on hand or the costs incurred in the manufacture of goods until they are sold i.e. all manufacturing costs including direct costs and factory overheads. On the other hand period costs are costs relating to a specific accounting period in which they are incurred and charged against revenues in the same period and include selling, general administrative and depreciation costs. 3. Our balance sheet will show the following inventories; -raw materials inventory -work in progress -finished goods 4. The selling expenses and sales commission do not appear on the cost of goods manufactured statement because this statement only shows the costs incurred in manufacturing the goods while this costs should appear in the profit and loss statement. 5. Manufacturing overheads are costs which are incurred when a product is manufactured along with direct costs such as materials and direct labor. They are the manufacturing support costs and include such costs as power, depreciation and personnel costs. They are also called the indirect costs. Question 2a. koala software ltd Bank reconciliation statement As at 31 January 2009 Balance as per cash book $ $6409.31 Add: Unpresented cheques 1497.04 Interest earned 38.19 EFT collections 1191 Wrongful crediting by bank 300 9435.54 Less: Dishonored cheque 542.17 Eft payment 1040 Bank charges 10 Uncredited cheques 316.15 Wrongful debit 0 1908.32 Balance as per bank statement 7527.22 2. A schedule of necessary adjustments to show the collect balance of the cash at bank account as at 31 January 2009 Balance as per cash book on 31 January 2008 $6409.31 Adjustments: Deduct bank charges 10 Eft payment 1040 5359.31 Interest earned 38.19 Add Eft collections by bank 1191 Collect balance as per cash book 6588.49 Question 3a date account debit credit 3/8 Purchases account 1650 3/8 ABC Supplier’s 1650 5/8 Purchases account 220 5/8 Cash account 220 10/8 Purchases returns account 550 10/8 Purchases account 550 12/8 Brown’s account 1320 12/8 Sales revenue account 1320 17/8 ABC suppliers account 1067 17/8 Discount received account 33 17/8 Cash account 1100 19/8 Sales revenue account 220 19/8 Brown’s account 220 20/8 Cash account 1098 20/8 Discount allowed account 22 20/8 Browns account 1100 Question 3b BEP(in Units) =TFC/(SPU-VCU) = 300,000/ (1000000/10000-400000/10000) =300000/ (100-40) =300000/ (60) =5000 UNITS Margin of safety= actual number of units sold- BEP in units = 7500-5000 = 2500 units Target Net Income = Required Sales Dollars − Variable Costs − Fixed Costs 240000 =100x- 40x- 300000 240000= 60x-300000 240000+300000= 60x-300000+300000 540000=60x 9000=x The number of units to be sold for the firm to make $240000 profit = 9000 units Contribution Margin Ratio = (sales - variable costs)/sales. = (1000000-400000)/1000000 =( 600000)/1000000 = 0.6 Break even point in sales dollars= (BEP in units) SPU = (5000)100 =500000 dollars. KEY: BEP: Break even point TFC: Total fixed cost SPU: Selling price per unit VCU: Variable cost per unit Question 4a The figures in the unadjusted trial balances were determined by taking all the balances of all ledger accounts at the end of the accounting period i.e. All debit balances are debited in the trial balance while credit balances are credited. Question 4b The adjustments have not been done correctly. The following transactions are wrongly done. -interest receivable -prepaid insurance -adverting revenue -interest revenue -art supplies expense Question 4 c Corrected adjustments Trial Balance Adjustments Account Debit Credit Debit Credit Cash 11 000 1 500 Accounts receivable 18 000 Interest Receivable 2 000 500 Art Supplies 8 400 3 400 Prepaid Insurance 3 350 850 850 Printing Equipment 60 000 Accumulated Depreciation 28 000 7 000 Accounts Payable 500 Interest Payable Bank Loan 9 250 Unearned Revenue 7 000 1 400 Salary Payable Capital_David Martin 25 500 Drawings_David Martin 12 000 Adverting Revenue 58 600 2900 Interest Revenue 250 500 Salaries Expense 10 000 Insurance Expense Interest Expense 350 850 Depreciation Expense 7 000 Art Supplies Expense 3400 Rent Expense 4 000 129 100 129 100 14 650 14 650 Adjusting entries accounts debit credit Cash Adverting revenue To record advert revenue received 1500 1500 Interest receivable Interest revenue to record interest receivable 500 500 Art supplies expense Art supplies Being the amount spent on art supplies 3400 3400 Interest expense Prepaid insurance Being the amount of prepaid insurance 850 850 Depreciation expense Accumulated depreciation To record depreciation expense incurred 7000 7000 Adverting revenue Unearned revenue To record unearned adverting revenue 1400 1400 Question 5 Journal entries date account Debit credit Purchases account 140000 Supplier’s account 140000 Manufacturing account-direct materials 160000 Manufacturing account- indirect materials 4000 Purchases account 164000 Manufacturing Wages account 240000 Cash account 240000 Manufacturing overheads account 122000 Cash account 122000 Finished goods account 300000 Manufacturing account 300000 Customer’s account 240000 Sales revenue account 240000 Cost of goods sold account 18000 Manufacturing overhead account 18000 References: Principles of accounting.com 2010,principles of accounting, Viewed 15 April 2010 , http://www.principlesofaccounting.com/chapter%2010.htm Read More