Accounting Principles

Questions: 1.Explain the Accounting Entity Assumption. 2.What is Fixed Asset Register and Why does a Company need to maintain an Assets Register?3.Explain the Function of a Journal in the Accounting Process.4.What is the Journal Entry used if the Company sold an Asset with a loss? 5.Explain unearned Income with an example. When should a Company recognize Income? 6.Give two more examples of the balance day adjustments a Company should record before issuing the Final Financial Report at end of Accounting Periods? 7.Why would a Business determine an amount for Doubtful Debts and outline the steps that could be taken to Calculate the Allowance. 8.Prepare the adjustment entry as of 30/06/2012 under the following: A.On 27 of June 2012, the company paid last weeks wag Wages that are due and not paid: 28th of June 1200 29th of June 1450 30th of June weekend, no wages B.Rent paid on 1/12/11 for one year $12,000 net of GST, the Company Accountant recorded all Payment as Expense on 1/12/1 C.The Company is required to issue a bank guarantee for one year, bank withheld $20,000 on 31/12/2011 from the Company Bank Account with Interest of 4.5% that will be calculated monthly and will be paid at the maturity date. D.On 30/04/12, the Company signed a monthly maintenance service contract for $500 each month; the company policy is to receive the 1st six months in adva The company received $3000 on 30th of April 2012. Company accountant recorded the following entry on the 30th of April: E. According to the Balance Sheet, the Inventory was $223,500. At the end of the financial year stock take, you have been advised that the Inventory value is only $210,000.F. On 30/06/2012, the Company aged receivables which have a total of $306, The Company estimated 2% of 90 days receivable and 10% of over 90 days will not be able to be collected. 9.Prepare Journal Entries for Disposal of Fixed Assets 10.Prepare the Deprecation Schedule for the life of the Asset. 11.Record the Depreciation Journal Entries at the end of Financial Year for year 1 only. Answers: 1.Accounting Entity Assumption: Accounting entity assumption depicts that all the departments or division of the business must be separate from each other. This helps an organization to analyze the cash flow of each department and it is important for an organization in relation to reporting the data and accountability purpose (Albrecht, Stice, Stice and Swain, 2007). 2.Fixed Asset Register: Fixed asset register is a list of all the assets of an organization that belongs to all the separate divisions of the company. This register is prepared by the company to keep a track on all the fixed assets. It shows the assets value, acquisition date and other necessary details for computing the depreciation and tax purpose. Requirement of Fixed Asset Register: Every organization has to maintain a fixed asset register for knowing the condition of every asset. It helps the company to prevent loss and theft and assets maintenance could extend the assets life (Needles and Crosson, 2007). Company even can enjoy the tax benefits with the help of this register. In some countries, it is statutory for the companies to maintain it. 3.Functions of Journal: Journal is a book in accounting which provides the original entry for all the transactions firstly. It is the prime entry book. The main functions of journal are as follows: To analyze all the transactions and their debit and credit To enable the posting of all the transaction into ledger To arrange all the transactions, in order of chronologically date (Hirschey, 2008). 4.Journal Entry: Cash A/c Dr. XXX Accumulated Depreciation a/c Dr. XXX To Loss on Sale Of assets XXX To Assets A/c XXX (Being Assets Sold and loss Occurred) 5.Unearned Income: Unearned income occurs when an organization gets money before the amount is earned. Income received before service is provided or goods is sold, called unearned income. It is current liability of the company till the time it is recognized earned income (Brigham and Ehrhardt, 2016). Example: a company asks its client for an extra payment before delivering the services is called unearned income. Recognize Income: A company can recognize the income when following criteria has fulfilled: Collection probability Delivery is complete Price can be determines Persuasive evidence of all the arrangements. 6.Adjusting Entries: Accrual of Revenues: In this situation company has sold the goods but till the end of the accounting period, company didnt get any payment. In this situation the amount is shown into the current asset a/c (Davis and Davis, 2011). For example: Goods worth of 5000 has been sold to Robert on Dec,1 but he didnt make any payment till Dec 31. Deferrals of Expenses: In this situation company make some extra payments even before availing the services or buying the product. In this situation the amount is shown into the current asset a/c. For Example: Insurance amount has been given by the company for advance. 7.Doubtful Debts: Doubtful debts are those amounts when an organization found that organization is not able to collect the amount from the debtor. There can be many reasons behind this such as some disputes, delivery problem etc (Crosson, Powers and Needles, 2010). Steps: For calculating the doubtful debts through allowances method, the following steps must be followed: Gather all the information of accounts receivable Determine the estimation method Use a fix % of total sales Use risk analysis Use combined analysis Create a receivables against schedule 8.Adjustment Entries: Particulars L.F. Debit Credit Equipment A/c 120000 Disposal of Fixed Asset A/c 2000 Accumulated Depreciation a/c 72000 Cash A/c 50000 (Being asset sold on profit.) Motor Vehicle 80000 cash A/c 20000 Accumulated Depreciation a/c 40000 Disposal of Motor Vehicle 20000 (Being motor vehicle sole on loss.) Bank Interest A/c 450 accrued interest 450 (Being bank interest amount adjusted.) Income received in advance 1000 Maintenance 1000 (Being advance maintenance amount adjusted.) Loss on Inventory write off 13500 Inventory 13500 (Being inventory write off) Provision For Debtors 7600 Debtors 7600 (Being Provision for debtor a/c prepared.) 9. Particulars L.F. Debit Credit Equipment A/c 120000 Disposal of Fixed Asset A/c 2000 Accumulated Depreciation a/c 72000 Cash A/c 50000 (Being asset sold on profit.) Motor Vehicle 80000 cash A/c 20000 Accumulated Depreciation a/c 40000 Disposal of Motor Vehicle 20000 (Being motor vehicle sole on loss.) 10. Depreciation Schedule Opening Value Effective Life Scrap Value Year 1 Year 2 Year 3 Year 4 Year 5 Assets Machinery 1750 5 250 300 300 300 300 300 Journal Entries Date Particulars L.F. Debit Credit Depreciation a/c 300 Machinery A/c 300 (Being Depreciation Charged) 11. Machinery Opening value 8500 Effective Life 12 Scrap Value 2500 Depreciation: Year 1 1417 Year 2 1181 Year 3 984 Year 4 820 Year 5 683 Year 6 569 Year 7 474 Year 8 395 Year 9 329 Year 10 275 Year 11 229 Year 12 191 Book value of the cleaning equipment would be 8500-6128= 2372. Opening value 8500 Effective Life 12 Scrap Value 2500 Depreciation: Year 12 15.38% 1307.69231 Year 11 14.10% 1198.71795 Year 10 12.82% 1089.74359 Year 9 11.54% 980.769231 Year 8 10.26% 871.794872 Year 7 8.97% 762.820513 Year 6 7.69% 653.846154 Year 5 6.41% 544.871795 Year 4 5.13% 435.897436 Year 3 3.85% 326.923077 Year 2 2.56% 217.948718 Year 1 1.28% 108.974359 Journal Entries Date Particulars L.F. Debit Credit 2012 Jun-30 Depreciation a/c 653 Machinery A/c 653 (Being Depreciation Charged) References: Albrecht, W., Stice, J., Stice, E. and Swain, M. 2007.Accounting: Concepts and Applications. 10thed. Mason: Cengage Learning. Brigham, E.F. and Ehrhardt, M.C. 2016.Financial Management: Theory Practice. 15thed. Boston: Cengage Learning. Crosson, S.V., Powers, M., and Needles, B. E. 2010.Principals of Accounting. Financial Accounting Series. Boston: Cengage Learning. Davis, C.E. and Davis, E. 2011.Managerial Accounting. NY: John Wiley Sons. Hirschey, M. 2008.Fundamentals of Managerial Economics.9thed. Mason: Cengage Learning. Needles, B and Crosson, S. 2007.Managerial Accounting.Boston: CengageLearning. Company sold Equipment worth $120,000 for $50,000. Depreciation recorded at the rate of 20% yearly for 3 years. Motor vehicle purchased for $80,000 was sold for $20,000 after usage of 2 years at rate of 25% yearly