Temporary accounts and permanent accounts:
Temporary accounts could be defined as those accounts falling within the income statement of an organisation. These accounts are closed at the end of the accounting year, as they do not carry any balance to the next year. On the other hand, the permanent accounts are real accounts, which are not closed at the end of an accounting year. Instead, these accounts last as long as the organisation continues its business operations (Langfield-Smith et al., 2017).
From the above trial balance, the four temporary accounts include service revenue, advertising expense, office rent and drawings. On the other hand, the four permanent accounts include cash, accounts receivable, prepaid insurance and equipment.
The two accounts having normal debit balances include accounts receivable and equipment, while the two accounts having normal credit balances include ANZ Bank loan and accounts payable.
Adjusting entries could be defined as journal entries, which are recorded at the end of an accounting period in different general ledger accounts. The main reason behind recording these entries is to align the reported outcomes and financial position of an organisation with the requirements of accounting framework like IFRS (Miller-Nobles, Mattison & Matsumura, 2016).
The following ratios are calculated in the context of Nundle Services:
According to the above table, current ratio of the organisation is computed as 1.78, which is near to the ideal standard of 2. This implies that Nundle Services has managed to maintain stable liquidity position in the market. From the debt ratio and debt-to-equity ratio, it is analysed that the organisation has focused on raising funds more through bank loans. This has made the capital structure position of the organisation highly leveraged.
The current study discusses the history of accounting and also about the contribution of Luca Pacioli in double-entry book-keeping system. The history of accounting is very rich and the presence of the double-entry book keeping could be traced back to ancient civilisations. The ancient origination of accounting could be mandated to Mesopotamian civilisation, which depicts a close relation to the creation of written theories, counting, monetary and auditing techniques by the classical Coptic and Semite. During the era of the Italian empire their governing bodies had access to the then well explained accounting information. Luca Pacioli who is an Italian, is identified as the progenitor of accounting and book-keeping was the pioneer to issue his work on double-entry book keeping and introducing this system to Italy.
The early origination of accounting could be traced to Mesopotamian civilisation, which cites a very close relation to the creation of written theories, counting, monetary and auditing methods by the early Hamito-Semitics and Sumerians. During the reign of the Italian empire their governing bodies had access to the then well explained accounting data (Brown, 2014). The explanation of the method of clerking and book keeping during the period (1494) by Luca Pacioli proved to be very helpful for the “Venetian merchants” who followed the (Summa de Arithmetica, Geometria, Proportioni et Proportionalita). We know that, recording of transactions had been developed during the ancient days, however, the well explained theories on (debit, credit journal and ledger) by Luca Pacioli became the base of accounting system that is being followed by the modern day accountants as well.
Accounts having normal debit balances and normal credit balances:
The industrial revolution aroused the requirement for a more progressive cost accounting process and the evolution of corporations produced large groups, which were not a part of a firm’s management; however, they had an absolute interest in the company’s outcomes, such as – share and bond holders who provided money externally (Phan, Joshi & Tran-Nam, 2018). The increase in the stature of the accountants transformed it towards an occupation in UK and afterwards in USA. In 1887, the (A.A.P.A) got established with (31) clerks and (ten years) after this the first standardised test for accountants were given alongside the issuance of license for the first CPA’s in 1896.
The recession conducted towards the development (SEC) in 1934. Every public sector corporation were to submit timely statements with the “SEC”, which received the certification from professionals related with accounting. The “AICPA” and its forgoers had the liability of developing standards for bookkeeping till 1973, later on “Financial accounting Standards Board” took the responsibility, then (AICPA and FASB developed GAAP), which is being followed in the present era (Chatfield & Vangermeersch, 2014).
Luca Pacioli was an Italian mathematician and is recognised as the “Father of accounting and double-entry book-keeping” owing to the contributions made in this field. The significant addition of Luca pacioli in bookkeeping was admired by clerks all over the globe and assembled in San Sepulcro an Italian village to show endemically vast appreciation to the brochure on accounting published on geminate bookkeeping (Pin, 2014). The book on bookkeeping and double-entry written by Luca Pacioli that changed the field of accounting forever, is known as “De Ludo Scacchorum (The Game of Chase) published in the year 2008. This book covers areas, like- “ethics of accounting”, “the rule of 72 (a process of regulating economic earnings)”, “utilisation of ledgers and journals”, “book-keeping”, “balance sheet”, “income statements”, “the method of Venice”.
The first brochure on bookkeeping in 1494 that got issued, was divided into “5-sections” named “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” and from the title of this mathematical book it could be well understood that it was on (All about arithmetic, calculation and dimensions). Before the (sixteenth centennial), this brochure published on bookkeeping contributed as the text book alone on this topic all over the globe and owing to this noteworthy benefaction, Luca Pacioli, is known as the pioneer of book-keeping. Luca Pacioli did not innovate the method, however, explained the process that was utilised by traders in (Grand-canal) at the time of French revival (Sangster, 2017). The method established in this book-keeping brochure was majorly based on the “revolution of accounting”, which is notable in the present era of bookkeeping. Luca Pacioli, established the utilisation of (periodicals and daybooks) in methods of book-keeping and alerted that the clerk could not rest till the debit side have been equalled to the credit side. The daybooks established were reliant on “collectible resources” and “stockpiles”, “debts”, “stock”, “expenses” and “earnings” reports. Luca Pacioli suggested bookkeeping ingresses and every year concluding ingresses, which have become very famous that they are largely utilised in industrial and financial companies in the modern era (Dean, Clarke & Capalbo, 2016).
Adjusting entries:
Conclusion:
In conclusion, it could be stated that the history of accounting is very rich and the presence of the double-entry book keeping could be traced back to ancient civilisations. The contribution of Luca Pacioli is of immense importance without his discoveries the smooth carrying out of the business transactions in a detailed manner would have been possible.
The report is prepared with the intent to gain an overview of the business scandal that took place in Target, which is deemed to be one of popular subsidiaries of Wesfarmers Limited. By analysing the facts of the case, the issues would be identified. After this, the fundamental principles of ethics in accounting would be evaluated in this paper. The next section would relate the facts of the case with the discussed ethical principles in accounting. Finally, the report would shed light on identifying the ethical principles that have been violated and the ways through such violations have been performed.
After careful analysis of the provided link, it has been identified that Target has inflated its income by $21 million in the six months until December 31 in the past year. The funds have flown from the rebate levels with about 30 global suppliers assisted in inflating the earnings of Target. According to Wesfarmers, the earnings of Target should be 1.1% lower than the reported figure; however, this would have been immaterial. This indicates the presence of an accounting scandal in Target.
There are five fundamental principles of ethics in accounting, which are discussed as follows:
Integrity:
The accountants need to be honest and straightforward in all business and professional relationships.
It is necessary for the accountants to remain neutral along with restricting conflict of interest and undue influence of others for overriding business or professional judgements (Duska, Duska & Kury, 2018).
Professional competence and due care:
The accountants are required to maintain professional skills and knowledge needed for assuring that the clients obtain competent professional services depending on existing developments in practice, techniques and legislation (Klein, 2015).
All accountants should respect the confidentiality of information obtained from business and professional relationships and hence, they must not disclose such information to the third parties without specific and proper authority (West, 2018).
Professional behaviour:
Finally, all accountants are needed to adhere to the pertinent rules and regulations along with avoiding any action having the possibility of discrediting the profession.
In case of integrity, it could be identified that the accountants of Target have not maintained honesty, as they have assisted the management of the organisation in inflating half-yearly earnings. In terms of objectivity, it is analysed that 30 global suppliers have assisted Target in raising its earnings. Despite having prior information of such facts, the accountants have not remained neutral by supporting the unethical policy of the management of Target (Shawver & Miller, 2017). In terms of professional competence and due care, the accountants of Target have not complied with the prevailing legislations, as 10 staffs of the organisation have been involved in this accounting fraud owing to pressure from the divisional level. As a result, the principle of professional behaviour is breached in this situation as well, as the staffs have not maintained the appropriate code of conduct and specific accounting policies followed by the parent organisation, Wesfarmers Limited.
Conclusion:
Based on the above discussion, it could be stated that Target has inflated its income by $21 million in the six months until December 31 in the past year. The funds have flown from the rebate levels with about 30 global suppliers assisted in inflating the earnings of Target. Despite having prior information of such facts, the accountants have not remained neutral by supporting the unethical policy of the management of Target and thus, the ethical principles in accounting have been violated.
References:
Brown, R. (2014). A history of accounting and accountants. Routledge.
Chatfield, M., & Vangermeersch, R. (2014). The history of accounting (RLE accounting): an international encylopedia. Routledge.
Dean, G., Clarke, F., & Capalbo, F. (2016). Pacioli’s double entry–part of an intellectual and social movement. Accounting History Review, 26(1), 5-24.
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-Blackwell.
Klein, G. (2015). Ethics in accounting: A decision-making approach. John Wiley & Sons.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R., & Thorne, H. (2017). Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.
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Pin, A. (2014, June). The contribution of Luca Pacioli to the development of business accounting. In Proceedings of the Conference Accounting and Economics: In Honour of the 500th Anniversary of the Publication of Luca Pacioli’s Summa de Arithmetica, Geometria, Proportioni et Propotionalita, Siena, 18-19 November 1992 (p. 161). Routledge.
Sangster, A. (2017). Pacioli’s lens: God, humanism, Euclid, and the rhetoric of double entry. The Accounting Review, 93(2), 299-314.
Shawver, T. J., & Miller, W. F. (2017). Moral intensity revisited: Measuring the benefit of accounting ethics interventions. Journal of business ethics, 141(3), 587-603.
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