Government Accountability And Transparency: Importance Of Accrual Accounting

Benefits of Accrual Accounting

Discuss About The Government Accountability And Transparency.

Accrual accounting is a form of accounting which records the expenses when they would be incurred regardless of the time when cash has been paid and the revenues are recorded at the time when it has been earned. The main idea of this accounting form is “regardless of the time when cash has been paid”. It is revenue recognition principle which explains that revenue must always be recognized and reported at the time of cash flow earnings. It goes hand in hand with the matching principle.

This accounting method is quite beneficial for the financial reporting as it is quite transparent in nature. The GAAP requires government entities and c-corporation to use the accrual accounting as it mainly focuses on the output from the business rather than the input of the business. It also enhances the accountability and offers the better financial management to the business. This accounting method makes it easier for the companies and the government funds to compare the performance (Ward, 2012). The shift to accrual accounting would append a layer of government accountability and the transparency which was not visible at initial stage.

Accrual accounting is among those tools which are used by the management to assess numerous company aspects. It enhances the data input integrity along with the resulting report generation. Accrual accounting tracks all the items of the financial statement and sets the better position of the organization in the industry which helps the financial statements to look better with the transparency (Abdel-Kader and Luther, 2008).

Accrual accounting paints the true and fair picture of the financial statement of an organization and permits the users of financial statement to know that everything which is listed in the financial statement in a particular time period is accounted for. This accounting method is one the best way to compare the performance and the stability of financial performance of an organization from one period to next (Cadez and Guilding, 2008). In end, it has been evaluated that the accrual accounting improves the usefulness of the financial statement of an organization and it improves the understandability of final financial accounts of an organization among the users and the stakeholders of the company.

In the given case, ABC home media is an organization which is controlled by me and due to the homesickness, assistant has handled all the process of accounting records. The financial accounts have been prepared and have been distributed among the creditors and the investors of the company. Later, it has been found that the financial statement of the company is not correct and expenses have been overlooked due to which the net profitability level of the company has been lower.

In the given case, it has been found that the main stakeholders of the business are the investors and the creditors of the company. These stakeholders play the crucial role in the organization life as well as the financial statement of the company are very important for them to evaluate the performance of the company (Zimmerman and Yahya-Zadeh, 2011).

In the case, the main ethical issue of the business is not disclosing the exact information after evaluating it. Management of the company should take a strict option and must consider the option of renouncing the final statements of the company. The management should not use the mistake as own benefits (Macintosh and Quattrone, 2010).

Being a controller, I would take the decision of re issuing the financial statement of the company. It would help the company to show the correct worth of the business as well as the audit report of the business would also be fair and in favor of the organization.

Journal entries
			Amount (in $)
Date	Particulars	LF	Debit	Credit
1	Cash a/c		25000
	Delivery truck		35000
	Common stock a/c			60000
3	Supplies a/c		1000
	Cash a/c			1000
4	Insurance expenses a/c		200
	Prepaid Insurance expenses		2200
	Cash a/c			2400
5	Cash a/c		2500
	Service revenue			2500
6	Bank a/c		8000
	Service revenue			8000
7	Salaries expenses a/c		6000
	Cash a/c			6000
8	Cash a/c		55000
	Service revenue			55000
9	Cash a/c		4000
	Unearned Service revenue			4000
10	Bank a/c		3000
	Accounts receivable			3000
11	Fuel expenses a/c		1500
	Accounts payable			1500
12	Bank a/c		4500
	Service revenue			4500
13	Rent expenses a/c		2500
	Cash a/c			2500
14	Accounts payable		500
	Cash a/c			500
15	Dividend a/c		10000
	Cash a/c			10000

Cash a/c
Particulars	Amt	Particulars	Amt
Common Stock a/c	25000	Supplies a/c	1000
Service revenue	2500	Insurance expenses a/c	200
Service revenue	55000	Salaries expenses a/c	6000
Unearned Service revenue	4000	Rent expenses a/c	2500
Service revenue	4500	Accounts payable	500
Accounts receivable	3000	Dividend a/c	10000
		Prepaid Insurance expenses	2200
Service revenue	8000	Balance c/d	79600
	102000		102000
Accounts receivable a/c
Particulars	Amt	Particulars	Amt
Balance c/d	3000	Bank a/c	3000
	3000		3000
Supplies a/c
Particulars	Amt	Particulars	Amt
Cash a/c	1000	Balance c/d	1000
	1000		1000
Prepaid insurance a/c
Particulars	Amt	Particulars	Amt
Cash a/c	2200	Balance c/d	2200
	2200		2200
Delivery truck a/c
Particulars	Amt	Particulars	Amt
Common stock a/c	35000	Balance c/d	35000
	35000		35000
Accounts payable a/c
Particulars	Amt	Particulars	Amt
Cash a/c	500	Fuel expenses a/c	1500
Balance c/d	1000
	1500		1500
Unearned Service revenue a/c
Particulars	Amt	Particulars	Amt
Cash a/c	4000	Balance c/d	4000
	4000		4000
Common Stock a/c
Particulars	Amt	Particulars	Amt
Balance c/d	60000	Cash a/c	25000
		Delivery truck	35000
	60000		60000

Dividend a/c
Particulars	Amt	Particulars	Amt
Cash a/c	10000	Balance c/d	10000
	10000		10000
Service revenue a/c
Particulars	Amt	Particulars	Amt
Balance c/d	70000	Cash a/c	2500
		Bank a/c	8000
		Cash a/c	55000
		Bank a/c	4500
	70000		70000
Insurance expenses a/c
Particulars	Amt	Particulars	Amt
Cash a/c	200	Balance c/d	200
	200		200
Fuel expenses a/c
Particulars	Amt	Particulars	Amt
Accounts payable	1500	Balance c/d	1500
	1500		1500
Rent expenses a/c
Particulars	Amt	Particulars	Amt
Cash a/c	2500	Balance c/d	2500
	2500		2500
Salaries expenses a/c
Particulars	Amt	Particulars	Amt
Cash a/c	6000	Balance c/d	6000
	6000		6000

Trial Balance
Particulars	JF	Debit	Credit
Cash a/c		79600
Accounts receivable a/c			3000
Supplies		1600
Prepaid insurance		1400
Delivery truck		35000
Accumulated depreciation		150
Accounts payable			1000
Salaries payable			2200
Unearned service revenue			2500
Common stock			60000
Dividends		10000
Service revenue			68500
Salaries expenses		6000
Depreciation expenses			150
Insurance expenses		200
Fuel expenses		1500
Rent expenses		2500
Income summary			600
		137950	137950

Income statement
Particulars	Amount
Service Revenue	71000
Less:
Insurance expenses a/c	2400
Fuel expenses a/c	1500
Rent expenses a/c	2500
Salaries expenses a/c	6000
Depreciation a/c	150
Net Profit	58450
Statement of retained earnings
Common stock	60000
Add: Net profit	58450
Add: Income summary	600
Less: Dividend	10000
Net common stock	109050

Balance Sheet
Liabilities	Amount	Assets	Amount
Accumulated depreciation	150	Cash	79600
Accounts payable	1000	Accounts receivable
Salaries payable	2200	Supplies	1000
Unearned service revenue	4600	Prepaid insurance	1400
Common stock	109050	Delivery truck	35000
Net Profit	117000		117000

Adjustment entries
			Amount (in $)
Date	Particulars	LF	Debit	Credit
	Salaries expenses a/c		2200
	Salaries payable a/c			2200
	Depreciation a/c		150
	Accumulated depreciation a/c			150
	Insurance a/c		800
	Prepaid insurance a/c			800
	Supplies a/c		600
	Income summary a/c			600
	Unearned service revenue a/c	1500
	Service revenue a/c			1500

Salaries expenses a/c
Particulars	Amt	Particulars	Amt
Salaries payable a/c	2200	Balance c/d	2200
	2200		2200
Salaries expenses a/c
Particulars	Amt	Particulars	Amt
Balance c/d	2200	Salaries expenses a/c	2200
	2200		2200
Accumulated depreciation a/c
Particulars	Amt	Particulars	Amt
Balance c/d	150	Depreciation a/c	150
	150		150
Depreciation a/c
Particulars	Amt	Particulars	Amt
Accumulated depreciation a/c	150	Balance c/d	150
	150		150
Insurance a/c
Particulars	Amt	Particulars	Amt
Prepaid insurance	800	Balance c/d	800
	800		800
Prepaid insurance
Particulars	Amt	Particulars	Amt
Balance c/d	800	Insurance a/c	800
	800		800
Supplies a/c
Particulars	Amt	Particulars	Amt
Income Summary	600	Balance c/d	600
	600		600
Income Summary
Particulars	Amt	Particulars	Amt
Balance c/d	600	Supplies a/c	600
	600		600
Unearned Service revenue a/c
Particulars	Amt	Particulars	Amt
Service revenue	1500	Balance c/d	1500
	1500		1500
Service revenue
Particulars	Amt	Particulars	Amt
Balance c/d	1500	Unearned Service revenue a/c	1500
	1500		1500

Closing entries
			Amount (in $)
Date	Particulars	LF	Debit	Credit
	Service Revenue		71000
	Income Summary			71000
	Income summary a/c		12550
	Supplies expenses a/c			12550
	Income summary a/c		58450
	Retained earnings			58450

Income Summary a/c
Particulars	Amt	Particulars	Amt
Supplies expenses a/c	12550	Service Revenue	71000
Retained earnings	58450
	71000		71000
Service Revenue
Particulars	Amt	Particulars	Amt
Income Summary	71000	Balance b/d	142000
	71000		142000
Supplies expenses a/c
Particulars	Amt	Particulars	Amt
Balance b/d	12550	Income Summary a/c	12550
	12550		12550
Retained earnings
Particulars	Amt	Particulars	Amt
Balance b/d	58450	Income Summary a/c	58450
	58450		58450

Trial Balance
Particulars	JF	Debit	Credit
Service revenue		71000
Supplies expenses			12550
Retained earnings			58450
Cash		79600
Accounts receivable		0
Supplies		1000
Prepaid insurance		1400	0
Delivery truck		35000	0
Accumulated depreciation			150
Accounts payable			1000
Salaries payable			2200
Unearned service revenue			4600
Common stock			109050
		188000	188000

References:

Abdel-Kader, M. and Luther, R., 2008. The impact of firm characteristics on management accounting practices: A UK-based empirical analysis. The British Accounting Review, 40(1), pp.2-27.

Cadez, S. and Guilding, C., 2008. An exploratory investigation of an integrated contingency model of strategic management accounting. Accounting, organizations and society, 33(7-8), pp.836-863.

Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An organizational and sociological approach. John Wiley & Sons.

Ward, K., 2012. Strategic management accounting. Routledge.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1),

References:

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