Trail Balance Overview
A trail balance is an accounting report that lists the balances of general ledger account of reporting entity. The amounts attributable to debit balances are listed in the column with heading debit and the amounts attributable to credit balances are listed under the column within heading credit balances. In other words, it makes use of closing balances of different ledger accounts having credit and debit balances. There arise errors in the statements if the debt balances are not equal to credit balances. Verifying the mathematic accuracy is the main objective of trail balances as the transactions are recorded in the ledger accounts (Hoyle et al. 2015). However, if the debit and credit balances are tallying, then this is indicative of the fact that there no errors in calculation. It does not indicate that the books of accounts are free from material errors. For example, whether the trail balance will tally or not is not identified by errors in the omission of any entry into the account.
Requirement B Question 2
Requirement A
It is required to record all the expenses in the same period in which such expenses are recorded according to the matching concept of accounting. Cash system of Recognizing and Accrual system of recognizing are the two methods used for recording the expense as per marching concept. Expenses under the accrual system are recognized in year when such expenses have been incurred irrespective of whether the cash is paid for such transactions or not. This particular method does not depend on the matter whether the cash is paid or not. On other hand, under the cash basis of accounting for expenses, expense are recorded when cash is actually paid regardless of the fact that they have been incurred (Chen et al. 2017).
Requirement B
Part (i)
Requirement A
Conceptual framework is a system that is used for reporting items of accounting in preparing annual report of organization along with complying with the established regulations and rules. Some of the financial statements qualitative features are listed below:
- Verifiability- It is suggested by this principle that presented financial information in the report should be verified easily. Fair presentation of financial information helps in ensuring the fact that the presented information is verifiable.
- Comparability- Financial information in the financial report should be presented in a way that it helps in facilitating the comparison between different reporting periods (Cooper et al. 2016). This helps in ascertaining the trend of growth and performance.
- Understandability- Disclosures of financial information should be presented with appropriate notes and elaborations so that the presented information is easily understandable (Scott 2015).
Requirement B
Part (i)
Question 4
Requirement A
- Risks related to the normal credit facilities will be certainly reduced by credit cards usage. Such card facilities will make effective employment of e commerce platform by organization. The facility of different pin codes acts as safety guard for customers or individuals.
- The credit sales of company are associated with accounts receivables and the introduction of credit cards will not impact the monitoring and recording of accounts receivables. One of the effective management strategies is to keep a track of accounts receivables as this helps to generate sales.
Requirement B
Part (i)The allowance of bad debts is estimated by using two methods that are listed below:
Percentage of receivable method- The required allowable size for uncollectible accounts is estimated using this method and in this case, expenses are incurred in terms of percentage. This method is used for allowance of doubtful debtors and in the event of any contra entry related to the account (Lara et al. 2016).
Expenses Recognition Methods
Percentage of sales method- The amounts attributable from credit sales of period that are not collectible is computed from using this method. This method computes the existing balance in adjustment and the yearend balance are not accounted for (Weygandt et al. 2014).
Question 5
Requirement A
Part (i)The initial machinery cost is considered for computing depreciation value and the amount of $ 65000. Other cost that is considered is the cost of machines that is shown at $ 3500. Total depreciable value of machinery comes to $ 84500. The expenses that are incurred due to machinery entering the damaged floor and the amount of painting on machinery do not form the part of cost of machinery.
Part (ii)
Diminishing value method and straight line method are the two methods that are used for computation of depreciation. A fixed amount is charged as depreciation under straight line method and depreciation is charged as assets value under diminishing method. Under the diminishing method, the amount that is charged as depreciation keeps on changing. The deduction in net profit will be done by the amount of depreciation under the straight line method. Under later method, the amount of depreciation charged goes on diminishing and the profits reported under this particular method will exceed profits under straight line method.
Part (iii)
Assets revaluation is performed when the historical value of assets is less than the market value of assets. Depending upon the type of revaluation, the value of assets can be depreciated or appreciated. It is likely that market value will be more than historical cost of assets because the market value of assets is always fluctuating. Hence, it is up to the discretion of management to revalue the assets or to value the assets at historical costs and the same is done at revalued costs.Part (iii)
Measuring the inventory is done by the method of perpetual system as profits are substantially more under this method as against periodic inventory system. There are several advantage of this system such as updating of records of inventory.
Part (iv)
In valuation of inventory, the principle that is followed is net realizable value or lower cost. Valuation of inventory should be done at lower of cost or net realizable value.
Requirement B
Part (i)
- Recognition of revenue is done at fair value depending upon the accrual base of accounting.
- Computation of depreciation is done using straight line method as disclosed in the notes to financial statements.
- Recognition of inventory is done at lower of net realizable value or lower of cost.
Part (ii)
Sustainability report is prepared by company and it has won many rewards that are profitable to business. Company intends to make its global supply chain efficient by ensuing that products are sources in an ethical and environmentally responsible manner.
Reference
Brown, R. ed., 2014. A history of accounting and accountants. Routledge.
Chen, W., Shroff, P.K. and Zhang, I., 2017. Fair value accounting: Consequences of booking market-driven goodwill impairment.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.
Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-1025.
Givoly, D., Hayn, C. and Katz, S., 2017. The changing relevance of accounting information to debt holders over time. Review of Accounting Studies, 22(1), pp.64-108.
Gray, R., Adams, C. and Owen, D., 2014. Accountability, social responsibility and sustainability: accounting for society and the environment. Pearson Higher Ed.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.
Lara, J.M.G., Osma, B.G. and Penalva, F., 2016. Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), pp.221-238.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher E
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