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ACT201 Assignment

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Group Assignment

Courses Title: ACT201


Submitted To
Mr. Shahran Abu Sayeed
LECTURER
MSc., University of Manchester, UK
Submitted By
Muhammad Muttakinul Alam
ID: 1620544030
Atia Sanzida Hridi
ID: 1813552630
Sugera Shaznin
ID: 1822126030
Arpon Barua
ID: 1821897630
Answer to Question No.1 (a)

Date Accounts title and Explanation Dr. Cr.


Jan 1 Cash 100,000 100,000
Owner’s capital
Jan 2 (cash invested in business) 36,000 36,000
Prepaid rent
Rent
(advance rent payment)
Jan 3 Equipment 80,000 60,000
Cash 20,000
Note payable
(equipment was purchased)
Jan 4 Office supply 17,600 17,600
Accounts payable
(supplies was purchase)
Date Accounts title and Explanation Dr. Cr.

Jan 13 Cash 28,500


Service revenue 28,500
(service revenue performed)
Jan 13 Accounts payable 17,600
Cash 17,600
(A/P paid in cash)
Jan 14 Salaries and wages Expense 19,100
Cash 19,100
(salaries were paid)
Jan 18 Cash 32,900
Accounts payable 21,200
Service revenue 54,100
(service was performed)
Jan 23 Cash 15,300
Accounts payable 15,300
(cash was received)

Date Accounts title and Explanation Dr. Cr.


Jan 25 Cash 4,000
Prepaid service revenue 4,000
(advance payment)
Jan 26 Office supplies 5,200
Accounts payable 5,200
(office supplies was purchased)
Jan 28 Water bill expense 19,000
Cash 19,000
(water bill was paid)
Jan 31 Advertising expense 5,000
Cash 5,000
(advertising exp. was occurred)
Jan 31 Electric bill expense 2,470
Accounts payable 2,470
(electric bill will be paid)
Jan 31 Telephone bill expense 1,494 1,494
Accounts payable
(telephone bill will be paid)
Jan 31 Miscellaneous expense 3,470 3,470
Cash
(expense was paid)
Answer to Question No. 1 (b)
Ledger Accounts
Date Accounts tile Dr. Cr. Balance
Jan 1 Owner’s capital 100,000 100,000
Jan 2 Prepaid rent 36,000 64,000
Jan 3 Equipment 60,000 4,000
Jan 13 Service revenue 28,500 32,500
Jan 13 Accounts payable 17,600 14,900
Jan 14 Salary and wags exp. 19,100 4,200
Jan 18 Service revenue 32,900 28,700
Jan 23 Accounts receivable 15,300 44,000
Jan 25 Prepaid service 4,000 48,000
revenue

Jan 28 Water bill 19,000 29,000


Jan 31 Advertising expense 5,000 24,000
Jan 31 Miscellaneous expense 3,470 20,530
Owner’s Capital Account
Date Explanation Dr. Cr. Balance
Jan 1 Cash 100,000 100,000

Prepaid Rent Account


Date Explanation Dr. Cr. Balance
Jan 2 Cash 36,000 36,000

Equipment Account
Date Explanation Dr. Cr. Balance
Jan 3 Cash 60,000 60,000
Note payable 20,000 80,000

Office Supplies Account


Date Explanation Dr. Cr. Balance
Jan 4 Accounts payable 17,600 17,600
Jan 26 Accounts payable 5,200 22,800

Prepaid Service Revenue Account


Date Explanation Dr. Cr. Balance
Jan 25 Cash 4,000 4,000

Water Bill
Date Explanation Dr. Cr. Balance
Jan 28 Cash 19,000 19,000

Advertising expense
Date Explanation Dr. Cr. Balance
Jan 31 Cash 5,000 5,000

Accounts Receivable Account


Date Explanation Dr. Cr. Balance
Jan 18 Service 21,200 21,200
Jan 23 Cash 15,300 5,900

Electric Bill Expense


Date Explanation Dr. Cr. Balance
Jan 31 Accounts payable 2,470 2,470

Telephone Bill Expense


Date Explanation Dr. Cr. Balance
Jan 31 Accounts payable 1,499 1,499

Miscellaneous Expense
Date Explanation Dr. Cr. Balance
Jan 31 Cash 3,470 3,470

Notes Payable Account


Date Explanation Dr. Cr. Balance
Jan 3 Equipment 20,000 20,000
Service Revenue Account
Date Explanation Dr. Cr. Balance
Jan 13 Cash 28,500 28,500
Jan 18 Accounts 54,100 82,600
receivable

Salaries and Wags Account


Date Explanation Dr. Cr. Balance
Jan 14 Cash 19,100 19,100

Accounts Payable Account


Date Explanation Dr. Cr. Balance
Jan 4 Office supplies 17,600 17,600
Jan 13 Cash 17,600 -----
Jan 26 Office supplies 5,200 5,200
Jan 31 Electric bill 2,470 7,670
Jan 31 Electric bill 1,494
Answer to Question No. 1 (c)
Anna Car Repairing Shop
Trail Balance
for the end of month January 31, 2018
SL No. Accounts title Dr. Cr.
1 Cash 20,530
2 Prepaid rent 36,000
3 Owner’s capital 100,000
4 Equipment 80,000
5 Office supplies 22,800
6 Notes payable 20,000
7 Service revenue 82,600
8 Salaries and wages 19,100
9 Accounts payable 9,164
10 Prepaid service revenue 4,000
11 Water bill expense 19,000
12 Advertising expense 5,000
13 Accounts receivable 5,900
14 Electricity bill expense 2,470
SL No.
15 Telephone bill expense 1,494
16 Miscellaneous expense 3,470
Total 215,764 215,764
Answer to Question No. 1 (d)

Anna Car Repairing Shop


Income Statement
for the end of month January 31, 2018
Accounts title Dr. Cr.
Revenue
Service revenue 82,600
Expense
Office supplies 22,800
Supplies and wages 19,100
Water bill expense 19,000
Advertising expense 5,000
Electricity bill 2,470
Telephone bill 1,494
Miscellaneous expense 3,470
Net profit 9,266
Anna Car Repairing Shop
Balance Sheet
for the end of month January 31, 2018

Accounts title Amount


Amount
Assets
Current assets
Cash 20,530
Prepaid rent 36,000
Accounts receivable 5,900
62,430
Long term Assets
Equipment 80,000
142,430
Liabilities and Owner’s Capital
Current liabilities
Prepaid service revenue 4,000
Notes payable 20,000

Accounts title Amount Amount


Accounts payable 9,164
23,164

Owner’s Equity
Owner’s capital 100,000
Add: Net income 9,266 109,266
Total liabilities and owner’s equity
142,430
Answer to Question No.2
a) Cost Principle: The cost principle requires that assets
be recorded at the cash amount at the time that an
asset is required. Further, the amount recorded will
not be increased for inflation or improvements in
market value.

Example of cost principle: The cost principle means that a


long-term asset purchased for the cash amount of Tk
50,000 will be recorded at Tk 50,000. If the same asset
was purchased for a down payment at Tk 20,000 and a
formal promise to pay Tk 20,000 and a formal promise to
pay Tk 30,000 within a reasonable period of time and
with a reasonable interest rate, the asset will also be
rewarded at Tk 50,000.

b) Economic Entity Assumption: The economic entity


assumption is an
accounting principle that separates the transactions carried
out by a business entity and its owner. It could also apply
to various within the same company. Each unit must
maintain separate accounting records that specifically
pertain to its business operation.
Example of economic entity assumption: Karim runs a
successful web designing business from his home. The
business is structure as sole proprietorship business
should maintain separate accounting records for its
business activities.
c) Monetary Unit Assumption:
Monetary unit assumption states that only those events
and transactions are recorded in books of accounts of the
business which can be measured and expressed in terms
of money is useless for financial accounting purpose and
is therefore not recorded. The monetary unit is a simple
and universally recognized basis of communicating
financial information.
Example: The CEO of a company delivers a lecture to the
employees in a special meeting that can be helpful in
raising the employee’s morale and completing the current
projects on time. As the value of the lecture cannot be
measured in terms of money, it cannot be recorded in the
books of accounts of a Fine Enterprise.
d) Going Concern:
The going concern assumption is a basic underlying
assumption of accounting. For a company to be a going
concern, it must be able to continue operating long
enough to carry out its commitments, obligations and
objectives and so on. In other words, the company will
not have to liquidate or be forced out business. If there is
uncertainty as to a company’s ability to meet the going
concern assumption, the facts and conditions must be
disclosed in its financial statements. The going concern
assumption provides logic for the cost principle.
e) Periodicity: In accounting periodicity means that
accounts will assume that a company’s complex and
ongoing activities can be divided up and reported in
annual, quarterly and monthly financial statements.
For example, some earth moving equipment may require
two years to manufacture but the activities will be divided
up and reported in quarterly financial statements. A
similar situation occurs at a company that develops
complex digital systems. The accountants will report the
company’s net income and cash flows for each accounting
period and the company’s financial position at the end of
each accounting period.
f) Revenue Recognition Revenue:
The revenue recognition principle states that revenue
should be recognized and when it is realizable and when it
is earned. In other words, companies should not wait until
revenue is actually collected to record it in their books.
Revenue should be recorded when the business has earned
the revenue. This is a key concept in the accrual basis of
accounting because revenue can be recorded without
actually being received.
Example: Suppose services were performed on account.
Then it should be recorded in account as revenue though
cash has not been received.
g) Matching Concept:
The matching principle states that expenses should be
recognized and recorded when those expense can be
matched with the revenues those expenses helped to
generate. In other words, expenses should not be recorded
when they are paid.
Example: Big Appliance has sold kitchen appliances for
30 years in a small town. It purchases a large appliance
from wholesalers for Tk 5000 and resells it to a local
restaurant for Tk 8000. At the end of the period, Big
Appliance should match the Tk 5000 cost with the Tk
8000 revenue.
h) Accrual Basis of Accounting: The accounting method
under which revenues are recognized on the income
statement when they are earned rather than when the cash
is received. The balance sheet is also affected at the time
of the revenues by either an increase in cash or an
increase in accounts receivable. Under the accrual basis
accounting, expenses are matched with revenues on the
income statement when the expenses expire or title has
transferred to buyer rather than at the time when expenses
are paid. The balance sheet is also affected at the time of
expenses by a decrease in cash or an increase in account
payable.
i) Dual Aspect of Accounting: Dual Aspect concept is the
care of the double entry bookkeeping. It provides the very
basis of recording business transaction in the books of
accounts. Dual aspect concept assumes that every
transaction has two side effects, i.e. it affects two
accounts in their respective opposite side. Therefore, the
transaction should be recorded at two places. It means,
both the aspects at the transaction must be recorded in the
books of accounts.
For example, an asset purchased for each has two aspect
which are (i) Giving of cash (ii) Receiving of goods
Answer to Question No. 3(a)

Baker Corporation
Statement of Cash Flow
For the year ended December 31,2015
$ $
Cash flow from Operating

Activities: 106000

Net Income

Adjustments to reconcile Net 30000

Income 30000

Add: Depreciation Expense (140000)

Decrease in Account 70000

Receivable 20000

Increase in Inventory 116000

Increase in Accounts Payable


Increase in Notes Payable
(40000)
Net cash provided by Operating (40000)

Activity

Cash flow from Investing


(30000)
Activity:
(76000)
Purchase of equipment (106000)

Net cash provided by Investing

Activity

Cash flow from Financing

Activities:

Decrease in Long Term Debt

Dividend Payment

Net cash provided by Financing

Activity
Net Decrease in Cash (30000)
Cash at the Beginning of the
70000
year
40000
Cash at the End of the year

Answer to Question No.3(b)

Current assets
 Current ratio == current liabilities
820,000
(2015) == 520,000

== 1.58
It means for every dollar of current liabilities Baker Corp
has $1.58 of current assets.
 Quick ratio
(2015)

cash+ short−term investment + account receivable


current liabilities
40,000+0+ 320,000
== 520,000

== 00.69
It means that Baker Corp has $ 00.69 liquid asset for $1
of current liabilities.
 Account Receivable
Turnover (2015)
Net credit sale
== average net accounts receivable
2,200,000
== 350,000+320,000
2

== 6.57
Baker corp. collect its account receivable 6.57 times on
average over the year.
 Profit margin
net income
(2015) == net sales
106,000
== 2200000
== 00.048 or 4.82%
For each dollar of sales, Baker Corp receive 4.82% of that
dollar in net income.

 Assets turnover
net sales
(2015) == average total asset
2,200,000
== 1,110,000+ 1,200,000
2

== 1.90 times
it means how Baker Corp uses its asset efficiently to
generate sales.

 ROA (2015)
net income
== average total asset
106,000
== 1,110,000+ 1,200,000
2
== 00.092 or 9.17%
It measures how Baker Corp, utilize its asset to generate
net income.

 Return on common stockholder equally (2015)


net income
¿=
average common stockholder equally
106,000
== 330,000+360,000
2

== 0.1536 or 15.36%
For each dollar of investment by the owners, Baker Corp
earned $0.15 of net income.

 Debt of assets (2015)

debt
== asset
840,000
== 1,200,000
== 00.70 or 70%
it means 70% of the total asset is provided by creditors.

 Time invest earned (2015)


income before taxes+interest expanses
== interest expanses
151,000+ 29,000
== 29,000

== 6.21 times
It indicates that Baker Corp has the ability to meet interest
payments 6.21 times as the come due.

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