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Accounting Assignment

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Question # 1

Main users of financial accounting information

There are many potential users for the financial data that a company produces. The
following list includes the more likely users. The accounting rules require that a firm's
financial statements and related disclosures incorporate a wide range of data because, in
other words, a lot more people and organizations can access an organization's financial data.

 Customers
 Employees
 Investment Analysts
 Governments
 Lenders and Creditors
 Investors
 Rating Agencies
 Management Team
 Unions

Reasons to keep accurate financial transactions record.

All businesses must keep proper financial records, but newly established businesses especially
need to do this. It is crucial for tax purposes as well as to make budgeting much simpler. Many
businesses may swiftly face disaster if their financial records weren't kept up to date. The results
are bad for businesses, whether they come in the form of tax audits, client loss, fraud, and the
inability to obtain new services or adequately price goods. For some businesses, maintaining
financial records may not be as easy as it initially seems. Regardless of the type of business, it is
necessary to regularly review the financial condition and make payments to the local, city, state,
and federal taxes authorities. Keeping financial records and employing a bookkeeper have
several advantages. Maintaining correct and current books is the best approach to get the
business's finances back on track. It makes it possible for businesses to successfully manage their
cash flow, bargain for the best supplier prices, and obtain the best lending terms. Lenders will
initially ask for your most current tax returns and financial statements.

Question # 2

Burj Furniture
(Journal Entries)
Date Account titles debit credit
1 cash 8000
to capital account 8000

2 goods 4000
to cash account 4000

3 SZR custom cars receivables 1200


to sales 1200

4 wages 100
to cash account 100

5 cash 6000
to bank loan 6000

6 Purchases 3000
mega furniture payable 3000

7 cash 1500
Sales 1500

8 delivery van 5000


cash 5000
9 stationary 20
to cash account 20

10 electricity expense 300


to cash account 300

11 Palm Estates receivables 800


to sales 800

12 accounts payable 1200


to cash account 1200

13 cash 900
SZR custom cars receivables 900

14 delivery van repair expense 60


to cash account 60

15 forklift truck 3500


accounts payable 3500

Ledger Accounts

Cash Account
to capital account 8000 goods 4000
to bank loan 6000 wages 100
Sales 1500 delivery van 5000
SZR custom cars receivables 900 stationary 20
electricity expense 300
accounts payable 1200
delivery van repairing expense 60
Ending Balance c/d 5720
16400 16400

Capital Account
Ending Balnace c/d 8000 Cash 8000

8000 8000

Purchases Account
to cash account 4000 cash 1500
mega furniture payable 3000
Ending Balance c/d 5500
7000 7000

Wages
cash 100 Ending Balance c/d 100

100 100

Stationary
to cash account 20 Ending Balance c/d 20

20 20

Electricity expense
to cash account 300 Ending Balance c/d 300

300 300

Repair
to cash account 60 Ending Balance c/d 60

60 60

SZR custom cars receivables


to sales 1200 cash 900

Ending balance c/d 300

1200 1200

Palm Estate
to sales 800 Ending balance c/d 800

800 800

Delivery Van
cash 5000 Ending balance c/d 5000

5000 5000
forklift truck
fork lift truck 3500 Ending balance c/d 3500

3500 3500

Accounts payable
to cash account 1200 forklift truck 3500
Ending balance c/d 5300 Purchases 3000
6500 6500

Bank Loan
Cash 6000 Ending Balance c/d 6000

6000 6000

Sales
Ending Balance c/d 3500 SZR custom cars receivables 1200
Palm Estates receivables 800
cash 1500
3500 3500

Burj Furniture Trial Balance


Account Titles Debit Credit
zsr custom cars receivables 300
Palm Estate 800
Delivery Van 5000
forklift truck 3500
Accounts payable 5300
Bank Loan 6000
Sales 3500
Cash Account 5720
Capital Account 8000
Purchases 7000
Wages 100
Stationary 20
Electricity expense 300
Repair 60

22800 22800

Income Statement

Sales 3500

Purchases 7000
Less: Closing Stock -5000 2000

Gross Profit 1500


Less: Expenses
Wages 100
Stationary 20
Electricity expense 300
Repair 60 480

Net Profit 1020

Question # 3
 Financial Ratios
1. ROCE

ROCE = (Net operating profit before interest and taxes / Total capital employed) *100

ROCE 2021 2020

Net operating profit before interest and taxes 4.4 5.2


Total capital employed 66.5 67.5
ROCE 6.62 7.70

2. Net Profit Margin

Formula:

NPM= (Net Profit / Sales) *100

Net Profit Margin 2021 2020


Net Profit 4.4 5.2
Sales 11 13.2
Net Profit Margin 40.00 39.39

3. Current Ratio

Formula:

Current Ratio = Current Assets/Current Liabilities

Current Ratio 2021 2020


Current Assets 3.4 2.7
Current Liabilities 1 1.2
Current Ratio 3.40 2.25

4. Quick Ratio

Formula:

= Quick Assets / Current Liabilities

= (Cash + Receivables) / Current Liabilities

Quick Ratio 2020 2021

Cash 0 0.5
Current Receivables 1.6 1.4
Current Liabilities 1.2 1
Quick Ratio 1.33 1.4

5. Inventory Turnover

Formula:

= Cost of Sales / Average Inventory

Inventory Turnover Ratio 2020 2021


Cost of Sales 6.6 8
Average Inventory 1.5 1.3
Inventory Turnover Ratio 4.40 6.15

6. Capital gearing.

Formula:
= (Share Capital + Reserve) / Loans

Capital gearing 2020 2021


Share Capital 30 30
Reserves 25.5 27.5
Loan 10 10
Capital gearing 2.55 2.75

7. Interest coverage ratio

Formula:

= Net profit before interest and tax / Interest

Interest coverage ratio 2020 2021

Net profit before interest and tax 4.4 5.2


Interest 1 1
Interest coverage ratio 4.40 times 5.20 times

8. Dividend cover

Formula:

= Net profit attributable to shareholders / Dividend

Dividend cover
2020 2021

Net profit attributable to shareholders

2.4 2.9
Dividend 0.4 0.9

Dividend cover 6.00 times 3.22 times

Question # 4

1. Accruals concept

In accounting, the accrual principle holds that transactions must be recorded as they occur,
irrespective of when the transaction's actual cash flows are received.

2. Business entity concept

The owner and the business are two separate entities that should be recognized according to the
business entity concept, one of the accounting concepts.

3. Going concerns

A company is considered a "going concern" in accounting if its finances are sound enough for it
to meet its obligations and continue operating for the foreseeable future. Some costs and assets
may be reported in financial reports later if a firm is thought to be a going concern.

Question # 5

Errors that may not be highlighted in the trial balance.

1. Errors of omission
An error of omission is a blunder where the accountant completely missed the input. It signifies
that both the debit and credit sides of the transaction are left out and has no bearing on the
accuracy of the trial balance's mathematics.
2. Errors of Commission
When an accountant puts an accounting transaction into the incorrect account that belongs to the
same class of accounts, this is referred to as a commission error.
3. Errors of Principle
Like commission errors, errors of principle also use general ledger accounts rather than
individual accounts. As an illustration, you might record the acquisition of capital equipment in
the land and building account.
4. Compensating Errors
When two errors balance each other out in terms of their arithmetic impact, this is referred to as
compensating an error.
5. Complete reversal errors
Complete reversal mistakes happen when an account that needs to be debited is instead credited,
and vice versa.
6. Transportation errors
These mistakes happen when the accountant accurately does the double entry but posts the
incorrect figures.
7. Duplication errors
A transaction that is entered twice in the ledger is referred to as a duplicate error. In these
circumstances, the trial balance is unable to identify any disparity brought on by them because
the double-entry was made twice.

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