Learning Goal: I’m working on a accounting question and need the explanation and answer to help me learn.
. You are required to form a small service business (e.g printing, labeling, laundry, cleaning services etc.)
2. Explain the name and nature of the business, location, mission and objectives of the company. Assume the business started on 1 January 2023. (5m)
3. Identify at least:
a) ONE (1) asset, (2m)
b) ONE (1) liability. (2m)
4. Identify the Owners Equity amount. (2m)
5. List down the transactions incurred during the first month of operation. The transactions should cover relationship between the following accounting elements.
b) Asset and Liability
c) Asset and Owners Equity (Revenue)
d) Asset and Owners Equity (Expense)
e) Liability and Owners Equity (Expense)
f) Asset and Owners Equity (Withdrawal)
– 1 transaction
– 1 transaction
– 3 transactions
– 2 transactions
– 1 transaction
– 1 transaction (9m)
6. The procedure of accounting equation works well for handful transactions, but it is not very efficient if your business generates lots of transactions. The more efficient way to capture business transactions is by using the proper recording business transactions, the accounts.
2
a) journal entry for each of the transaction (Please include the transaction on 1 January 2023- first investment) (10m)
b) post the transaction to the t-accounts (5m)
c) trial balance as at 31 January 2023. (5m)
d) prepare the statement of profit or loss AND the statement of financial position
Financial accounting is a field of accounting that focuses on the recording, summarizing, and reporting of a business’s financial transactions. It involves the preparation and presentation of financial statements, which provide valuable information about the financial position, performance, and cash flows of an organization. The basics of financial accounting lay the foundation for understanding and interpreting these financial statements. Here are the key aspects of the basics of financial accounting:
- Financial Statements: Financial statements are the primary output of financial accounting. They include the balance sheet, income statement, and cash flow statement. The balance sheet presents the assets, liabilities, and shareholders’ equity of a business at a specific point in time. The income statement shows the revenues, expenses, and net income or loss over a given period. The cash flow statement provides information about the cash inflows and outflows of a company during a specific period.
- Accounting Principles: Financial accounting is guided by various accounting principles, such as the Generally Accepted Accounting Principles (GAAP) in the United States and International Financial Reporting Standards (IFRS) used globally. These principles provide a framework for recording and reporting financial transactions, ensuring consistency, comparability, and reliability of financial information.
- Accrual Accounting: Financial accounting is typically based on accrual accounting, which recognizes revenue when earned and expenses when incurred, regardless of when cash is received or paid. Accrual accounting provides a more accurate representation of a company’s financial performance and obligations, as it matches revenues with related expenses in the appropriate accounting period.
- Double-Entry Accounting: Double-entry accounting is the foundation of financial accounting. It follows the principle that every financial transaction has two equal and opposite effects. Each transaction is recorded with a debit entry and a corresponding credit entry in the accounting system, maintaining the balance between assets, liabilities, and equity.
- Chart of Accounts: A chart of accounts is a categorized listing of all the accounts used by a business to record financial transactions. It provides a systematic structure for organizing and classifying various types of transactions, making it easier to record and track financial information accurately.
- General Ledger: The general ledger is a comprehensive record of all the financial transactions of a company. It contains individual accounts, such as cash, accounts payable, accounts receivable, and various expense and revenue accounts. The general ledger serves as the central repository for maintaining and organizing financial data.
- Trial Balance: The trial balance is a statement that lists the balances of all accounts in the general ledger. It ensures that the total debits equal the total credits, serving as an internal check to detect any errors in the recording or posting of transactions.
- Adjusting Entries: Adjusting entries are made at the end of an accounting period to update accounts and ensure that revenues and expenses are recognized in the appropriate period. These entries account for accruals, deferrals, estimates, and other adjustments necessary to align the financial statements with the accrual accounting principles.
- Closing Entries: Closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (revenue, expense, and dividend accounts) to the retained earnings account. Closing entries reset the temporary accounts to zero for the next accounting period.
- Revenue Recognition: Revenue recognition refers to the process of determining when and how to recognize revenue in financial statements. It follows specific principles and criteria to ensure that revenue is recognized when it is earned and reasonably assured, rather than when payment is received
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