FINANCIAL ACCOUNTING ASSIGNMENT

Financial Accounting Assignment

Financial Accounting Assignment

Task 1 - (a)

DORA Limited

Income statement as at 30 September 2012

Revenue

Amount in £

Gross Sales

 

820,000

 

Less: Sales Returns and Discount Allowances

4,400 4,400

 

Net Sales

 

 

815,600

Cost of Goods Sold

 

Beginning Inventory

 

47,000

 

Purchases

 

645,000

 

Purchases return

 

(2,000)

 

Discount received

 

(500)

 

Inventory Available

 

689,500

 

Less: Ending Inventory

 

50,000

 

Cost of Goods Sold

 

639,500

Gross Profit (Loss)

 

176,100

Expenses

 

Advertising

 

3,000

 

Electricity

 

3,200

 

Depreciation on vehicles

 

5,600

 

Depreciation on furniture

 

1,800

 

General expenses

 

28,900

 

Payroll Taxes

 

6,000

 

Telephone

 

1,300

 

Wages

 

77,600

 

Total Expenses

 

127,400

Net Operating Income

 

48,700

Other Income

 

Interest Income

 

800

 

Total Other Income

 

800

Net Income (Loss)

 

49,500

Task 1 - (b)

DORA Limited

Income Statement as at 30 September 2012

ASSETS

Amount in £

LIABILITIES

 

Amount in £

Current Assets

Current Liabilities

Cash

 

100

Accounts payable

 

13,000

Bank

 

400

 

 

Accounts receivable

 

42,000

 

 

 

(less doubtful accounts)

200

 

 

Inventory

 

50,000

 

 

Temporary investment

 

5,000

 

 

 

 

 

 

 

 

Total Current Assets

97,700

 

Total Current Liabilities

13,000

Fixed Assets

Long-term Liabilities

Vehicle

 

35,000

Other long-term liabilities

 

0

 

(less accumulated depreciation)

12,600

 

Total Long-term Liabilities

0

Furniture & fixtures

 

12,000

Shareholders' Equity

 

 

 

(less accumulated depreciation)

3,600

Capital stock

 

73,500

 

Drawings

-10,000

 

Income from operations

 

49,500

 

Suspense account

 

2,500

 

Total Net Fixed Assets

30,800

 

Total Shareholders' Equity

115,500

TOTAL ASSETS

128,500

TOTAL LIABILITIES & EQUITY

128,500

Task 2 - (a)

Part 1

Double entry for the accrual and prepayment

DORA Limited

Double Entry

Amount in £

Particulars

Dr.

Cr.

Double entry for the accrued expense

 

 

Electricity expense a/c

300

 

Accrued Electricity expense a/c 300

Closing entry

 

 

Income Statement 300

 

Electricity expenses 300

 

 

 

Double entry for the advance rates

 

 

Rates expense a/c

1,000

 

Accrued Rates expense 1,000

Closing entry

 

 

Income Statement 1,000

 

Rates expenses

 

1,000

Task 2 - (a)

Part 2

Affect of adjustments on net profit

These adjustments would affect the net profit in two ways which are increase in electricity expenses and decrease in amount of rates. The electricity bill which was decreasing the net profit by £ 3,200 would now decrease the net profit by £ 3,500. Therefore the impact of electricity bill would be negative. On the other hand, the realization of rates in advance expenses will decrease the amount of rates by £ 1,000 to £ 5,000 which was previously standing at to £ 6,000. Therefore, after recording both the entry the net profit will be increase by £ 7,000. The prepaid expense is not supposed to be added in the income statement. The prepaid expense is used to add in the balance sheet (Birts, 2001, pp. 40)

Net income = £ 49,500 - £ 300 + £ 1,000 = £ 50,200.

Net income = £ 49,500 - (increase in electricity bill) + (decrease in rates expense amount) = £ 50,200.

Task 2 - (a)

Part 3

The accounts of every company are prepared under the rules and regulations of accounting principles. The recording of the accruals and prepayments is very important to have a “True and Fair View” of company's accounts. The accruals are the amounts owed but not yet paid to suppliers for services or goods received. The accrual accounts are very important because it assist the company in recording the amounts which were supposed to be recorded earlier but did not recorded due to late realization of accounts/amounts. This also helps the company in assessing the true and accurate amount of expenses for a specific period. It is important because it helps the company to record the expenses that it incurred during a specific period even if expenses were ...