Business Accounting Concepts: Analysis And Calculation Essay.

Analysis and Calculation

A report has been prepared on the business accounting concepts. The unadjusted Trial Balance of the company has been given along with the sheet showing the various adjustments. The journal entries have been passed based on the adjustment given and the adjusted trial balance has been prepared (Dumay & Baard, 2017). Post this the income statement has been prepared and the closing entries have been passed in the journal books. Finally the balance sheet and the statement of changes in equity was also being plotted. Post the analysis section, the theoretical question on the need of financial statements and why the same is being prepared has been done.

Analysis and Calculation

The initial trial balance of the company named “Paul Services” as on 30^th June 2016 has been shown below:

The adjustment journal entries are being shown below:

The Adjusted Trial balance post all the adjustments has been shown below:

The income statement of the company for the year ended 30^th June 2016 is shown below:

The closing journal entries for the company for the period ended 30^th June 2016 is shown below:

The balance sheet and the statement of changes in equity of the company post all the adjustments and the profit and loss account is as follows:

Discussion

Trial Balance

A trial balance is the list of all the closing balances of all the given accounts in a company as on the given date and it is the 1^st thing which is being done as a part of the financial statements preparation. This is generally being prepared at the end of the given accounting year as it helps to know the balances of different accounts and where all the adjustments are required for closure of books.

It also helps to verify if the total of the debit side is equal to the credit side (Gooley, 2016). In the given case, the list of all the accounts or ledgers along with the account numbers or the ledger codes are being listed and alongside it two columns are prepared, one for the debit totals of the accounts and another for the credit totals of the accounts. IN case the debit and the credit sides are not equal, it indicates that there is some error in the accounting cycle and the same needs to be corrected (Alexander, 2016).

Adjustment Journal Entries

Adjustment entries are the ones, which are being passed before the closure of the books of accounts. These are generally passed to accommodate for the errors if any in the accounting cycle or if any income or expenses pertaining to the particular period has not been recognized in the books. There are many such transactions, which start in the given accounting period but may end in the later period. For properly accounting the same, an adjusting journal entry is required in the books such the financial reporting is being correctly at the year-end (Heminway, 2017).

Trial Balance

The other purpose of recording the adjustment entries is to convert the real time entries in to the accrual system. Suppose in the given case, the depreciation entries on all the assets (furniture, office equipment, store equipment, etc.) was not being passed initially and hence the same was included as a part of the adjustment entries. Furthermore, there was prepaid insurance, which was being paid for future periods initially during the year. The same had to be adjusted towards the year-end to account for the expenses for the current period. Most of the adjusting journal entries relate to the concept of prepaid, accrual, outstanding, unearned expenses and incomes respectively (Bromwich & Scapens, 2016). It is done to ensure the matching and accrual principles of accounting.

Adjusted Trial balance

Adjusted trial balance is the pre-requisite for preparation of the financial statements. It is the consolidated list of all the account titles or ledgers along with the respective debit and credit balances. It is prepared after taking into account the effect of the adjustment journal entries in the books (Fay & Negangard, 2017). The adjusted trial balance is for the use of preparation of the final financial statement, is an internal document, and is not to be reported in the annual report of the company. One more use of preparation of the adjusted trial balance is it helps in the preparation of the all the financial statements income the income statement or the profit and loss account, the balance sheet of the company and the statement of changes in the equity (Linden & Freeman, 2017).

Closing Journal Entries

Closing journal entries are much different from the adjustment journal entries. The closing journal entries are being prepared at the end of the period to set or to transfer the balances of all the temporary accounts to the permanent accounts and make them zero. This process is commonly referred to as the closing of the books of accounts (Trieu, 2017). Temporary accounts are the accounts, which form part of the income statement of the company, which usually shows the results of the accounting activity over the year.

Some examples of temporary accounts is revenue, other incomes, expenses, Cost of goods sold, taxes, interest, depreciation, etc. On the other hand, permanent accounts are the balance sheet accounts, which last more than an accounting period, and hence the same needs to be carried forward. Few examples of the permanent account includes asset account, land, building, furniture, equipment, cash, debtors, inventory, liabilities like current and non-current liabilities account, creditors, payables, bank loan, equity reserves, etc. (Choy, 2018).

References

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Bromwich, M. & Scapens, R., 2016. Management Accounting Research: 25 years on. Management Accounting Research, Volume 31, pp. 1-9.

Choy, Y. K., 2018. Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, p. 145.

Dumay, J. & Baard, V., 2017. An introduction to interventionist research in accounting.. The Routledge Companion to Qualitative Accounting Research Methods, p. 265.

Fay, R. & Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, Volume 38, pp. 37-49.

Gooley, J., 2016. Principles of Australian Contract Law. Australia: Lexis Nexis.

Heminway, J., 2017. Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, pp. 1-35.

Linden, B. & Freeman, R., 2017. Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), pp. 353-379.

Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, Volume 93, pp. 111-124.