Business Accounting Concepts: Analysis And Calculation

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:

Paul services Trial Balance As At 30 June 2016
Account No Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Account Name	Unadjusted
Debit
101	Cash at Bank	48,230
105	Accounts Receivable	16,080
115	Supplies	1,480
120	Prepaid Insurance	2,960
135	Office Furniture	37,000
140	Office Equipment	74,000
145	Store Equipment	111,000
170	Automobile	148,000
201	Insurance Expense	800
201	Maintenance Expense	3,500
201	Miscellaneous Expense	1,155
Total	451,128

The adjustment journal entries are being shown below:

Paul Services
Adjustment Journal Entries
Date	Particulars	Dr./Cr.	Amt
30-Jun	Interest Expense	Dr.	14,800
30-Jun	Insurance Expense	Dr.	2,368
30-Jun	Depreciation Expense – Furniture	Dr.	2,219
30-Jun	Depreciation Expense – Equipment	Dr.	5,370
30-Jun	Depreciation Expense – Store Equipment	Dr.	4,370
30-Jun	Depreciation Expense – Automobile	Dr.	6,521
30-Jun	Revenue	Dr.	9,250

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:

Paul Services
Income Statement
For the period ended 30th June 2016
Particulars	Amt ($)
Advertising Expense	1,000
Automobile Expense	5,775
Depreciation Expense – Furniture	2,219
Depreciation Expense – Equipment	5,370
Depreciation Expense – Store Equipment	4,370
Depreciation Expense – Automobile	6,521
Insurance Expense	3,168
Maintenance Expense	3,500
Miscellaneous Expense	1,155
Supplies Expense	1,110
Interest Expense	14,800

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

Paul Services
Closing Journal Entries
Date	Particulars	Dr./Cr.	Amt
	To Profit and Loss Account	Cr.	138,750
	To Advertising Expense	Cr.	1,000
	To Automobile Expense	Cr.	5,775
	To Depreciation Expense – Furniture	Cr.	2,219
	To Depreciation Expense – Equipment	Cr.	5,370
	To Depreciation Expense – Store Equipment	Cr.	4,370
	To Depreciation Expense – Automobile	Cr.	6,521
	To Insurance Expense	Cr.	3,168
	To Maintenance Expense	Cr.	3,500
	To Miscellaneous Expense	Cr.	1,155
	To Supplies Expense	Cr.	1,110
	To Interest Expense	Cr.	14,800
	To Retained Earnings	Cr.	89,763

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:

Paul Services
Balance Sheet
as on 30th June 2016
Particulars	Amt ($)
Office Furniture	37,000
Acc. Depreciation. – Furniture	(2,219)
Office Equipment	74,000
Acc. Depreciation – Equipment	(5,370)
Store Equipment	111,000
Acc. Depreciation – Equipment	(4,370)
Automobile	148,000
Acc. Depreciation – Automobile	(6,521)
Cash at Bank	48,230
Accounts Receivable	16,080
Supplies	370
Prepaid Insurance	592
Loan Payable	7,400
Mortgage Payable	148,000
Accounts Payable	32,160
Interest Payable	63,040
Unearned revenue	27,750
Paul’s Capital	48,828
Paul’s Drawings	(148)
Profit for the year	89,763

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.