The Subject Financial Accounting Accounting Essay

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This is the assignment of the subject Financial Accounting; financial accounting is the field of accountancy concerned with the preparation of financial statements for decision makers like suppliers, banks, employees, stockholders, government agencies and other stakeholders.

In short, financial accounting is the process of summarizing financial data which is taken from an organization's accounting records and publishing it in the form of annual or quarterly reports, for the benefit of people outside the organization.

The role of financial accounting is that it generates some key document, which includes P/L account, patterning the method of business traded for a specific period and the balance sheet that provides a statement, showing mode of trade in business for a specific period. It also records financial transaction showing both the inflow and outflows of money from sales wages, (with FIFO, LIFO and other mode), etc. In addition, financial accounting empower the manger and aids them in managing more efficiently by preparing standard financial information, like monthly management report tracing the costs and profits against budgets, sales and investigations of the cost.

Financial accounting provides legal information to stake holders such as financial accounts in the form of trading, profit and loss account and balance sheet; it also shows the mode of investment for shareholders provides business trade credit for suppliers, notifies the risk of loan in business for bank and lenders.

In the assignment, student is required to answer four out of five questions, there are some calculations and some theories need to apply for, like trial balance and income statement, accounting equation, etc. By doing the exercise and correction, student completes the assignment with calculator.

Income Statement for Pinang Enterprise year ended 30 June 2009

$ $ $

Sales 177,100

Net Sales

Less: Cost of goods sold

Opening stock 12,375

Purchase 92,400 104,775

-Less Purchase Return (1,650)


-Closing stock (14,850)

Gross Profit 88,825

Less: expense

Rent expense 19,800

Advertising expense 14,960

Delivery expense 5,280

Office expense 7,040

Other store expense 12,760


Net profit 28,985

3.0 Accounting equation

Accounting equation can be describe by the formula of Asset = Owner's Equity + liability

Assets are the collateral a person or business possesses such as equipment, money and supplies, it has two types of asset which are current asset and fix asset. Example of current assets are the cash, goods for resale and have a short time value; the example of fix asset are vehicles, equipment of office etc.

Liability is everything owed by the individual or business which includes the loans to banks, bills to be paid to suppliers, wages to be paid for employees, rent and other overhead, etc. There has two types of liability which is the current liabilities and long-term liabilities

Current liabilities are the liabilities which expected liquidated within one year time, like overdraft bank and creditors. Long-term liabilities are the liabilities which expected liquidated more than one year, like long-term bond, etc.

Equity is what the individual or business owns, such as profit from the business and investment paybacks once the liabilities have been accounted for.

(a)Stock of groceries+ Motor Van+ Debtors + Cash at Bank= Owner's Equity+ Creditors

Where the answer is: RM37000+ RM12500+ RM4650= Owner's Equity+ RMM17400

Owner's Equity= RM37000+ RM12500+ RM4650- RM17400 =RM46350

(b)Fixtures and fitting+ Stock of stationary+ Premises+ Cash in hand +Debtors

= Owner's Equity l+ Bank Overdraft+ Creditors

Where the answer is: RM5570+ RM29800+ RM120000+ RM1530+ RM8140= Owner's Equity+ RM17680+ RM14300

Owner's Equity= RM5570+ RM29800+ RM120000+ RM1530+ RM8140- RM17680+ RM14300 =RM 133060

(c)Office equipment+ Premises+ Debtors+ Fixed Deposit+ Cash at bank+ Cash in Hand

= Owner's Equity + Mortgage Loan+ Creditors

Where the answer is: RM14680+ RM80000+ RM3600+ RM15000+ RM9000+ RM2100= Owner's Equity+ RM54000+ RM 36000

Owner's Equity= RM 14680+ RM 80000+RM3600+ RM15000+RM9000+RM2100- RM54000+ RM 36000


4.0 Trial balance for Wendy on 31 December 2009

Debit Credit

$ $

Cash in Hand 400

Cash at Bank 6,800

Capital 18,000

Drawings 300

Motor vehicle 8,500

Debtors 2,100

Creditors 5,425

Sales 12,400

Purchase 9,400

Return Outwards 275

Wages 5,000

Rent and Rates 3,600____________________

36,100 36,100

5.0 Introduction to accounting information

Accounting information covers information used to prepare financial statements which report the results and financial position of a business to the decision makers.

Owners and management use this information to ensure that all information is accurate and valid. For example, Shareholders would like to know the information for their investment and determine that whether they should buy or sell the shares; or judge about the results of business operations and make decision about their management. External users like creditors, suppliers, tax authorities also use accounting information for their decision making, i.e. judging whether the business will be able to return loans, pay for goods sold, whether taxes are paid correctly, etc.

To be useful and used accounting information should satisfy the following criteria which should be:

Accuracy, present fairly and correctly results of operations and financial position of the business so that the user of the information will not get mistakes. Due to accounting information need to be accurate and effective, the use of software to process accounting transactions is indeed. However, to ongoing improvement of avoid mistake, appropriate employee training or supervision staff work are adopted by many organizations

Consistency, presentation and classification of items in the financial statements must be the same from one accounting period to the next, which means good accouting information is consistent, implying the same treatment of similar issues and accounting pratices. e.g. what was recognized as revenue last month, the company will continue to be recognized as revenue for the current month.

Relevance, accounting information is relevant if it is connected with what that user wants. There is always an objective to be fulfilled when accounting information is required. For accounting information to be valuable, it should be relevant to the objective and the intended user. A certain set of data may be good for one person and be totally useless to another. Thus, it is important when releasing reports and other accounting information to know what the reader is interested in. Irrelevant information wastes time and can increase the cost of information production.

Comparability, it implies the ability for users to be able to compare similar companies in the same industry group and to make comparisons of performance over time. comparability shows the organization accounting information on financial statements and reports, much of the work that goes into setting accounting standards is based around the need for comparability.

Completeness, when financial statement are parepared, organization should have all the complete parts of business activities in order to be good accounting information. For example, when looking at a number for advertising expenses, the assumption is that all advertising expenses for a period is accounted for, with no missing transactions. The accounting system is supposed to give you an overall view of how a business is doing financially and if something is amiss. Completeness is an intrinsic quality of good accounting information which by presented with out omission of material information.

6.0 Conclusion

the all above are the answer of the four questions, through the entire assignment, student learns about what an accounting information is a good information, student also refresh what has learned in the principle of accounting with how to make income statements and trial balance. Student also knows about the equation of accounting, and the elements of equations.