This assignment is writer to accounting and management of accounts. Accounting concept reference to collection of various book keeping actions carried out by professional accounting clerk. bookkeeping and management of accounts. It is also considered as language of organizational matters. The reason behind considering accounting as language is the role of dealing out all relevant information related to financial aspects that an organization needs for organizing and treatment reasons. (Chabrak et al, 2019).
Importance of Concept
Accounting plays a fundamental position in the management of organization because it assists to in tracking profits and expenses, makes certain constitutional fulfillment, and give shareholder, organization, and management with quantitative monetary information which can be utilized in making economic decisions. The accounting system is important as it replicates the outcome of business along with the financial position. It also helps to contrast present information with historic accounting records and assign budget suitably. Further, the accounting ensures that obligations such as tax and pension funds are suitably addressed. Business tendency and projection are dependent on chronological financial information to stay operations lucrative. Further Accountants consistently functioning to uphold and enlarge the monetary strength of businesses by forecasting future needs through accounting function. Investments, savings target, examine, debit control and productivity are just a small number of a key idea in monetary planning (Vultur., 2018).
Assignment Task 1
Recording of Transactions
Serial No. | Date | Transactions Details |
1 | 1-Jun-2020 | Mr. X has introduced capital in business through his own recourses amount OMR 100,000 |
2 | 3-Jun-2020 | Mr. X purchase building amounting OMR 25,000 |
3 | 5-Jun-2020 | Mr. X purchased goods from Mr. A against cash payment amounting OMR 20,000 |
4 | 7-Jun-2020 | Mr. X purchased goods from Mr. B against account payable amounting OMR 22,000 |
5 | 9-Jun-2020 | Mr. X Sold Goods to Mr. C against cash consideration amounting OMR 25,000 |
6 | 11-Jun-2020 | Mr. X Sold Goods to Mr. C against credit consideration amounting OMR 31,000 |
7 | 13-Jun-2020 | Mr. X Paid rent of vehicles expense for the month of Jun-2020 amounting OMR 4,000 |
8 | 15-Jun-2020 | Mr. X paid a salary to an employee for the month of Jun-2020 amounting OMR 8,000 |
9 | 17-Jun-2020 | Mr. X received commission income from sales of branded items amounting OMR 9,000 |
10 | 19-Jun-2020 | Received cash against credit sale from Mr. B amounting OMR 22,000 |
11 | 21-Jun-2020 | Mr. X obtain overdraft facility from bank amounting OMR 30,000 |
12 | 23-Jun-2020 | Mr. X deposited entry amount of OMR 130,000 into the bank Account |
Preparation of Journal
Date | Particulars | L/F | Amount (Debit) in OMR | Amount (Credit) in OMR |
1-Jun-2020 | Cash | FL01 | 100,000 | |
Owner Capital | FL02 | 100,000 | ||
Introduce capital in business through his recourses | ||||
3-Jun-2020 | Building | FL03 | 25,000 | |
Cash | FL01 | 25,000 | ||
Purchase of building on cash | ||||
5-Jun-2020 | Purchases | FL04 | 20,000 | |
Cash | FL01 | 20,000 | ||
Purchase of goods on account of Cash payment | ||||
7-Jun-2020 | Purchases | FL04 | 22,000 | |
Account Payable | FL05 | 22,000 | ||
Credit Purchase of goods | ||||
9-Jun-2020 | Cash | FL01 | 25,000 | |
Sales | FL06 | 25,000 | ||
Cash Sales Carried Out | ||||
11-Jun-2020 | Account Receivable | FL07 | 31,000 | |
Sales | FL06 | 31,000 | ||
Sales carried out on credit | ||||
13-Jun-2020 | Vehicle Rent Expense | FL08 | 4,000 | |
Cash | FL01 | 4,000 | ||
The vehicle hired on rent | ||||
15-Jun-2020 | Salary Expense | FL13 | 8,000 | |
Cash | FL01 | 8,000 | ||
Salaries paid to staff members | ||||
17-Jun-2020 | Commission Income | FL10 | 9,000 | |
Cash | FL01 | 9,000 | ||
The commission received from Brand Sales | ||||
19-Jun-2020 | Cash | FL01 | 31,000 | |
Account Receivable | FL07 | 31,000 | ||
Credit Sales converted into Cash collection | ||||
21-Jun-2020 | Cash | FL01 | 22,000 | |
Bank Overdraft | FL11 | 22,000 | ||
Bank obtained overdraft | ||||
23-Jun-2020 | Cash at Bank | FL12 | 130,000 | |
Cash | FL01 | 130,000 | ||
Entire cash has been deposited in Bank Account | ||||
Ledger preparation
Debit | Cash in Hand (FL01) | Credit | |||||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
1-Jun | Owner Capital Account | FL02 | 100,000 | ||||||||
9-Jun | Sales | FL06 | 25,000 | 3-Jun | Building Purchased | FL03 | 25,000 | ||||
17-Jun | Commission income | FL10 | 9,000 | 5-Jun | Purchases | FL04 | 20,000 | ||||
19-Jun | Account Receivable | FL07 | 31,000 | 13-Jun | Vehicle Rent Expense | FL08 | 4,000 | ||||
21-Jun | Bank overdraft | FL11 | 22,000 | 15-Jun | Salaries Expense | FL09 | 8,000 | ||||
23-Jun | Bank Account | FL01 | 130,000 | ||||||||
187,000 | 187,000 | ||||||||||
Debit |
| Owner Capital Account (FL02) |
| Credit | |||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
Amount C/d | – | 100,000 | 1-Jun | Cash | FL01 | 100,000 | |||||
100,000 | 100,000 | ||||||||||
Amount B/d | 100,000 | ||||||||||
Debit | Building Account (FL03) | Credit | |||||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
3-Jun | Cash | FL01 | 25,000 | Amount C/d | 25,000 | ||||||
25,000 | 25,000 | ||||||||||
Amount B/d | 25,000 | ||||||||||
Debit |
|
| Purchase Account (FL04) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
5-Jun | Cash | FL01 | 20,000 | ||||||||
7-Jun | Account Payable | FL05 | 22,000 | Amount C/d | 42,000 | ||||||
42,000 | 42,000 | ||||||||||
Amount B/d | 42,000 | ||||||||||
Debit |
| Account Payable Account (FL05) |
| Credit | |||||||
Amount C/d | 22,000 | 7-Jun | Purchases | FL04 | 22,000 | ||||||
22,000 | 22,000 | ||||||||||
Amount b/d | 22,000 | ||||||||||
Debit |
|
| Sales Account (FL06) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
| 9-Jun | Cash | FL01 | 25,000 | |||||||
| Amount C/d | 56,000 | 11-Jun | Account Receivable | FL07 | 31,000 | |||||
| 56,000 | 56,000 | |||||||||
| Amount b/d | 56,000 | |||||||||
Debit |
|
| Account Receivable (FL07) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
11-Jun | sales | FL06 | 31,000 | 19-Jun | Cash | FL01 | 31,000 | ||||
| 31,000 | 31,000 | |||||||||
Debit |
|
| Vehicle Expense(FL08) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
13-Jun | Cash | FL01 | 4,000 | Amount C/d | 4,000 | ||||||
| 4,000 | 4,000 | |||||||||
| Amount b/d | 4,000 | |||||||||
Debit |
|
| Salaries Expense(FL09) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
15-Jun | Cash | FL01 | 8,000 | Amount C/d | 8,000 | ||||||
| 8,000 | 8,000 | |||||||||
| Amount b/d | 8,000 | |||||||||
Debit |
|
| Commission Income (FL10) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
| Amount C/d | 9,000 | 17-Jun | Cash | FL01 | 9,000 | |||||
| 9,000 | 9,000 | |||||||||
| Amount b/d | 9,000 | |||||||||
Debit |
|
| Bank Overdraft(FL11) |
| Credit | ||||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
| Amount C/d | 22,000 | 21-Jun | Cash | FL11 | 22,000 | |||||
| 22,000 | 22,000 | |||||||||
| Amount b/d | 22,000 | |||||||||
Debit |
|
| Cash at Bank (FL12) |
|
| Credit | |||||
Date | Transaction Details | L/F | Amount in (OMR) | Date | Transaction Details | L/F | Amount in (OMR) | ||||
2020 | 2020 | ||||||||||
23-Jun | Cash | FL01 | 130,000 | Amount C/d | 130,000 | ||||||
130,000 | 130,000 | ||||||||||
Amount b/d | 130,000 | ||||||||||
Assignment Task 2
Preparation of Trial Balance
Trial Balance | ||||
Serial No | Transaction Details | L/F | Debit amount (in OMR) | Credit amount (in OMR) |
1 | Cash Account | FL01 | – | – |
2 | Owner Capital Account | FL02 | 100,000 | |
3 | Building | FL03 | 25,000 | |
4 | Purchases | FL04 | 42,000 | |
5 | Account Payable | FL05 | 22,000 | |
6 | Sales Account | FL06 | 56,000 | |
7 | Account Receivable | FL07 | – | – |
8 | Vehicle Rent Expense | FL08 | 4,000 | |
9 | Salaries Expense | FL09 | 8,000 | |
10 | Commission income | FL10 | 9,000 | |
11 | Bank Over Draft | FL11 | 22,000 | |
12 | Cash at Bank | FL12 | 130,000 | |
209,000 | 209,000 | |||
Assignment Task 3
Preparation of Profit and Loss Statement
Mr. X Limited | ||
Income Statement | ||
For the month Jun-2020 | ||
Amount in OMR | Amount in OMR | |
Total Sales | 56,000 | |
Total Purchases | (42,000) | |
Gross Profit | 14,000 | |
Add-Other Income | 9,000 | |
9,000 | ||
Less-Expenses | ||
Vehicle Rent Expense | 4,000 | |
Salaries Expense | 8,000 | |
(12,000) | ||
Net Profit | 11,000 | |
Preparation of balance Sheet
Balance Sheet As at 30-Jun-2020 | ||
OMR | OMR | |
None Current Assets | ||
Building | 25,000 | |
Net non-current assets | 25,000 | |
Current Assets | ||
Cash in hand | – | |
Cash at bank | 130,000 | |
Account Receivable | – | |
Net Current Assets | 130,000 | |
Current Liabilities | ||
Account Payable | (22,000) | |
Bank overdraft | (22,000) | |
Net Current Asset | 86,000 | |
Non-Current liabilities | – | |
Net Assets | 111,000 | |
Owner Capital | ||
Introduction of Capital | 100,000 | |
Add Profit | 11,000 | |
Total Owner Capital | 111,000 | |
Purpose of Statement of financial position
The purpose to prepare the financial statements depends upon the organization’s stakeholders and regulatory requirements laid down under the company ordinance of the respective country (Gulin et al, 2017). The following are the purposes.
From a management perspective:
The financial statements assist in policy preparation. Senior management scrutinizes and examines the netting results of various behavior and the effectiveness of workers related to those activities. The expansion behavior of the organization is viewed based on the financial strength of the organization.
Government Requirements:
A financial statement is helpful to evaluate the tax liability of the organization. The financial situation of the state is identified by bringing together financial statements from a variety of industrialized segment. Both countries and governments can determine whether the organization is following policy and set of laws.
Banker as a user.
The investment banker examines the ability of the organization to meet its obligation, temporary and continuing liquidity, and credit worth and profitability. Besides, the bankers make a complete examination of customers’ strategy and approach. The amount of loan can be fixed by the banker on inspecting the financial statements.
Trade Suppliers:
Trade suppliers often obtain the financial statements of a new customer to access the repayment capacity against the trade credit. This soundness in financial statements provides customers a comfort level to deal with organizations. Further, the financial statement can express the holdup in reimbursement or promptness in payment and can recommend about customer’s aptitude to make the payment.
Stock Exchange User:
The share and debt instruments of an organization are listed at local exchanges. The value of shares and debt instruments are analyzed based on the balance sheet, income statement, and credit repayment capacity of the originations. The financial statement presents accurate information to value the shares and debt instruments.
Investors view:
Current and potential shareholders read the inside of the financial position and income statements. They examine financial strength of the organization from a diverse perspective. Liquidity, solvency, earning capability, growth prospective, funds utilization, funding sources, and decision-making aptitude are examined from these statements
Assignment Task 4
Calculation of Ratios
Gross Profit Ratio
Gross profit is productivity analysis that represents association between profit (gross in nature) and sales revenue. It is a mechanism to assess the performance (from operational prospective) of the organization. It is determined by dividing the income (gross in nature) by revenue from sales. Further Net sales calculated by gross sales less inwards (returns) and discount permissible (Moridipour, and Mousavi, 2014). The formula is given below:
Formula = (Gross Profit /Net Sales) X 100
= ($14,000/$56,000)X100
Gross Profit Ratio = 25%
Net Profit Ratio
It works out the proportion of profit an organization creates from its whole proceeds. It calculates the sum of profit a firm of proceeds gain. The net profit ratio is equal to net profit divided by net sales, presented as a percentage. The ratio of a firm can be vary depending on which business the corporation (Khadafi et al, 2014). The formula for ratio is
Formula = Net Profit X 100
Net Sales
= (OMR11,000/OMR56,000)X100
Gross Profit Ratio = 19.64%
Current Ratio/ Working Capital Ratio
It is considered regarding the ability of an organization to honor its obligations of short term in nature which are payable in less than 12 months. Current ratio the determine by assets to liabilities both current in nature. Further, this ratio also narrates the solvency of current assets to settlement obligations of obligations and liabilities or in other words organization liquidity and solvency position (Mulyadi and Sihabudin, 2020).
Formula = (Current Assets /Current Liabilities) X 100
=(OMR 130,000/OMR44,000)
Current Ratio = 2.95 Times
Analysis of Ratio
Gross Profit Ratio
The ratio can test the organizational condition, by contrast, it with the historic years’ ratio and with the ratio of other organizations available in the industry. A reliable development in the ratio over the precedent time is the sign of nonstop improvement. When the ratio is in contrast with other organizations in the sector, the forecaster must review whether they employ a similar accounting standard and practical implementation. Comparison can only be fruitful when its organization is compared on like to like basis. According to the calculation, 44.5% of total sales are based on cash terms, and 55.3% are based on credit terms whereas purchases consist of 47.6% consist of cash purchases, and 52.3% consist of credit purchases. It is noticed that organization has kept the cash terms and credit terms constant among sales and purchase sections.
Net Profit Ratio
The net profit ratio is calculated to explain a company’s capability to create income and to believe several scenarios, such as an enlarge in everyday expenditure which is believed unproductive. It is used at length in economic modeling and valuation of organization assets. This strong indicator of organizational success and stated as a percentage. The rise in sales might be converted into loss followed by increase expenses due to administration and selling overheads. Other the other side, a decrease in revenues can be interpreted as control over expenses that can convert it into profit. According to the profit and loss statement, the total profit of OMR 11,000 has been generated. This profit is consists of OMR 9,000 received as commission income which is 81 % total income. It means that organization is only generating OMR 2,000 i.e18% from core activities of sales and purchases which is very low as compare to market practice.
Current Ratio
The ratio is calculated to examine the liquidity of the organization back by organizational operational activity. This ratio shares how the organization is solid to meet current debt obligations which include suppliers, creditors, and potential stakeholders. According to the calculation, this ratio is 2.95 times. Mean that organization can use approximation three times its current assets to settle the current liability.
Strategies for Sources capital for limited company
A limited company can explore the following method to raise the capital
Share Issuance | Profit from Previous years | Franchising |
Loan stock | Loan Facility | Director issue |
Shares Issuance
Limited companies can consider capital raising by selling shared in the stock market. Such a process is call listing of shares which initial public offering whereby organizations offer shares through initial public offering against the cash consideration. Further, in case the organization is already listening, the company can consider secondary offering to institutional investors with bulk quantities.
Profit from Previous years
The organization can review its previous reserves of shareholders’ equity and previous retain earning to sources in future projects. These funds bear no cost and consider as the cheapest sources of finance among different types of sources.
Franchising
Companies may consider offering the rights to use the name with certain terms and condition in which only franchise control the management of the place. The component of products and other instruction is received from franchisors against which certain amounts of funds are being handed over as royalty payment.
Loan Stock/Debenture
When an organization considers keeping the fixed cost against the borrowing of the amount then it considers issuing loan stock of debenture. These are the instruments against which potential investor receives the instruments against cash consideration from the organization. In return, investors receive a certain amount of fixed returns from the organization.
Loan Facility
Organizations may consider receiving long term loans from banks against collateral. Such funds can be utilized against fixed or variable interest rates terms upon the terms agreed between parties.
Director Issue
Under this scheme organizations offer directors bulk quantity of shares to directors at discounted rates to raise capital with limited restriction. These directors as previous investors consider and encourage accepting a low return.
Conclusion of Report
The report is comprised of five sections. The report starts with the purpose and importance of accounting for business organizations. At this point, discussion on purpose and importance carried by keeping in view different stakeholders The next part covers the recording of the transaction of entries, along with journal preparation and ledger posting. For these purposes, twelve entries were passed and the journal was prepared. Moving forward based on these transactions, the trial balance was prepared with the help of ledger accounts. Income statement was prepared in light of trial balance and then the balance sheet was formed with the help of trial balance figures and net profit from profit and loss statement. Organization performance is analyzed through ration calculation for which gross profit, net profit, and current ratio calculations were carried out along with the interpretation of its results over the calculation. From the theoretical aspects, the purpose of financial statements keeping in view different stakeholders and sources of capital related to limited companies has been discussed.