Accounting Solution & Case Study

September 30, 2024

Introduction of Accounting

Meaning of Concept

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 Computer amounting OMR 10,000
3	5-Jun-2020	Mr. X purchased goods from Mr. A against cash payment amounting OMR 6,000
4	7-Jun-2020	Mr. X purchased goods from Mr. B against account payable amounting OMR 8,000
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 10,000
7	13-Jun-2020	Mr. X Paid rent of vehicles expense for the month of Jun-2020 amounting OMR 300
8	15-Jun-2020	Mr. X paid a wages to an employee for the month of Jun-2020 amounting OMR 2000
9	17-Jun-2020	Mr. X received commission income from sales of branded items amounting OMR 1,000
10	19-Jun-2020	Received cash against credit sale from Mr. B amounting OMR 10,000
11	21-Jun-2020	Mr. X obtain overdraft facility from bank amounting OMR 2,000
12	23-Jun-2020	Mr. X deposited entry amount of OMR 1,000 into the bank Account from Cash

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	Computer	FL03	10,000
	Cash	FL01		10,000
	Purchase of Computer cash
5-Jun-2020	Purchases	FL04	6,000
	Cash	FL01		6,000
	Purchase of goods on account of Cash payment
7-Jun-2020	Purchases	FL04	8,000
	Account Payable	FL05		8,000
	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	10,000
	Sales	FL06		10,000
	Sales carried out on credit
13-Jun-2020	Electricity Rent	FL08	300
	Cash	FL01		300
	The Electricity Rent Expense
15-Jun-2020	Wages Expense	FL09	2,000
	Cash	FL01		2,000
	Wages paid to staff members
17-Jun-2020	Cash	FL10	1,000
	Interest Income	FL01		1,000
	The Interest Income from Brand Sales

19-Jun-2020	Cash	FL01	10,000
	Account Receivable	FL07		10,000
	Credit Sales converted into Cash collection
21-Jun-2020	Cash	FL01	2,000
	Bank Overdraft	FL11		2,000
	Bank obtained overdraft
23-Jun-2020	Bank	FL12	1,000
	Cash	FL01		1,000
	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	3-Jun				Computer	FL03	10,000
9-Jun	Sales	FL06		25,000	5-Jun				Purchases	FL04	6,000
17-Jun	Commission income	FL10		1,000	13-Jun				Electricity Rent Expense	FL08	300
19-Jun	Account Receivable	FL07		10,000	15-Jun				Wages Expense	FL09	2,000
21-Jun	Bank overdraft	FL11		2,000	23-Jun				Bank Account	FL01	1,000
									Total		19,600
	Balance B/d			118,700

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

							Amount B/d				100,000

Debit				Computer (FL03)							Credit
Date	Transaction Details	L/F		Amount in (OMR)	Date	Transaction Details				L/F	Amount in (OMR)
2020					2020
3-Jun	Cash	FL01		10,000		Amount C/d					10,000

	Amount B/d			10,000

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		6,000
7-Jun	Account Payable	FL05		8,000			Amount C/d				14,000

	Amount B/d			14,000

Debit		Account Payable Account (FL05)									Credit
Date	Transaction Details	L/F	Amount in (OMR)		Date		Transaction Details			L/F	Amount in (OMR)
	Amount C/d		8,000		7-Jun		Purchases			FL04	8,000

							Amount b/d				8,000

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		35,000		11-Jun			Account Receivable		FL07	10,000

								Amount b/d			35,000

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	10,000		19-Jun			Cash		FL01	10,000
			10,000								10,000

Debit			Electric Rent 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	300					Amount C/d			300

	Amount b/d		300

Debit			Wages 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	2,000					Amount C/d			2,000

	Amount b/d		2,000

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		1,000		17-Jun			Cash		FL01	1,000

								Amount b/d			1,000

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		2,000		21-Jun			Cash		FL11	2,000

								Amount b/d			2,000

Debit			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	1,000					Amount C/d			1,000

	Amount b/d		1,000

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	118,700	–
2	Owner Capital Account	FL02		100,000
3	Computer	FL03	10,000
4	Purchases	FL04	14,000
5	Account Payable	FL05		8,000
6	Sales Account	FL06		35,000
7	Account Receivable	FL07	–	–
8	Electricity Rent	FL08	300
9	Wages Expense	FL09	2,000
10	Interest Received	FL10		1,000
11	Bank Over Draft	FL11		2,000
12	Bank	FL12	1,000
			146,000	146,000

Assignment Task 3

Preparation of Profit and Loss Statement

Mr. X Limited
Financial Statements
For the year ended Jun-2020

	Amount in OMR	Amount in OMR
Sales	35,000
Less Return inwards (Sales Return)	-0
Net Sales		35,000
Less Cost of Good Sold
Opening Inventory	0
+ Purchases	14,000
– Return outwards(Purchases Returns)	-0
– Closing Inventory	-0	(14,000)
GROSS PROFIT / GROSS LOSS		21,000
Add other Income
Dividend Received	0
Discount Received	0
Interest Received	1,000
		+1,000
Less-Expenses
Wages Expense	2,000
Electricity Expense	300
Insurance	0
Office Expense	0
Postage	0
Discount Allowed	0
General Expense	0
Bad Debt	0
Advertising	0	(2,300)
NET PROFIT / NET LOSS		19,700

Preparation of balance Sheet

Mr. X Limited
Balance Sheet As at 30-Jun-2020

	OMR	OMR
Non-Current Assets
Computer	10,000
Land and Building	0
Fixtures and Fitting	0
Motor Vehicles	0
Plant and Machinery	0
Net non-current assets		10,000
Current Assets
Bank	1,000
Cash	118,700
Prepaid Expense	0
Inventory	0
Account Receivable	0
	119,700
Less Current Liabilities
Account Payable	(8,000)
Accrued or arrear expense	-0
Bank overdraft	(2,000)
Net Current Asset		109,700
Non-Current liabilities		–
Loan	0
Debenture	0	0
Net Assets		119,700
Financed by
Capital	0
Add Capital Introduced	100,000
Add Net profit	19,700
Less Drawing	0
		119,700

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.

Reference

Chabrak, N., Haslam, J., and Oakes, H., 2019. What is accounting? The “being” and “be-ings” of the accounting phenomenon and its critical appreciation. Accounting, Auditing & Accountability Journal.
Vultur, P., 2018. Study Based on the Importance of the Information Provided by Management Accounting on the Managerial Process in the Joint Stock Companies in the North-East Area of Moldova. The USV Annals of Economics and Public Administration, 18(1 (27)), pp.134-142.
Pelger, C., 2016. Practices of standard-setting–An analysis of the IASB’s and FASB’s process of identifying the objective of financial reporting. Accounting, Organizations and Society, 50, pp.51-73.
Gulin, D., Hladika, M., and Mićin, M., 2017. Application of the Fair Value Concept in Function of Achievement the Objectives of Financial Statement Users. In Country Experiences in Economic Development, Management, and Entrepreneurship(pp. 553-570). Springer, Cham.
Moridipour, H., and Mousavi, Z., 2014. Relationship between inventory turnover with gross profit margin and sales shocks. International Research Journal of Applied and Basic Sciences, 8(8), pp.1106-1109.
Khadafi, M., Heikal, M., and Ummah, A., 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12).
Mulyadi, D., and Sihabudin, O.S., 2020. Analysis of Current Ratio, Net Profit Margin, and Good Corporate Governance against Company Value. Systematic Reviews in Pharmacy, 11(1), pp.588-600.