Business Accounting & Finance

Assignment 1

IIMS COLLEGE
2019/2020
MBA-Weekend

Module Code: ACC 501

Module Leader Name : Ms. Ojaswi Shrestha

Group 6
Renisha Tandukar(leader)
Prakash Chaulagain
Nishant Jargha Magar
Manisha Dhami
Romita Lamichhane
Group 6 Assignment 1 ACC501
Group 6 Assignment 1 ACC501

Solution 1
Michelle Watson
Unadjusted Trial Balance
as at 30 June 2019
Unadjusted Trial Adjusted Trial
Balance Adjustments Balance
Account Debit Credit Debit Credit Debit Credit
Cash at Bank 6,000 6,000
Accounts Receivable 10,060 10,060
Office Supplies 1,140 725 415
Land 25,600 25,600
Building 146,000 146,000
Accumulated Depreciation- Building 43,800 8760 52,560
Office Equipment 13,500 13,500
Accumulated Depreciation- Office
Equipment 6,420 2140 8,560
Accounts Payable 7,960 7,960
Unearned Consulting Fees Revenue 3,560 210 3,350
Mortgage Payable 88,600 88,600
Share Capital 42,070 42,070
Dividends 52,780 52,780
Consulting Fees Revenue 156,860 210 157,070
Insurance Expense 1,660 1,660
Salaries Expense 87,940 87,940
Electricity Expense 760
Interest Expense 2,090 170 2,260
Telephone Expense 1,740 165 1,905
Adjustments
Telephone Expense Payable 165 165
Group 6 Assignment 1 ACC501

Interest Payable 170 170

Depreciation-office equipment 2140 2140
Depreciation-building 8760 8760
Office Supplies Expenses 725 725
349,270 349,270 360,505 360,505

Adjustment Entries as of 30th

June 2019

A physical count of office supplies reveal that supplies

totaling $415 are on hand at 30 June
Dr.Office Supplies Expense 725
Cr. Office Supplies 725

The balance in Unearned Consulting Fees Revenue includes

$210 earned for services rendered in the last week of June
Dr.Unearned Consulting fees 210
Cr. Consulting fees revenue 210

Estimated depreciation on the

office equipment is $2,140.
Dr. Depreciation- office equipment 2140
Cr. Accumulated Depreciation 2140

Depreciation on the building is

$8,760
Dr. Depreciation 8760
Cr. Accumulated Depreciation 8760

The June monthly mortgage payment of $900 has not been paid or
recorded. In each payment, $170 is attributable to interest
Dr.Interest expense 170
Group 6 Assignment 1 ACC501

Cr.Interest Payable 170

The June telephone costs for $165 are unrecorded. No

tax invoice has been received.
Dr. Telephone expenses 165
Cr. Telephone expense Payable 165

INCOME STATEMENT
For the year ending 30 June 2019
Amoun
Particulars t
Consulting fees Revenue 157,070
Less: Expenses
Insurance Expense 1,660
Salaries Expense 87,940
Electricity Expense 760
Interest Expense 2,260
Telephone Expense 1,905
Office Supplies Expenses 725
Depreciation-office equipment 2140
Dividends 52,780
Depreciation-building 8760 158,930
Net Loss -1,860

Balance Sheet
As of 30 June 2019
Non-Current Assets Amount
Land 25600
Building 146000
Less: Accumulated Depreciation -52560
Group 6 Assignment 1 ACC501

Office Equipment 13500

Less:Accumulated Depreciation-
equipment -8560
Total Non-Current Assets 123980

Current Assets
Cash at Bank 6000
Accounts Receivable 10060
Office Supplies 415
Total Current Assets 16475

Total Assets 140455

Equity and Liabilities

Equity
Share Capital 42070
Net loss -1860
Total Equity 40210

Liabilities
Non-Current Liabilities

Current-Liabilities
Accounts Payable 7960
Mortgage Payable 88600
Telephone Expense Payable 165
Interest Payable 170
Unearned Consulting fees Revenue 3350
Total Current Liabilities 100245
Group 6 Assignment 1 ACC501

Total equity and liabilities 140455

Solution 2
Cash Flow Statement
Cash flows from Operating Activities
Cash Receipts from customers $9,64,000
Cash paid to suppliers:
Creditors (8,08,000)
Supplies (28,000)
Other expenses (45,200)
Interest received 4,000
Net Cash Flow from Operating $86,800
Activities
Cash flows from Investing Activities
Purchase of property (40,000)
Purchase of investments (20,000)
Purchase of fixtures (20,400)
Proceeds from the sale of fixtures 2,400
Net Cash used in investing Activities ($78,000)

Cash flows from Financing Activities

Drawings by Owner (25,600)
Net Cash used in Financing Activities (25,600)
Net Cash Flow (16,800)
Opening Cash Balance 8,800
Closing Cash Balance $(8,000)
Group 6 Assignment 1 ACC501
Group 6 Assignment 1 ACC501

Question 3

Identify the users of accounting information. Briefly explain the information needs of each
identified user group.

The present age is the age of trade business and commerce. After globalization, liberalization, and
privatization, business is increasing day by day and becoming complex also. Therefore, it becomes
necessary to keep a written record of all business transactions day by day, this lead to the
development of accounting. It is necessary that the recorded transaction is collected, classified and
summarized, which is done by accounting.

According to Bierman and Drebin: “Accounting may be defined as identifying, measuring,

recording and communicating of financial information.”

Hence, accounting is a systematic process of identifying recording measuring classify verifying

some rising interpreter and communicating financial information. It reveals profit or loss for a
given period and the nature of a firm’s assets and liabilities and owners’ equity.

Therefore, people may use accounting information for their different purposes depending on their
needs. We can broadly divide the users of accounting information into two groups;

internal users and

external users

Internal users

Internal users use a mix of management and financial accounting information. Some internal users
of accounting information and their needs are briefly discussed below:

Management
Group 6 Assignment 1 ACC501

Management uses accounting information for evaluating and analyzing organization’s financial
performance and position, to take important decisions and appropriate actions to improve the
business performance in terms of profitability, financial position and cash flows. One of the major
roles of management is to set rules and procedures to achieve organizational goals. For this
purpose, management uses information generated by financial as well as managerial accounting
system of the organization.

2. Owners

Owners invest capital to start and run business with the primary objective to earn profit. They
need accurate financial information to know what they have earned or lost during a particular
period of time. On the basis of this information they decide their future course of actions such as
expansion or contraction of business.

However, in small businesses (like sole proprietorship and partnership) owners themselves
perform the function of management.

External users

External users are those individuals who take interest in the account information of an
organization, but they are not part of the organization’s administrative process. External users have
a direct or indirect interest in accounting information. Some external users of accounting
information and their needs are briefly discussed below:

Investors

The accounting information is used by both actual and potential investors. Actual investors use
this information to know how their funds are used by the management and what is the expected
performance of business in future in terms of profitability and growth. On the basis of this
information, they decide whether to increase or decrease investment in corporation in future.
Potential investors use accounting information to decide whether or not a particular corporation is
suitable for their investment needs.

2. Lenders
Group 6 Assignment 1 ACC501

Lenders are individuals or financial institutions that normally lend money to businesses and earn
interest income on it. They need accounting information to assess the financial performance and
position and to have a reasonable assurance that the business to whom they are going to lend money
would be able to return the principal amount as well as pay interest there on.

3. Suppliers

Suppliers are business individuals or organizations that normally sell merchandise or raw materials
to other businesses on credit. They use accounting information to have an idea about the future
creditworthiness of the business and to decide whether or not to continue providing goods on
credit.

4. Government agencies

Government agencies use financial information of businesses for the purpose of imposing taxes
and regulations.

5. General public

General public also uses accounting information of business organizations. For example,
accounting information is:

a source of education for students of accounting and finance.

a source of valuable data for those researching on organizational impacts on individuals and
economy as a whole.

a source of information for the people looking for job opportunities.

a source of information about the future of a particular enterprise.

6. Customers
Group 6 Assignment 1 ACC501

Customers can be divided into three groups – manufactures or producers at various stages of
production, wholesalers and retailers and end users or final consumers.

Manufacturers or producers at every stage of processing need assurance that the organization in
question will continue providing inputs such as raw materials, parts, components and support etc.
The wholesalers and retailers must be assured of consistent supply of products. The end users or
final consumers are interested in continuous availability of products and related accessories.
Because of these reasons, the accounting information is of significant importance for all three types
of customers.

7. Employees

Employees who do not have a hand in core management of the business are considered external
users of accounting information. They are interested in financial information because their present
and future is tied up with the success or failure of the business. The success and profitability of
business ensures job security, better remuneration, job promotion and retirement benefits.

Hence, to run a business we need data, records, reports, analysis, accurate information about assets,
debts, liabilities, profits; and that is why accounting is important for any business activities. The
accounting information is very important for the management or the decision making the body of
an organization.