Financial Accounting & Analysis

Solution 1

Introduction:

Journal entries are necessary skills to advance in an accounting career. If a group's financial
accounts aren't properly documented, they can become misguided and disorganized. As a
result, at least two debts in opposing guidelines should be affected whenever a transaction
occurs within a corporation. When a company buys an automobile, for example, the car's value
increases the value of the company's assets. However, an additional account for those changes
is required (i.e., the identical and contrary response). Another account that has been affected is
the organization's cash, which has decreased as a result of the money spent on the car.

Concept and application:

The financial situation of any organization, large or small, is determined by two fundamental
statements of financial components: assets and liabilities. The accounting equation
demonstrates how those three essential additives are interdependent. The corporation's
treasured sources are land, whereas liabilities represent the organization's commitments.
Owners' equity, also known as shareholders' equity, is the third component of the stability
sheet. Both duties and shareholders' equity show how a company's assets are funded. If it is
financed with debt, it will appear as a liability; however, if it is financed with equity stock
offered to buyers, it will appear in the fairness of shareholders.

The balance sheet facts are the components of the accounting equation:
• Find the company's tangible assets on the balance sheet for the term.
• Add up all the liabilities, which should be listed separately on the financial declaration.
• Find general shareholder fairness and multiply it with the aid of total liabilities.
• The discerns of duties and general equity will remain identical to the general property.

Double Entry System: The equation of accounting is a brief statement of a stability sheet's
sophisticated, enlarged, and multi-item format. The illustration corresponds to all money
applications (assets) consisting of all capital assets, with lending capital emerging in debt and
equity funding ending in shareholders' equity. If a corporation maintains reliable records, each
economic transaction might be documented in at least 2 of its accounts. For instance, if an
enterprise takes out a bank loan, the borrowed funds will appear on the financial statement as
a rise within the company's assets and the loan liabilities.

The accounting approach is known as dual accounting because every transaction made by a
firm affects two or more accounts. When a company buys raw materials and accepts coins, its
inventory (an asset) rises, but its cash capital falls (another asset). The double-entry method
ensures the stability of the accounting equation by stating that the left and right sides of the
equation are always equal. In other words, the total cost of all assets will typically represent
the sum of all liabilities and owners' equity.

The extensive use of the double-access accounting device makes accounting and tally-keeping
operations more consistent and error-free. The accounting equation ensures that all entries in
the books and records are supported by evidence.

Journal entries for the above given financial transactions would be the following:

Transactions Journal Entry Analyzation

1. Introduced Bank A/c ---- Dr 5,00,000 An increase in Assets
Rs500,000 via a To Capital A/c 5,00,000 is debited.
cheque via the
proprietor as the (Being cheque deposited into the bank An increase in Capital
preliminary towards capital by the owner) is credited.
capital in the
business:
2. purchased items Purchases A/c ---- Dr 40,000 An increase in
on credit from To Ms. Ritu A/c 40,000 Expenses is debited.
Ms. Ritu at Rs An increase in
40,000 (Being goods purchased on credit from Liability is credited.
Ms. Ritu)
3. Paid Rs 10,000 as Salary A/c ---- Dr 10,000 An increase in
revenue to the To Bank A/c 10,000 Expenses is debited.
employees
(Being salary paid to the employees A decrease in Assets is
from the bank) credited.
4. Invested Fixed Deposit A/c ---- Dr 200,000 An increased Asset is
Rs200,000 in a To Bank A/c 200,000 debited.
fixed deposit
account (Being fixed deposit created) A decrease in Assets is
credited.
5. Paid school fees Drawings A/c ---- Dr 25,000 A decrease in Capital
of the kid Rs To Bank A/c 25,000 is debited.
25,000from the
 business’s bank (Being drawings made for paying a fee A decrease in Assets is
account to kid’s school fees) credited.

Conclusion:

As a result of the accounting equation's dialogue, the conclusion can be drawn that the
company's reputable ebook, in which all transactions are documented in chronological order,
is featured as a journal. Although many businesses use accounting software to record journal
entries, diaries were once the most common method.

Solution 2

Introduction:

Accounting is the art of keeping track of a company's financial transactions. Accounting, which
is the process of documenting, analyzing, and communicating financial transactions, assists
individuals and groups in their financial situations by summarising, evaluating, and monitoring
the events to look at authorities, regulators, and all of the entities involved in the accounting
technique. Accountants accomplish this by tracking spending, profits, and losses using the
accounting formula: liability + equity = property.

Application and concept:

Accounting is one of the most critical aspects of almost any organization. In a small business,
it can be managed by a cashier or accountant, whereas in larger organizations, it may be
managed by a large financial branch with many employees. Accounting reports and costing
machines, as well as managerial accounting, are critical in assisting control in making informed
business decisions.
Accounts Payable- Accounts payable is the money a business owes to its suppliers, vendors,
or creditors for goods or services bought on credit. (AP) is a part of accounting that represents
a company's promise to reimburse lenders or vendors for a quick debt. Every other standard
definition of "AP" is the company division or unit in the rate of creating repayments in place
of the corporation to providers and different borrowers. A short-term debt that must be paid
back quickly to avoid default, accounts payable shows up as a liability on an organization's
balance sheet. The overall bills payable stability at a given second in time will appear within
the present-day legal responsibility column of its balance sheet. Debts payable are debts that
have to be paid in a certain sum of time if you want to avoid default. AP shows instant debt
outflows payable to suppliers on the business level. The payable is efficiently a brief-term IOU
among two businesses or entities. The alternative associate might document the deal through a
corresponding growth in its money owed receivable. An example of accounts payable includes
when a restaurant receives a meat order on credit from an outside supplier.

Accounts Receivable- Accounts receivable is the money owed to a business, typically by its
customers, for goods or services delivered. The sales or cash that the company will receive
from its clients who have purchased products and services on credit score is called debts
Receivable (AR). The credit term is usually quick, starting from a few days to months or a year
in rare situations. The period receivable refers to a payment that has not yet been received. This
means that the company must have provided its customers with a credit score line. Usually, the
organization sells coins and credit for its merchandise and assistance. Bills receivables,
frequently known as receivables, are a credit that a company extends to its customers and
usually contain situations that demand bills to be made within a brief period. From short days
to a full economic or scheduled year, it might be whatever. An example of accounts receivable
is when a meat supplier delivers a meat order on credit to a restaurant. While the restaurant
records that transaction to accounts payable, the meat supplier records it to accounts receivable
and a current asset in its balance sheet.

Balance Sheet- Balance sheets are financial statements providing snapshots of organizations'
liabilities, assets, and shareholders' equity at specific moments in time. Balance sheets represent
one type of financial statement used to evaluate companies' financial health and worth. A balance
sheet reviews a statement that depicts a company's assets, debts, and investor fairness at a given
time. Accountants use the accounting equation to create balance sheets; 'Assets = Liabilities +
Equity.' The monetary documentation is the basis for determining investor returns and reading
an employer's economic structure. In a word, it shows the property and liabilities of an
employer and the quantity of cash invested via shareholders. St Stability sheets can be mixed
with other important financial accounts to conduct a simple analysis or calculate financial
ratios. It depicts an organization's financial popularity at a specific factor in time. It cannot
provide you with a feel of lengthy-term styles on its very own. As a result, the accounting
statistics need to examine the account balances from previous quarters. Accountants use the
accounting equation to create balance sheets; 'Assets = Liabilities + Equity.'
 Revenue Account / Income Statement: Revenue Account is prepared for a period, covering
one year. This statement shows the expenses incurred on production and distribution of the
product and sales and other business incomes. Income statement summaries the incomes /gains
and expenses /losses of a Business for a particular financial period. The format of the Income
statement explains in detail the items to be included in the statement. It is presented in the
traditional T Format and also in the vertical statement form. The final result of this statement
may be profit or loss for a particular period. It is an assertion of earnings is a monetary
statement that illustrates how lucrative your company was at some stage in a particular
reporting duration. It displays your sales after subtracting your prices and losses. The assertion
of profits, along with the statement of cash flows declaration, allows one to recognize the
economic health of your organization.

Gross income: Gross income and gross margin or gross profit are synonymous. The revenue
from all sources minus the firm's value of merchandise bought equals a company's gross
income, as proven on the income statement (COGS). Gross margin is every other term for gross
income. There may also be a gross earnings margin. That's a profitability indicator. It is greater
accurately defined as a percent. After eliminating the direct costs of creating the product or
providing the provider, a company's gross revenue reflects how good deal money it has made
on its products or services.

Conclusion:

Consequently, the conclusion above can be drawn that there are five key accounting phrases to
recognize the economic declaration of any corporation. Many different vital phrases desire to
be understood as a way to recognize the monetary statements completely.

Solution 3a.

Introduction:
The term 'creditor' is used in accounting to describe the person who has given a product,
service, or loan and is legally entitled through one or even more debtors. The individual in
query who owes the money is called a debtor instead of a creditor. After a creditor has supplied
the goods/services, a fee is regularly expected at a later date agreed upon in advance.

Concept and application:

Buying something on credit score with the expectation of future price from a 3rd party is
referred to as credit score buy. this means one isn't purchasing it proper away, however as a
substitute while the payment arrives.

How much inventory did an agency purchase in a given accounting period? The information
may estimate the extra money required to satisfy ongoing working capital wishes. This sum
can be calculated using the following records:

• The entire rate of the primary inventory. These statistics can be observed in the
announcement of the financials of the previous accounting period.

• The total cost of the stock after the length. This information may be stated on the
statement of the financials of the cycle of accounts for which acquisitions are constantly
tracked.

• The charge for the products bought. This fact may be visible in the income assertion for
the accounting period wherein the purchases are being assessed.

Total Purchases = (Closing Stock – Opening Stock) + Cost of goods sold

Total Purchases = (70 – 40) + 580
Total Purchases = 610

Henceforth, the processes required to calculate the number of inventory purchases are as
follows:

• Calculate the total price of beginning and ending stock and the cost of products bought.

• Take the initial inventory and subtract it from the completing stock.

• To the disparity among the closing and beginning inventories, add the price of items
bought.

Now, let us calculate the Credit Purchases:

Total Purchases = Cash Purchases + Credit Purchases
610 = 45 + Credit Purchases
Therefore, Credit Purchases = 610 – 45
Credit Purchases = 565

To calculate the payment to lenders allow us to create creditors accounts based on the facts
given to us:

Creditors Account
Dr. Cr.
 Particulars Amount (Rs) Particulars Amount (Rs)

To Cash 525 By Balance b/d 60

(Balancing Figure)
By Purchases A/c 565

To Balance c/d 100

Therefore, the payment made to the creditors is worth Rs. 525 lakhs.

Conclusion:

For this reason, the conclusion can be drawn that the entire purchase includes both cash and
credit purchases.

Solution 3b.

Introduction:

Depreciation is an accounting word that refers to assigning the price of a tangible or physical
throughout its helpful existence. Depreciation is a term used to explain how a good deal of an
asset's worth has been consumed. We shall businesses generate money from the assets they
own via paying for them over time.

Concept and application:

Net Book Value: The entire value at which a company registers an asset in its financial
statements is net ebook value. The initial fare is subtracted from any cumulative depreciation,
accumulated depletion, collected amortization, and accrued impairment to reach net book
value. It's far an accounting method for lowering the reported cost of a set asset resulting from
these losses over time. It does not always suggest that the market charge of a hard and fast asset
is the same at any given moment.

Accumulated Depreciation: Gathered depreciation is the total depreciation expenditure given

to a particular asset since it became first utilized. It's a negative shape of asset, which implies
a deficit investment account that offsets the asset account to which it's typically linked. When
an organization has information depreciation expenses, the equal quantity is credited to the
cumulative depreciation account, allowing the company to display the asset's value and its
overall depreciation. This also reflects the asset's internet book price on the financial statement.

Calculation of the netbook value and cash proceeds from the sale of investment:
Given,
The original cost of equipment sold = 400
Gain on the equipment sold = 50
Accumulated depreciation on the equipment = 80

Net Book Value = Original Purchases Cost – Accumulated Depreciation

Net Book Value = 400 – 80

Net Book Value = 320

Corporations that work with financial facts or statements have to realize the idea of internet
proceeds. Understanding the net proceeds will help an organization in making sound business
decisions. After all initial expenditures are deducted from the gross, or total, sales of a
transaction; a merchant's last earnings are referred to as net proceeds. Relying on the vendor's
advance expenses, an asset may additionally have huge or modest internet proceeds.

Cash Proceeds from Sale of Equipment = (Original Cost of the Equipment – Accumulated
Depreciation) + Gain on Sale of the Equipment

Cash Proceeds from Sale of Equipment = (400 – 80) + 50

Cash Proceeds from Sale of Equipment = 320 + 50

Cash Proceeds from Sale of Equipment = 370

Conclusion:

Hence, the conclusion drawn from the calculation is that the net book value of the gadget is
320 lakhs and the coin obtained on the sale of the system is 370 lakhs. This indicates there are
earnings of 50 lakhs on the equal.