Assignment One on General Overview of Accounting

Part I. Essay Writing Questions

1. Write suitable discussion related to (i) the definitions of accounting and the forms of the
accounting as a discipline and (ii) the similarities and differences of Financial Accounting and
Management Accounting

 Accounting is the process of identifying, measuring, and disseminating economic data so

that users may make well-informed judgements and decisions. This information is
mainly financial in nature, and it is expected to cost. Accounting is a measuring and
communication process that is used to report on the operations of profit-making
businesses.
 There are different accounting forms those are
 Financial accounting
 Management accounting
 Cost accounting
 Auditing
 Taxation
 Accounting Information Systems
 Fiduciary Accounting
 Forensic Accounting
 The similarities and differences of Financial Accounting and Management Accounting
 The similarities between financial accounting and management accounting are
 Both are elements of a comprehensive accounting information system.
 Both systems of accounting deal with economic activities.
 Financial statements, revenues, costs, assets, liabilities, and cash flows are
all topics that both sides are concerned with.
 Both accounting systems are used to collect and categorize accounting
data in order to prepare financial statements.
 Under both systems of accounting, a database is used to prepare financial
statements and reports.
 Both are determining and measurement of costs for different accounting
periods and even for different departments and sections.
 For the purposes of cost buildup and cost allocation, both systems of
accounts employ the same accounting principles and ideas.
2. Discuss the current accounting standards or principles applicable in Ethiopia as a base for
financial statement preparation and presentation.

 Accounting standards were established to improve the quality of financial data released
by governments. The ultimate goal of any set of accounting standards is to ensure that a
company's financial statements are complete, uniform, and comparable. Some of the
most fundamental accounting concepts that may be utilized to create and show
financial accounts in Ethiopia are:
  Accrual principle: - is an accounting principle that states that transactions must
be documented in the time period in which they occur, regardless of when the
transaction's actual cash flows are received.
 Going concern principle: - is the assumption that a company will continue to
exist for the near future. On the other hand, this means that the company will
not be compelled to shut down operations and dispose its assets at fire-sale
rates in the near future.
 Matching principle: - the matching principle is an accounting theory that
requires businesses to disclose costs at the same time as the revenues to which
they are linked. On the income statement, revenues and costs are matched for a
period of time.
 Monetary unit principle: - The monetary unit concept assumes that money is
considered as a unit of measurement and that any transactions or economic
events recorded in a business's records may be represented and quantified in
monetary terms.

3. Explain the underlying prescriptions of IFRS

 International Financial Reporting Standards (IFRS) are a collection of accounting
regulations that define how transactions and other accounting events must be recorded
in financial statements. They are intended to preserve financial credibility and
transparency, allowing investors and company operators to make well-informed
financial decisions.
 The standards are designed to maintain consistency in accounting terminology,
procedures, and statements, as well as to help firms and investors make educated
financial assessments and choices. They were developed by the International
Accounting Standards Board, which is part of the IFRS Foundation, a non-profit
organization located in London. The Foundation's mission is to "promote openness,
accountability, and efficiency to financial markets throughout the world," according to
its website.
4. Describe five types of business transactions with external parties and another five types of
business transactions from internal sources of a selected form of business company at your
nearby (please indicate the form of company you selected on the answer sheet) and explain
how they are journalized and then reported in the financial statements.

 External business interactions involve the trade of products and services for monetary
gain. In Ethiopian Airlines, this interaction is between the customers and the Airline
selling and buying the service example, flight service and cargo service. Internal business
transactions encompass internal business activities rather than sales. Calculating
employee salaries and determining the depreciation value of a certain asset. External
transactions include the exchange of resources with outside parties and have a
substantial influence on a company's cash flow.
5. Discuss the accounting process as a cycle with a given period by explaining each of the steps and
by giving practical examples.

 The accounting cycle is the process of documenting and processing all of a company's
financial transactions, from the time they occur to the time they are reflected on
financial statements until the time the accounts are closed. One of the most important
tasks of a bookkeeper is to keep track of the whole accounting cycle from start to finish.
Every fiscal year, the cycle repeats itself as long as a company is in operation.
 Accounting cycle Steps
 Transactions
 Journal Entries
 Posting to the General Ledger (GL)
 Trial Balance
 Worksheet
 Adjusting Entries
 Financial Statements
 Closing
6. Discuss the components in detail of the following financial statements for a manufacturing PLC:
A. Statement of Profit or Loss (Income Statement)
B. Statement of Financial Position (Balance Sheet)
C. Statement of Changes in Owners’ Equity
D. Statement of Cash Flows

 Statement of Profit or Loss (Income Statement)

 A profit and loss (or income) statement lists the sales and costs. It displays us
how much money we've earned or lost. Once a month, quarter, or year, a profit
and loss statement is usually completed.
 Statement of Financial Position (Balance Sheet)
 A balance sheet, also known as a statement of financial condition, depicts a
company's assets, liabilities, and equity at a certain point in time. A company's
assets include cash, shares, property, plant, and equipment, among others. The
obligations owing by the firm to third parties, such as suppliers, banks, or
business loans, are referred to as liabilities. Equity is the residual amount of the
owner's financial stake in the firm after any obligations have been deducted
from the total assets.
 Statement of Changes in Owners’ Equity
 An equity statement, also known as a statement of owner's equity or a
statement of changes in equity, is a financial statement that a company must
file alongside other relevant financial records at the conclusion of a reporting
period. In the United States, the statement of changes in equity is also known as
the statement of retained earnings. The owner's equity statement depicts how
the company's equity has evolved over time. Earned earnings, dividends, inflows
of equity, outflows of equity, net loss, and so on are all examples of equity
statement movements.
  Statement of Cash Flows
 A cash flow statement is a financial statement that illustrates how much cash
and cash equivalents enter and leave a company. The cash flow statement
evaluates a company's capacity to manage its financial position, or how well it
generates cash to meet debt obligations and cover operational costs. The
statement of cash flows connects the income statement and the balance sheet
by showing how money entered and exited the firm.
7. Explain cost accounting and its functions as well the distinguishing features of cost accounting
systems for (a) job order costing, and (b) process costing

 Job order costing: - This is a cost accounting method for allocating and monitoring
production expenses based on the number of jobs. Jobs at this point may refer to the
creation of a single product or the implementation of a distant operation. When the
goods are differentiated and none of them have equivalent systems, job-order costing is
used.
 Process costing: - This is a cost accounting method for disbursing and tracking
manufacturing costs that are attributable to multiple industrial procedures rather than a
single occupation or operation. It's commonly used in businesses where different
products have a consistent manufacturing process.
 We can look at the following differences.
 For exceptional goods, job costing is used, whereas for uniform products,
process costing is used.
 Process costing is preferred for larger productions including many procedures,
as opposed to work order costing, which is suited for smaller production
operations.
 When clients put a bespoke order, job costing is more accurate. The firm can
calculate the cost of each work and bill the consumers with an even-handed
edge, but process costing isn't appropriate in this situation.
 Task-costing may have higher costs because of additional paperwork involved,
and in a large firm, it may require a large number of people to organize cost
accounts for each job, but process costing will have lower costs since it will be
standard methods that can be done by a few specialists.
8. a. Give suitable explanation on (i) Cost; (ii) Cost Objects; (iii) Cost Driver b. Discuss the different
forms of Cost Classification

9. Discuss (i). the notions and purposes of CVP Analysis, and (iii) the Components of CVP Analysis
(Break-Even Analysis, Target Analysis, Margin of Safety Analysis, Sales-mix Analysis and others)

 CVP analysis is a method of determining how changes in variable and fixed expenses
influence a company's profit. Companies can utilize CVP to determine how many units
they need to sell in order to break even (pay all expenses) or achieve a specific profit
margin.
 Identifying the sales volume necessary to meet a profit objective. In addition to
determining the break-even point.
 10. Discuss what forms of relevant information are applicable for business decisions related to
Make or Buy Decisions, Accept or Reject Special Orders; Continue or Discontinue Business, and
Sell or Process Further, and others

 The projected future expenses and income that differ across the alternatives are
relevant information. Any cost or benefit that is not different between options is
unimportant and may be overlooked while making a decision. All future income and/or
costs that do not change between the two options are unimportant.
 The following are some of the factors to consider:
 The amount of capacity needed to complete the customized order.
 Whether the buyer's offer will pay the cost of manufacturing the goods.
 In the analysis, the function of fixed expenses.
 Factors of quality.

Part II. Work-out Questions

1. Some selected balances of DD Co. for year ended Dec-31-2019 are as follows with their normal
balances before adjustments: Cash and Cash Equivalent Br 20,000 Owners’ Capital 40,000

Notes Receivables 45,000 Retained Earnings 75,000 Office Supplies 12,000 Sales Revenues
640,000 Prepaid Insurance 72,000 Interest Income 12,000 Inventory (Average Cost) 24,000 Cost
of Goods Sold 320,000 Fixed Assets 120,000 Selling Expenses 21,000 Accum. Depr- Fixed assets
36,000 Salary and Wages Expense 105,000 Unearned Rent (Liability) 56,000 Rent Expense
15,000

Required

a. Prepare the necessary adjusting entries for the following items as not yet recorded on Dec-31-2019:

i. The office supplies consumed during the year is Br 8,000

ii. The Unexpired part of insurance is only Br 26,000

iii. Br 30,000 is earned sales revenues from the unearned advance collection

iv. Salary and wages accrued as on 31-Dec-2019 amounts to be Br 18,000 v. Depreciation Expenses
allocated for the year amounts to be Br 15,000

vi. There are accrued interest of Br 8,000 on the notes receivable

b. Prepare the following Financial Statements after adjustments on Dec-31- 2019.

i. Balance Sheet

ii. Income Statement

c. Prepare closing journal entries after balances are adjusted and show the final closing of Income
Summary to Retained Earnings