Accounting

By Saad Imran
LO1.
Accounting's goal is to collect and report crucial financial data on a company's performance, financial
position, and cash flows. It primarily focuses on how and where money is obtained. The data acquired
during this process is utilised to generate ideas about how to improve the company's management. An
organization's accounting team determines whether profits should be invested or used for resources,
bills, and other expenses. Standard commercial transactions, such as invoices or journal entries, are
used to gather accounting resources. After this data is acquired, it is organised into financial
statements such as the income statement, balance sheet, statement of cash flows, retained earnings,
and disclosure. Overall, the purpose of accounting is to basically analyse valuable information which
in turn lets the accounting team make decisions that help with the betterment of an organisation.

There are different systems that accounting teams take into mind when gathering valuable
information;
● Job Costing
Job costing is the process of accumulating the expenses of goods and labour for a specific job.
Accounting teams utilise this method to track specific costs and determine whether they may
be decreased for future projects. Typically, this is done on a small-unit basis. Job costing
works by charging extra resources left over from the manufacturing of a good that will be sold
directly to the cost of the goods sold. Another alternative is to charge it to an overhead bill
that goes to the organisation that is in charge of the items' manufacture. Costs can also vary
depending on the situation. This is a cost-plus contract where the customer pays for all the
costs that are involved, plus a profit for the organisation.
● Cost Accounting
Cost accounting is a form of analysing data that captures a company’s total cost of
production. This is assessed by looking at the variable costs of each step of production and the
fixed costs. Cost accounting considers all input costs that are associated with production.
Types of cost accounting include: standard costing, activity-based costing, lean accounting
and marginal costing. Cost accounting is done by first measuring all the fixed costs
individually, then comparing the input costs to output results.
➔ Fixed costs are costs that don’t change depending on what production level it has
gone through. These are usually considered to be mortgages or lease on a building.
➔ Variable costs are those that are tied to the company’s level of production. “For
example, a floral shop ramping up its floral arrangement inventory for Valentine's
Day will incur higher costs when it purchases an increased number of flowers from
the local nursery or garden centre”, Tuovila, A. (2020).
➔ Operating costs are costs that are the outcome of day to day operations of a business.
They can be either fixed or variable.
➔ Direct costs are those that are related to the production of a good.
➔ Indirect costs are costs that can’t be directly linked to a good.
➔ Activity based costing is identifying overhead costs from each department and is
assigned to the specific cost of a good. This is usually based on activities.
➔ Lean Accounting improves financial management practises within a business. It
basically focuses on minimising waste while optimising productivity.
 ➔ Marginal costing is what the impact on the cost is by adding one more unit into the
production of a good. This type of cost accounting helps the accounting team oversee
the impact of different levels of cost. It helps them gain insight on which of their
products are actually gaining profit.
● Inventory Management
Inventory management is the process of ordering, storing, using and selling a company’s
inventory. The accounting team of an organisation focuses on this to oversee what they can
improve within this factor to gain profit in the future.

Functions of Accounting
The seven functions of accounting include account receivable and payable, payroll, inventory
management, budgeting, reports and financial statements, legal compliance and financial control, and
record-keeping.
1. Accounts Payable
This refers to the money that goes out of a business. It’s recorded as a liability in an
accounting book to look at in the future. The function of this is that it keeps a record of the
goods and services an organisation pays for. Another thing it keeps track of is scheduled
payments that the business needs to pay in the future.
2. Accounts Receivable
Accounts receivable refers to the money or receipts that a business receives from their
consumers. The accounting department is incharge of looking out for any cash payments that
are received. It is also responsible for creating invoices when needed.
3. Payroll
Payroll is one of the most important functions of the accounting department. They are
responsible for making sure employees receive their salaries on time and at the right amount.
4. Inventory Cost Management
The accounting department is also responsible for checking on the inventory and keeping
track of inventory costs such as labour, raw materials and other factors. There’s a lot of
different purchases that a business makes over the years such as different types of machinery
or raw materials. Some are also bought with loans or credit and the accounting department
records these purchases to make sure the debts are paid on time.
5. Cash Collection & Record Keeping
This function refers to the accounting department identifying, tracking and recording all the
cash that is accumulated from sales etc. They also make sure that the money is paid into the
right checking accounts.
6. Budgeting
The accounting department is also responsible for making sure that the other departments in
the company stay within the limits of the company’s budget. They track various expenses and
other transactions.
7. Reporting and Financial Statements
This refers to the collection of financial information to prepare reports of those statements.
These are important because an organisation uses their financial reports to make decisions
about their company and prepare future budgets. It also focuses on the profits and losses of a
company.
8. Legal Compliance and Financial Control
This is a very important function of the accounting department because an organisation needs
to make sure they are following the financial laws of their state or country. The department is
 responsible for handling all the tax documents as well as maintaining financial controls. The
accounting department is also responsible for detecting fraud and theft within their own
company.

Ethics in Accounting
A lot of organisations and corporations usually publish their own ethical guidelines that accounting
departments must follow. Accountants have to often deal with financial details of individuals and
organisations that are very valuable to the company, which requires a lot of responsibility. Some of
the requirements that accounting teams deal with include: responsibilities, the public interest,
integrity, objectivity and interdependence, due care, scope and nature of services.

Advantages to Accounting
Some negatives include the possibility of biassed accounting information based on the accountant's
personal influence on the scenario. Another risk is that the current replacement cost and the initial cost
of a fixed asset can fluctuate due to a variety of factors such as technological advancements, time
management, and so on. The balance sheet does not necessarily reflect an organization's true financial
situation. An accountant also runs the danger of misleading or manipulating a company's earnings.
Because money fluctuates in value, accounting data may not necessarily reflect a company's true
financial status. It is possible that the information provided is not entirely correct. For a small business
or a startup, hiring an accounting team can be prohibitively expensive.The accounting team also
presents a lot of information which can be used as evidence in legal matters that the firm may come
across in the future.

Disadvantages to Accounting
Some negatives include the possibility of biassed accounting information based on the accountant's
personal influence on the scenario. Another risk is that the current replacement cost and the initial cost
of a fixed asset can fluctuate due to a variety of factors such as technological advancements, time
management, and so on. The balance sheet does not necessarily reflect an organization's true financial
situation. An accountant also runs the danger of misleading or manipulating a company's earnings.
Because money fluctuates in value, accounting data may not necessarily reflect a company's true
financial status. It is possible that the information provided is not entirely correct. For a small business
or a startup, hiring an accounting team can be prohibitively expensive. Another disadvantage is that
accounting takes away the privacy of a business since all accounts are shown to the general public and
their competitors.
https://www.aplustopper.com/advantages-and-disadvantages-of-accounting/

Shared Service Centres

“These centres have the job of reducing service duplication and business unit silos within an
organisation by integrating service functions into a single department” www.ivanti.com. (n.d.).
Advantages:
● SSC reduce service delivery costs
● Facilitates the deployment of automated service delivery
● Helps standardise reliable service delivery
● Helps eliminate duplication and business unit silos
● Enables businesses to compete with the external market place
● Implements GPOs
● Creates outsourcing opportunities
● Centralises service data and promotes efficiency
● Increases productivity
Disadvantages
● Risk of non-compliance
● Lack of local information
● Lack of local relationships
International Financial Reporting Standards
The International Financial Reporting Standards (IFRS) are a collection of accounting regulations for
financial statements that assist them to be uniform and transparent. It essentially lays out how
businesses must report their expenses and income. Investors, auditors, and government authorities all
understand this set of principles on a worldwide scale.
Importance of accounting to stakeholders
Accounting data can influence management decision-making in two ways: directly as a source of data
for choices, or indirectly through influencing managers' behaviour. Accounting enables stakeholders
to make better business decisions. They need to know how well the company is performing and
whether or not they should invest in it. Stakeholders also want to know if the company is making
more money than it is spending on resources. Another reason is that stakeholders require knowledge
of the management's strategic and tactical strategies.

LO2.
1. Partnership
Marcel and Naomi are in partnership. The partnership agreement states that the profits and
losses are shared, Marcel three-fifths, Naomi two-fifths. Interest on capital is allowed at the
rate of 4% per annum. Interest is charged on drawings (excluding salaries) made during the
year at the rate of 5%. Marcel receives a salary of $8000.
The following balances were extracted from the books on 30 April, 2019.

Purchases 184,000

Revenue 328,000

Purchases returns 17,500

Inventory at 1 May, 2018 31,300

Non-current assets (at cost)

Premises 90,000

Motor vehicles 80,000

Fixtures and fittings 52,000

Wages and salaries 46,000

Motor vehicle expenses 17,450

Provisions for depreciation

Premises 38,000

Motor vehicles 8,000

Fixtures and fittings 23,000

Provision for doubtful debts 600

General expenses 18,600

Marketing expenses 22,000

Trade payables 27,500

Trade receivables 36,000

Bank overdraft 28,500

Electricity and water 10,650

Insurance 6,500

Capital Accounts

Marcel 80,000
 Naomi 60,000

Current accounts at 1 May, 2018

Marcel 300 Credit

Naomi 5,100 Credit

Drawings

Marcel 10,000

Naomi 12,000

Additional information at 30 April, 2019

1. Inventory was $36,400
2. The annual insurance premium of $4,600 was paid on 1 November, 2018
3. General expenses, $1,150 were outstanding
4. Wages and salaries included the salary paid to Marcel.
5. Depreciation is to be charged on all non-current assets owned at the end of the year as
follows:

Premises 2% per annum on cost

Motor vehicles 25% per annum using the diminishing

(reducing) balance method

Fixtures and fittings 20% per annum using the straight-line

method

6. The provision for doubtful debts is to be maintained at 5%.

7. A cheque payment of $1,300, made to a credit supplier on 15 April, had not been
recorded in the books.

(a) Prepare the income statement and appropriation account for the year ended 30 April, 2019

Marcel and Naomi

Income Statement and Appropriation Account for the year ended 30 April, 2019
$ $

Revenue 328,000

Inventory 1 May, 2018 31,300

Purchases 184,000

Returns outwards (175,500)

197,800 (1)

Inventory 30 April, 2019 (36,400)

Cost of sales (161,400)(1)

Gross profit 166,600(1)OF

Less expenses:

General expenses 18,600 + 19,750(1)

1,150

Marketing 22,000(1)

Wages and salaries 46,000 - 38,000(1)

8,000

Motor vehicle expenses 17,450(1)

Electricity and water 10,650(1)

Insurance 6,500 - 2,300 4,200(1)

Depreciation: Premise 1,800(1)

Motor vehicles 18,000(1)

Fixtures and fittings 10,400(1)

Increase in Provision for 1,200(1)

doubtful debts

(143,450)
23,150

Profit for the year

Interest on drawings:

Marcel 500(1)

Naomi 600(1)

1,100
24,250

Interest on capital:

Marcel (3,200)(1)

Naomi (2,400)(1)
(5,600)
 Salary - Marcel (8,000)(1)

(13,600)
10,650

Share of Profit:

Marcel 6,390(1) OF

Naomi 4,260(1)
10,650

b) Prepare the current accounts for the year ended 30 April, 2019 on the next page. Balance the
accounts and bring down the balances on 1 May, 2019.
Current Accounts
Date Details Marcel Naomi Date Details Marcel Naomi

2019 $ $ 2018 $ $

April 30 Drawings 500 600 (1) May 1 Balance 300 5,100

interest OF b/d

Drawings 10,000 12,000 (1) 2019 Interest 3,200 2,400 (1)OF

April 30 on capital

Wages and 8,000 (1) Salary 8,000

salaries

Profit 6,390 4,260 (1)OF

share

18,500 12,600 18,500 12,600

May 1 Balance b/d 610 840 (1)

OF

c) Prepare the statement of financial position at 30 April 2019

Marcel and Naomi

Statement of Financial Position at 30 April, 2019
Cost Accumulated Net Book Value
Depreciation

Non-current assets $ $ $

Premises 90,000 39,800 50,200(1)OF

Motor Vehicles 80,000 26,000 54,000(1)OF

Fixtures and fittings 52,000 33,400 18,600(1)OF
222,000 99,200 122,800

Current assets

Inventory 36,400(1)

Trade receivables 36,000 (1)

Less provision for (1,800) (1)OF

doubtful debts

34,200

Other receivables 2,300(1)OF

72,900

Total assets 195,700

Capital and Liabilities

Capital:

Marcel 80,000

Naomi 60,000

140,000(1)

Current accounts:

Marcel (610)

Naomi (840)

(1,450)(1)OF

Current liabilities

Trade payables 26,200

(27,500 (1) - 1,300(1))

Other payables 1,150(1)OF

Bank overdraft 29,800

(28,500 (1) + 1,300
(1))
 Total Liabilities 57,150
195,700

2. Sole Trader
The following balances were extracted from the books of B Manufacturing on 30 September, 2019

Inventory at 1 October, 2018

Raw materials 7,900

Work in progress 18,000

Finished goods 31,000

Capital 160,000

Drawings 50,000

Revenue 475,000

Purchases of raw materials 47,000

Purchases of finished goods 71,000

Production management salaries 29,500

Administrative wages and salaries 117,550

Factory wages 55,300

Insurance 9,000

Rent payable 30,000

Commision receivable 8,750

Direct expenses 10,110

General expenses 12,000

Building repairs 18,000

Selling and distribution expenses 14,200

Trade payable 21,900

Bank 11,100 Debt

Non-current assets (at cost)

 Factory machinery 90,000

Office fixture 70,000

Provisions for depreciation at 1 October, 2018

Factory machinery 90,000

Office fixtures 70,000

Provisions for depreciation at 1 October, 2018

Factory machinery 26,000

Office fixtures 36,000

Provision for doubtful debts 6,000

Trade receivables 42,000

Additional information at 30 September 2019

1. Inventory

Raw materials 6,400

Work in progress 20,200

Finished goods 34,300

2. Expenses are to be apportioned to the factory and the office as follows:

Factory Office

Insurance 60% 40%

Rent payable 75% 25%

General expenses 10% 90%

Building repairs 70% 30%

3. Commission receivable of $1200 was due.

4. Selling and distribution expenses prepaid were $750
5. Depreciation is to be charged on all non-current assets owned at the end of the year as
follows;
factory machinery at 20% per annum using the diminishing balance method
office fixtures at 10% per annum using the straight-line method
6. The provision for doubtful debts is to be maintained at the rate of 5%
 7. A cheque, $2800 paid to a trade payable had not been recorded in the books.

a) Prepare the manufacturing account for the year ended 30 September 2019. Show clearly the
prime cost and the cost of production.
B Manufacturing
Manufacturing account for the year ended 30 September, 2019
$ $

Raw materials inventory 1 7,900

October, 2018

Purchases of raw material 47,000

54,900

Raw materials inventory 30 (6,400)

September, 2019

Cost of raw materials 48,500(1)

consumed

Factory wages 55,300(1)

Direct expenses 10,100(1)

Prime cost (1) 113,900(1)OF

Factory Overheads

Insurance 5,400(1)

Rent 22,500(1)

General expenses 1,200(1)

Building repairs 12,600(1)

Production management 29,500(1)

salaries

Depreciation-machinery 12,800(1)

84,00
197,900(1)

Work in progress

At 1 October, 2018 18,000

At September, 2019 (20,200)

(2,200)(1)

Cost of production (1) 195,700 (1)OF

 b) Prepare the income statement for the year ended 30 September 2019
Income statement for the year ended 30 September, 2019
$ $

Revenue 475,000(1)

Less

Inventory of finished goods 31,000

1 October, 2018

Cost of production 195,700(1)OF

Purchases of finished goods 71,000(1)

297,700

Inventory of finished goods (34,300)

30 September, 2019

Cost of sales (263,400)(1)

OF

Gross profit 211,600

Commission receivable 9,950(1)

8,750+1,200

Decrease in provision for 3,900(1) 13,850

doubtful debts 225,450

Less expenses:

Insurance 3,600(1)

Rent 7,500(1)

General expenses 10,800(1)

Building repairs 5,400(1)

Administrative wages and 117,550(1)

salaries

Selling and distribution 13,450(1)

expenses 14,200-750

Depreciation - office fixtures 7,000(1)

(165,300)

Profit for the year 60,150

c) Prepare the statement of financial position on 30 September, 2019.

 Statement of Financial Position at 30 September, 2019
Non-current Cost Depreciation Accumulated Net Book Value
assets Value

$ $ $

Machinery 90,000 38,800 51,200(1)OF

Office fixtures 70,000 43,000 78,200

160,000 81,800

Current Assets

Inventory Raw materials 6,400}

Work in progress 20,200}

Finished goods 34,300}

60,900(1)

Trade receivables 42,000

Provision for (2,100)(1)OF

doubtful debts

39,900(1)OF

Other receivables 1,200(1)+750(1) 1,950

Bank 111,100(1) - 8,300

2,800(1)

Total assets 111,050

189,250

Capital 160,000

Profit for the year 60,150

220,150

Drawings (50,000)

170,150 (1)OF

Current liabilities

Trade payables 21,900 (1) - 2,800 19,100

(1)

Total capital and 189,250

liabilities

3. Non profit organisation

The treasurer of the Long Lane football club has prepared a receipts and payments account, but
members have complained about the inadequacy of such an account. She therefore asks an accountant
to prepare a trading account for the bar, and an income and expenditure account and balance sheet.
The treasurer gives the accountant a copy of the receipts and payments account together with
information on assets and liabilities at the beginning and end of the year.

Long Lane Football Club

Receipts and Payments Account for the year ended 31 December 2006

Receipts £

Bank balance at 1.1.2006 524

Subscriptions received for

2005 (arrears) 1,400

2006 14,350

2007 (in advance) 1,200

Bar sales 61,280

Donations received 800

79,554

Payments

Payment for bar supplies

Wages

Groundsman and assistant 19,939

Barman 8,624

Bar expenses 234

Repairs to stands 740

Ground upkeep 1,829

Secretary's expenses 938

Transport costs 2,420

Bank balance at 31.12.2006 6,210

79,554

Additional information:
1.
 31.12.2005 31.12.2006

£ £

Inventory in the bar - at cost 4,496 5,558

Owing for bar supplies 3,294 4,340

Bar expenses owing 225 336

Transport costs - 265

2. The land and football stands were valued at 31 December 2005 at: land £40,00; football stands
£20,00; the stands are to be depreciated by 10 per cent per annum.
3. The equipment at 31 December 2005 was valued at £2,500, and is to be depreciated at 20 per cent
per annum.
4. Subscriptions owing by members amounted to £1,400 on 31 December 2005, and £1,750 on 31
December 2006.

a) Draw up a statement of affairs at the end of the previous period in order to identify the
balance on the Accumulated Fund brought forward to 2006.

Statement of Affairs as at 31 December 2005

£ £

Non-current assets

Land 40,000

Stands 20,000

Equipment 2,500
62,500

Current assets

Inventory in bar 4,496

Accounts receivable for 1,400

subscriptions

Cash at bank 524

6,420
71,920

Total assets

Current liabilities

Accounts payable 3,294

Bar expenses owing 225

Total liabilities (3,519)

Net assets 65,401

Accumulated fund (difference) 65,401

Long Lane Football Club

Bar Trading Account for the year ending 31 December, 2006

£ £

Sales

Less Cost of goods sold: 61,280

Inventory 1.1.2006 4,496

Add purchases 39,666

44,162

Less Inventory 31.12.2006 (5,558)

Gross Profit (38,604)

22,676

Less Bar expenses 345

Barman’s wages 8,624

Net profit to income and (8,969)

expenditure account 13,707

Purchases Control
£

Cash 38,620

Balances c/d 4,340

= 42,960

Balances (creditors 3,294

b/d)

Trading account ( 39,666

difference) = 42,960
 Bar Expenses
£

Cash 243

Balance c/d 336

= 570

Balances b/d 225

Trading account (difference) 345

=570

Long Lane Football Club

Income and Expenditure Account for the year ending 31 December, 2006
£ £ £

Income 16,100

Subscriptions for 2006 13,707

Donations received 800

30,607

Less Expenditure

Wages - Groundsman 19,939

and assistant

Repairs to stands 740

Ground upkeep 1,829

Secretary’s expenses 938

Transport costs 2,685

Depreciation

Stands 2,000

Equipment 500

2,500

(28,631)

1,976

Subscriptions Received
 £

Balance (accounts receivable) b/d 1,400

Income and expenditure (difference) 16,100

Balance (in advance) c/d 1,200

18,700

Cash 2005 1,400

2006 14,350

2007 1,200

Balance (accounts receivable) c/d 1,750

18,700

The Long Lane Football Club

Balance Sheet as at 31 December, 2006

£ £

Non-current assets

Land at valuation 40,000

Football stands at valuation 20,000

Less Depreciation (2,000)

18,000

Equipment at valuation 2,500

Less Depreciation (500)

Current assets 2,000

60,000

Inventory of bar supplies 5,558

Accounts receivable for 1,750

subscriptions

Cash at bank 6,210

13,518
Total assets 73,518

Current Liabilities

Accounts payable for bar 4,340

supplies

Bar expenses owing 336

Transport costs owing 265

Subscriptions received in 1,200

advance

Total liabilities (6,141)

Net assets 67,377

Accumulated fund

Balance as at 1.1.2006 65,401

Add Surplus of income over 1,976

expenditure 67,377
 Bibliography

Bragg, S. (n.d.). Job costing definition. [online] AccountingTools. Available at:

https://www.accountingtools.com/articles/job-costing.
 Tuovila, A. (2020). Cost Accounting. [online] Investopedia. Available at:
https://www.investopedia.com/terms/c/cost-accounting.asp.

Hayes, A. (2019). The Ins and Outs of Inventory Management. [online] Investopedia.
Available at: https://www.investopedia.com/terms/i/inventory-management.asp.

Team, S.C. (2015). 5 Ethical Requirements Accountants Should Keep in Mind. [online]
Accounting and Tax News & Insights Blog. Available at: https://www.surgentcpe.com/blog/5-ethical-
requirements-accountants-should-keep-in-mind.

A Plus Topper. (2021). Advantages and Disadvantages of Accounting | Merits and Demerits
of Accounting Business. [online] Available at: https://www.aplustopper.com/advantages-and-
disadvantages-of-accounting/.

www.ivanti.com. (n.d.). Shared Services Portal: 10 Key Business Benefits. [online] Available
at: https://www.ivanti.com/blog/shared-service-portal-business-benefits [Accessed 19 Feb. 2022].

Palmer, B. (2020). International Financial Reporting Standards (IFRS). [online]

Investopedia. Available at: https://www.investopedia.com/terms/i/ifrs.asp.

www.tmf-group.com. (n.d.). The pros and cons of shared service centres for finance and
accounting. [online] Available at: https://www.tmf-group.com/en/news-
insights/articles/2018/august/pros-and-cons-of-shared-service-centres/.

www.fylehq.com. (n.d.). 7 Functions Every Accounting Department Needs to Master in 2021.

[online] Available at: https://www.fylehq.com/blog/accounting-department-functions.