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A Complete Guide to Solving an Accounting Question

UserMark time16 January,2015

Accounting or accountancy is the measurement, processing and communication of financial information about economic entities i.e. any business organization or a person. Accounting can be divided into several subfields:

solve accounting questions online
  • Financial Accounting: Financial accounting concerns the summary, assessment and analysis of financial transactions pertaining to a business or an individual.
  • Management Accounting: Management accounting is the measurement, analysis and reporting of the financial information of a company which is meant for the internal use of the company. It helps the company to make decisions pertaining to the financial goals of the company.
  • Auditing: Auditing is the external and unbiased examination and evaluation about the financial statements of a company or an organization.
  • Tax accounting: Tax accounting is the preparation, analysis and presentation of financial information of a company or an individual for tax purposes.

An accounting question may come on any four broad areas discussed above. We shall discuss each of these four fields shortly and deal with a question specific to each.

Financial Accounting Questions

Three major accounting problems that you might encounter in financial accounting are

  1. How to create an income statement
  2. How to create a statement of owners equity and
  3. How to create a balance sheet.

How to create an Income Statement?

Suppose the accounting problem given to you is the following:

Joe’s Burger is a small burger joint in downtown Sydney. On the month of October 31st 2014, Joe had the following balances:

Income $ 30,000

Staff expenses $ 10.000

Utilities expenses $ 5,000

Transportation expenses $ 2,000

Advertising expenses $3,000

Create an income statement for Joe for the month ending on 31st October 2014.

In order to create an income statement you need to remember that

Step 1: Remember that

Net Income = Revenue – Expenses

Step 2: Now simply put the financial information in a tabular form under the above heads and generate your income statement.

Name: Joe’s Burger

Type of statement: Income Statement

Period: month ending October 31st 2014

Revenue Expenses

Income $ 30,000                               Staff Expenses $ 10,000

                                                          Utilities Expenses $ 5000

                                                          Transportation Expenses $ 3000

                                                          Advertising Expenses $ 2000

Net income: $ 30,000 – $ 20,000 = $ 10,000. Next we move on to owner’s equity statement

How to create an owner’s equity statement?

Joe has the following balances for the month ending on 31stOctober, 2014

Joe’s capital on October 1st: 2014: $ 20, 000

Joe’s net income: $ 10,000

Joe’s drawing: $ 2500

Create a statement of owner’s equity of Joe for the month ending on October 31st 2014.

Step 1: Remember the formula

Ending Balance = Beginning balance + Net income –drawing

Step 2: Now put your financial information in order to create a statement of owner’s equity.

Beginning Balance Less

Joe’s capital $ 20,000                                                     Joe’s Drawing $ 2500

Net Income $ 10,000

Joe’s ending balance = $ 30,000- $ 2500 = $ 27,500

How to create a balance sheet?

Joe has the following balances for the moth ending on October 31st 2014.

Cash $ 2500

Accounts payable $ 20,000

Accounts receivable $ 10,000

Restaurant, furniture and fixtures $ 30,000

Vehicle $ 5000

Joe’s ending balance $ 27,500

Step 1: Remember, the formula

Assets= Liabilities + Owner’s Equity

Step 2: Assets should balance liabilities and owner’s equity

Step 3: Use the financial information to create a balance sheet

Balance Sheet of Joe’s Burger for the month ending on October 31st 2014.

Assets

Liabilities

Owner’s Equity

Net Income:

Accounts receivable $ 10,000

Net Expense :

Accounts payable $ 20,000

Joe’s capital

Joe’s ending balance $ 27,500

Restaurant, furniture and fixtures $ 30,000

Vehicle  $ 5000

Cash  $ 2500

Total Assets  $ 47,000

 

Total Liabilities $ 20,000

Owner’s Equity  $ 27,500

Total Assets $ 47,000

Total liabilities + Owner’s Equity $ 47,000

Therefore, we can see that total amount of assets is equal to the total liabilities + Owner’s equity. Remember that in order to create a balance sheet, it is important to create an income statement first, followed by a statement of owner’s equity and finally a balance sheet.

Management Accounting Questions

Managerial or Management accounting consists of three broad areas. They are:

 Managerial Accounting

Managerial accounting is too broad an area to be discussed extensively. Here we shall restrict to a simple cost accounting problem called a job order costing problem.

Job costing or job costing is a system of assigning manufacturing costs to an individual product or batches of products. Generally, the job order costing is used only when products manufactured are sufficiently different from each other. A typical job order problem will ask the students to create a job cost record for a particular product. The job cost record will take into account the cost of the material, the cost of labor and the overhead cost to find out the job cost record of the product.

How to solve a job order costing problem?

Any job order cost of a product involves:

Cost of the product = Cost of materials + cost of labour + overhead cost

Cost of materials is the total cost of the materials involved in manufacturing cost.  Cost of the labour consists of the total wages of the labourers who prepared the product. Finally, overhead cost will consist of utilities cost, establishment cost (property tax etc.), indirect labour cost and indirect material cost etc. The first to costs will be given to you or at least can be found out easily. The third one is difficult to find out. Let us now solve a simple job costing problem.

Joe’s burger follows a job order costing system for determining the prices of the burgers. The total cost of materials per unit of product i.e. burger is $0.25 per burger. The total cost of labour per unit of product is $ 0.50 per burger (this is determined by the first finding out the total wages paid per hour and what percentage of that hour has gone into making a burger. So if the total wage paid is $ 10 an hour and it takes three minutes to prepare a burger, then for 3 minutes of 60 minutes spent or 5 % of an hour spent the burger involves a direct labor cost of 5% of $10 or $ 0.50). Further total estimated labour hours spent yearly is 15,000 hours.The total cost of utilities is $ 10,000 dollars yearly. The total establishment cost is $ 14,000 yearly. The total indirect labour cost is $ 15,000 yearly and the total cost of indirect materials is $ 1000. Find out the net cost of per burger?

Here is how, we solve the job costing problem.

Total Direct materials cost = $ 0.25

Total Direct labour cost = $ 0. 50

Since it is impossible to determine the Manufacturing Overhead cost per burger, we use something called the total estimated manufacturing overhead cost for the year. Here it is $ 30,000 per year ($ 10,000 + $ 14,000 + $ 15,000 + $ 1000).  Here the total manufacturing overhead cost (MOH) = $ 30,000 yearly. In order to find MOH per burger, we have to find a base. A base is the driver that drives the MOH. The driver may be the labour cost (if it is a labour intensive job) or the material cost (if the materials used are expensive). Let us assume that the base here is the total labour hours spent, since it is given to us. We can then derive a formula for determining the MOH on each burger. This is called, Predetermined MOH Rate.

Predetermined MOH Rate = Total estimated MOH

Total estimated base

If the total estimated MOH is $ 30,000 and total labour hours spent is 15,000 then, the predetermined MOH Rate = 30,000/ 15,000 or $ 2 per labour hour.

This must be added to the job cost of per burger. We have already said that a burger takes 3 minutes to prepare or 5% of an hour. So 5% of 2 dollars will be $ 0.10.

So the job cost of the burger will be $ .25 + $ .50 + $.10 or $0.85

Auditing Questions

Auditing is an independent examination of a company’s financial statements, according to auditing standards set by the national governments or international laws. Financial audits are conducted by professional accountants. Auditing may be either internal or external. Internal auditors are hired by the company which is being audited. Internal auditors usually do not attach financial reports to their examination while external auditors often do not conform to the standards followed by the internal auditors. Internationally, the International Standards on Auditing (ISA) is considered the benchmark of the auditing process.

If are trying to have a career in auditing, here is a description of the stages of an audit that you should follow:

Step 1: Understand your client well. Understand the company, its external position in the market and the risks involved in the auditing process. Before beginning, develop an overall auditing strategy and plan you are going to follow.

Step 2: Conduct a test of control and a substantive test of transactions. In a test of control, the auditor is required to examine the effectiveness of the internal transactions of the company. Substantive test of transactions requires the examination of the company’s recording of transactions by verifying the monetary amounts of the transactions.

Step 3: is to conduct tests of details of balance sheets. As an auditor, you are required to select a sample of items from the account balances of the company and finding hard evidences such as invoices and bank statements for those items

Step 4: Issue an audit report. As an auditor, once you have completed the examinations of all the balance sheets and financial statements of the company, you are required to reach a conclusion as to whether the statements recorded by the company are fair and transparent or not. The Auditor must issue an audit report to accompany the client’s financial statements.

These are the few points you should remember while conducting a typical audit.

Tax Accounting Questions

The part of accounting that deals with all issues relating to filing of current taxes and future tax planning is called tax accounting. In this final section we will show you how to calculate income tax for an individual for a particular financial year, say 2011.

How to solve a tax accounting problem:

In order solve to calculate the taxable income of an individual or a company; you need to be thoroughly updated with the taxation laws of the current financial year with which you are dealing. Any, current edition of a good tax accounting text book can help you with this. Next you have to find out for whom the taxation is being done. Company’s taxes or commercial taxes will follow a separate set of tax system than individual taxes. Services taxes will have to be added where ever a service has been exchanged. In order to find out the taxable income of an individual follow these simple steps:

Step 1: Locate the financial year within which the taxation is being done. This will give you the appropriate tax structure to follow.

Step 2: Find out whether the taxable person is single or married, since different countries have different rules regarding whether a married person can file income taxes separately or along with his/her spouse.

Step 3: Locate the tax bracket within which the taxable income can be situated. Then find out the various taxable chunks within which the person can be taxed. Then calculate the taxes. Here is an example.

Suppose we have a person earning 300,000 dollars a year and we have the following tax brackets:

Taxable income ($)

Tax bracket (%)

0 – 8500

10

8500- 34,500

15

34,500- 83,600

15

83,600- 174,400

28

174,400- 379,150

33

The 300,000 dollars will be taxed in different rates for different chunks of money the person is making. In the above tax structure, $ 300,000 dollars will fall under all the five tax brackets.

So divide your money into different chunks of taxable incomes. For 300,000 dollar income, the various taxable chunks will be:

  1.  $ 8500
  2. $ 26,000 (34,500-8500)
  3. $ 49,100 (83,600- 34,500)
  4. $ 90,800 (174,400- 83,600)
  5. $ 125,600 (300,00-174,400)

Now in order to calculate the various tax slabs within which your taxable income can fall just multiply the taxable income with the percentage of taxes of that income bracket.

So,

8500 x .1 = $ 850

26,000 x .15 = $ 3900

49,100 x .25 = $ 12, 275

90,800 x .28 = $ 25,424

125,600 x .33 = $ 41,448

Total taxable income = $ 83,897

But this is the base rate. The taxable person will enjoy several deductions based on the tax laws of the country. So if the person has children or is paying interests on something or has governmental bonds and securities, deductions will take place. This will have to be calculated according to the appropriate tax laws. This is a basic example of how income tax can be calculated.

How MyAssignmenthelp.com can help students to solve accounting assignments?

The above blog article gives a sneak peek of the major accounting problems you are likely to encounter in your syllabus. It is surely impossible to deal with all the accounting issues in a detailed manner within the limited scope of this paper. Our accounting experts will help you to guide you through your taxation law assignment. Even if you do not need accounting assignment help, you can still browse through our accounting assignment samples. So, log on to our website and get accounting assignment writing help or free assignment quotes.

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