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Trail Balance Overview

Question 1 (13 Marks)

A. A student was overheard to say “The worksheet is a very important report. If the worksheet ‘balances’ the books are correct!” Comment on the statement (i) that the worksheet is a very important report and why, and (ii) whether it is correct to assume that the books are correct. Give 2 examples to either support or disprove this statement. (2 marks) B. As a graduate accountant you are confronted with the following task in your first job. Your boss informs you that the Trial Balance as at 31st December 2018 does not balance and asks why? You discover a number of errors and in order to correct the Trial Balance complete the table below: (11 marks)

Would the error cause the Trial Balance not to balance Which accounts would be affected and how? How would the error be corrected Effect on Trial Balance totals Yes No Debit Credit Example A payment for wages of $500 was credited to cash correctly but debited to wages twice expense. Yes Wages Expense Debit side of Wages Expense reduced by 500 -500 1. The Accrued Wages account with a balance of $500 was omitted from the Trial Balance. 2. A payment of $490 for Prepaid Rent was only posted to the Cash at Bank account and not to Prepaid Rent 3. A debit of $458 to Cash at Bank was posted as $485. The credit entry was correct. 4. A credit of $600 to Accounts Payable should have been made to Fees Revenue 5. A Dr for a cash receipt of $500 from customers in settlement of their accounts was posted twice as a DR to the Cash at Bank and a Dr to Accounts Receivable accounts 6. The Prepaid Expense balance of $7280 was listed in the Trial Balance as $7820 7. A $5210 credit to Fees Revenue was posted as a $521 credit. The debit entry to Accounts Receivable was made correctly.

8. A purchase of office equipment for $3300 on credit was not recorded. 9. A purchase of Furniture for $7500 using a loan was posted as a debit to the Loan Payable account and a debit to the Equipment account. 10. The drawings account balance was listed as a credit for $1500. ACC5202 Assignment Semester 1, 2018 Weighting 35%

Question 2 (20 marks)

A. What impact does the matching principle have on the method of accounting i.e. cash vs accrual. Describe each method and discuss. (2 marks) B. J. Jackson has calculated profit on the 30th June 2018 to be $3281001 when the following was discovered (the firm uses accrual accounting).

Expenses Recognition Methods

(i) The weekly wages bill for the firm is $21000. The last payment for wages was on Friday 26th June. The next payment will be on Friday 3rd July.

(ii) Income of $1520 for commission fees had been earned but not yet recorded.

(iii) A full year’s rent of $36000 was paid for the premises from which the firm operates on 1st February 2018.

(iv) The firm has $25000 invested. It earns interest of 6% per annum payable quarterly. Interest was last received on 1st April for the quarter (January, February, March).

(v) The firm had received funds of $12000 on 1st March 2018 for work to be completed by end of October 2018. 30% of the work has been completed by June 30th 2018.

(vi) An amount of $6000 paid for new Office Furniture had been incorrectly coded and entered as Office Expenses.

(vii) Office Supplies had a balance at the beginning of the year (after adjustments) of $800. Throughout the year $5200 in office supplies was purchased. At June 30th 2018 the value of office supplies remaining was $1500.

(viii) The firm had recorded in the GST Control account GST Collected of $7960 and GST Paid of $8540. Make the entry that would be necessary to account to the ATO.

Required: (i) Make the journal entries to adjust the accounts affected where necessary (include narrations to explain the entry and any calculations). (14 marks)

(ii) What would be the new profit figure after taking into account the above entries? (You must show calculations to get full marks). (4 marks) ACC5202 Assignment Semester 1, 2018 Weighting 35% 3 Question 3 (19 marks)

a. According to the IASB’s conceptual framework there are four qualitative characteristics that enhance the usefulness of information that is relevant and represented in reports. Name and describe each of those characteristics. (6 marks)

b. B. Bright presents you with the following partially completed worksheet. He asks you to: (

i) Complete the worksheet. (7 marks)

(ii) Prepare closing entries in a journal (Narrations not required) (6 marks)

HARDYARDS ACCOUNTING SERVICES Worksheet (partial) for period ended 30th June, 2018 Account Adjusted Trial Balance Income Statement Balance Sheet Debit Credit Debit Credit Debit Credit Cash at Bank 14900 Accounts Receivable 25825 Prepaid Expenses 2200 Office Supplies 6160 Accrued Revenue 2540 GST Paid 26000 Equipment 163000 Accumulated Depreciation 28000 Accounts Payable 6320 Loan Payable 55000 Salaries Payable 1930 GST Collected 32740 Unearned Revenue 2750 B. Bright Capital 50000 B. Bright Drawings 5000 Painting Revenue 204055 Wages Expenses 100020 Rent Expense 6550 Depreciation Expense 11000 Marketing Expense 5520 Office Supplies Expense 6180 Interest on Loan Expense 5900 380795 380795 ACC5202 Assignment Semester 1, 2018 Weighting 35% 4 Question 4 (22 Marks) A.

Conceptual Framework for Accounting

You overhear an advisor discussing offering credit to clients “With the existence of credit cards and factor businesses, it is now possible for businesses not to have to worry about offering credit and monitoring accounts receivable. Bad debts will become a thing of the past and there will be no need to an allowance for bad debts account”. Discuss: a. Will the way credit is offered change and what additional costs and processes or controls will/should occur? b. Will firms no longer have to monitor accounts receivable and what does factoring mean? c. What could be the impact of not allowing for bad and doubtful debts on the profits recorded by the firm? (5 marks) B. The following balances appeared in the ledger of Homewares Company Ltd for the year to date on 31st May, 2018.

The transactions for June were:

(i) A review of accounts receivable revealed that accounts for debtors amounting to $11510 are to be written off.

(ii) Sales $99550 (inclusive of GST) 80% on credit.

(iii) Cash collected from customers $121600 (iv) $1870 (not included in

(iii)) was received from a debtor whose debt of $1870 had been previously written off.

(v) Investigation of a credit balance in a debtor’s account showed that a credit sale of $2200 for goods had not been recorded.

(vi) At the end of June a decision was made to increase balance of allowance for Doubtful Debts to $19000.

Required: (i) Make journal entries for the transactions for June. Include entries for GST where appropriate. (8 marks)

(ii) Set up ledger accounts for Account Receivable, Allowance for Doubtful Debts, Cash at Bank and Sales to record the balances at beginning. Create extra accounts as necessary (either T or three column) and post the entries from (i) – (vi) above. (6 marks)

(iii) Illustrate in an extract from a classified Income Statement and Balance sheet how the relevant accounts and their balances would appear at 30th June, 2018. (2 marks)

(iv) Discuss two methods that the firm might use to calculate allowance for bad debts. (1 mark) Accounts Receivable Dr 265,400 Allowance for Doubtful Debts Cr 15,565 Sales to date for year (80% of total on credit) Cr 878,490 Cash at Bank Balance Dr 106,000 ACC5202 Assignment Semester 1, 2018 Weighting 35% 5 Question 5 (22 Marks) A.

Hectic Ltd acquires a new piece of machinery for the following amounts: Initial price paid to the supplier $65000 Cost to deliver the machine to the site $3500 Amount to paint the company name on the machine $2500 Amount paid to an engineer to fit the machine ready for work $14500 Repairs to the factory door damaged when bringing in the machine $5000 Repairs made to replace bolts which had dislodged during transit $1500 The machine was estimated to have a useful life of 10 years or 100,000 hours and a residual value at the end of its useful life of $7000.

Assets Revaluation

Required: (i) Calculate the value of the machine for depreciation purposes (ignore GST). Explain your reasons for including or excluding certain items in the calculation;

(ii) Choose a method of depreciation given the information above and taking into consideration the impact of each available method on yearly profits;

(iii) Discuss when and why you might consider revaluing this asset. (8 Marks)

B. Hectic Ltd also runs a small fleet of delivery trucks. Each one is depreciated on the reducing balance method (rate 25%). Truck 2 was purchased on the 1st July 2014 for $108000 (GST excluded) financed by a loan payable. Residual value was estimated at $12000 and useful life 8 years. On 30th June, 2016 repairs costing $7000 (GST excluded) were made to Truck 2 after an accident. It was sold on 31st March, 2018 for $44000 (GST included). On 1st March, 2018 Truck 3 was purchased at a cost of $143000 (including GST). The company paid $30000 in cash and took a Loan Payable for the balance. The truck will have a useful life of 10 years and a residual value of $13000. It is to be depreciated using straight line method. The company’s financial year ends on 30th June each year.

(i) Make journal entries to record the transactions above for Trucks 2 and 3 to 30th June, 2018. (Hint: Use a table to show depreciation calculations). (10 marks)

(ii) If the accountants at Hectic decide to change to the straight line method of depreciation for Truck 2 what would be the depreciation charges at years ended 2015 to 2018 when disposal took place. (Hint: Use a table to show depreciation calculations). (2 marks)

(iii) If revenue was $212,000 for 30th June, 2017, calculate the difference of the two depreciation methods on the company’s Profits for 2017. Ignore tax effects. (2 marks) (Total: 14 marks) Question 6 (24 Marks) ACC5202 Assignment Semester 1, 2018 Weighting 35% 6 A. Amex limited is deciding whether it will use the periodic or perpetual method of accounting for inventory. The firm uses FIFO and has 100 units of inventory worth $48 each on hand at the start of the period.

The following information is provided: 1. Purchased 32 units of inventory at $55 each on credit from suppliers. 2. Returned 2 of those units of inventory to suppliers. 3. Sold 58 units on credit to customers for $180 each. 4. A customer returned 2 units that had arrived damaged. They were destroyed. 5. A stocktake revealed 70 units on hand at the end of the period.

Required: (i) Prepare relevant journal entries for both the perpetual and periodic inventory methods. (Note: you might like to use a Table as below). Ignore GST implications. (10 marks)

(ii) Prepare income statements for each inventory method. (4 marks)

(iii) Which method is preferable and why? (1 mark)

(iv) What do the lower of cost and net realisable value mean in relation to inventory? (1 mark)

B. Examine the most recent financial reports for Rebel on their website  and answer the following questions:

(i) Identify the approach or method is adopted for each of the items below and how this was reported:.

(a) Revenue recognition

(b) Inventory valuation

(c) Depreciation of non-current assets

(ii) What statement (if any) does the company make about

(i) ethical practice and

(ii) sustainability? (8 Marks)

Trail Balance Overview

A trail balance is an accounting report that lists the balances of general ledger account of reporting entity. The amounts attributable to debit balances are listed in the column with heading debit and the amounts attributable to credit balances are listed under the column within heading credit balances. In other words, it makes use of closing balances of different ledger accounts having credit and debit balances. There arise errors in the statements if the debt balances are not equal to credit balances. Verifying the mathematic accuracy is the main objective of trail balances as the transactions are recorded in the ledger accounts (Hoyle et al. 2015). However, if the debit and credit balances are tallying, then this is indicative of the fact that there no errors in calculation. It does not indicate that the books of accounts are free from material errors. For example, whether the trail balance will tally or not is not identified by errors in the omission of any entry into the account.

Requirement B Question 2

Requirement A

            It is required to record all the expenses in the same period in which such expenses are recorded according to the matching concept of accounting. Cash system of Recognizing and Accrual system of recognizing are the two methods used for recording the expense as per marching concept. Expenses under the accrual system are recognized in year when such expenses have been incurred irrespective of whether the cash is paid for such transactions or not. This particular method does not depend on the matter whether the cash is paid or not. On other hand, under the cash basis of accounting for expenses, expense are recorded when cash is actually paid regardless of the fact that they have been incurred (Chen et al. 2017).

Requirement B

Part (i)

 Requirement A

            Conceptual framework is a system that is used for reporting items of accounting in preparing annual report of organization along with complying with the established regulations and rules.  Some of the financial statements qualitative features are listed below:

  • Verifiability- It is suggested by this principle that presented financial information in the report should be verified easily. Fair presentation of financial information helps in ensuring the fact that the presented information is verifiable.
  • Comparability- Financial information in the financial report should be presented in a way that it helps in facilitating the comparison between different reporting periods (Cooper et al. 2016). This helps in ascertaining the trend of growth and performance.
  • Understandability- Disclosures of financial information should be presented with appropriate notes and elaborations so that the presented information is easily understandable (Scott 2015).

Requirement B

Part (i)

 Question 4

Requirement A

  • Risks related to the normal credit facilities will be certainly reduced by credit cards usage. Such card facilities will make effective employment of e commerce platform by organization. The facility of different pin codes acts as safety guard for customers or individuals.
  • The credit sales of company are associated with accounts receivables and the introduction of credit cards will not impact the monitoring and recording of accounts receivables. One of the effective management strategies is to keep a track of accounts receivables as this helps to generate sales.

Requirement B

Part (i)The allowance of bad debts is estimated by using two methods that are listed below:

            Percentage of receivable method- The required allowable size for uncollectible accounts is estimated using this method and in this case, expenses are incurred in terms of percentage. This method is used for allowance of doubtful debtors and in the event of any contra entry related to the account (Lara et al. 2016).

Expenses Recognition Methods

            Percentage of sales method- The amounts attributable from credit sales of period that are not collectible is computed from using this method. This method computes the existing balance in adjustment and the yearend balance are not accounted for (Weygandt et al. 2014).

Question 5

Requirement A

Part (i)The initial machinery cost is considered for computing depreciation value and the amount of $ 65000. Other cost that is considered is the cost of machines that is shown at $ 3500. Total depreciable value of machinery comes to $ 84500. The expenses that are incurred due to machinery entering the damaged floor and the amount of painting on machinery do not form the part of cost of machinery.

Part (ii)

            Diminishing value method and straight line method are the two methods that are used for computation of depreciation. A fixed amount is charged as depreciation under straight line method and depreciation is charged as assets value under diminishing method. Under the diminishing method, the amount that is charged as depreciation keeps on changing. The deduction in net profit will be done by the amount of depreciation under the straight line method. Under later method, the amount of depreciation charged goes on diminishing and the profits reported under this particular method will exceed profits under straight line method.

Part (iii)

            Assets revaluation is performed when the historical value of assets is less than the market value of assets. Depending upon the type of revaluation, the value of assets can be depreciated or appreciated. It is likely that market value will be more than historical cost of assets because the market value of assets is always fluctuating. Hence, it is up to the discretion of management to revalue the assets or to value the assets at historical costs and the same is done at revalued costs.Part (iii)

            Measuring the inventory is done by the method of perpetual system as profits are substantially more under this method as against periodic inventory system. There are several advantage of this system such as updating of records of inventory.

Part (iv)

            In valuation of inventory, the principle that is followed is net realizable value or lower cost. Valuation of inventory should be done at lower of cost or net realizable value.

Requirement B

Part (i)

  • Recognition of revenue is done at fair value depending upon the accrual base of accounting.
  • Computation of depreciation is done using straight line method as disclosed in the notes to financial statements.
  • Recognition of inventory is done at lower of net realizable value or lower of cost.

Part (ii)

            Sustainability report is prepared by company and it has won many rewards that are profitable to business. Company intends to make its global supply chain efficient by ensuing that products are sources in an ethical and environmentally responsible manner. 


Brown, R. ed., 2014. A history of accounting and accountants. Routledge.

Chen, W., Shroff, P.K. and Zhang, I., 2017. Fair value accounting: Consequences of booking market-driven goodwill impairment.

Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

Cooper, D.J., Ezzamel, M. and Qu, S.Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-1025.

Givoly, D., Hayn, C. and Katz, S., 2017. The changing relevance of accounting information to debt holders over time. Review of Accounting Studies, 22(1), pp.64-108.

Gray, R., Adams, C. and Owen, D., 2014. Accountability, social responsibility and sustainability: accounting for society and the environment. Pearson Higher Ed.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.

Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.

Lara, J.M.G., Osma, B.G. and Penalva, F., 2016. Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), pp.221-238.

Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.

Williams, J., 2014. Financial accounting. McGraw-Hill Higher E

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