Commonly Asked Accounting Essay: Questions And Answers.

Why is it necessary to maintain a fixed asset register (FAR) and what does it enable you to do? Discuss in 100 to 120 words.

Prepare the calculation using the prime cost method to determine the deduction in value on a depreciating asset purchased 55 days into the financial year for $150,000 and an economic life of three years.

Describe how a depreciation schedule assists an organisation to maximise its taxation deductions. Discuss in 80 to 100 words.

What are non-current and fixed assets? Discuss in 50 to 80 words.

What are adjusting entries and for what purpose are they used? Discuss in 80 to 100 words.

What action do we take when we decide that a debt is a bad debt and why? Discuss in 80 to 100 words.

In what journal would you record writing off a bad debt? Discuss in 30 to 50 words.

In which column (in the trial balance) would the bad debt be written? Discuss in 30 to 50 words.

Why do you need to determine the Cost of Goods Sold before you can begin recording the next year’s transactions? Discuss in 50 to 80 words.

What is the general ledger and why do you process balance day transactions?

Explain what a general journal is and describe the process of entering a correcting entry.

List at least four of the discrepancies you might find when completing a bank reconciliation.

While you have been preparing a bank reconciliation you have come across several inconsistencies that have all arisen in accounts controlled by one of your managers. It is not fraudulent but charges have been wrongly allocated and as a result it distorts the true picture. What would you do in this situation? Discuss in 50 to 80 words.

List below the key provisions of legislation, regulations, standards and codes of practice that may apply to preparation of financial reports.

Briefly describe below what an organisational accounting systems is.

Briefly explain double -entry bookkeeping principles.

Why is it necessary to maintain a fixed asset register and what does it enable you to do?

Asset Register for a Photocopier Machine worth $ 23000, Transport and Council (2015.Pg 7)

Asset Name: Photocopier Machine

Asset Class: Office Fixed Asset

Asset No: OF/PH/1-16/10

Description: Cream-White, Size SP 3510 SF, 28 ppm

Physical Location: George Street, Melbourne VIC 3000, Adel Building RM 12

Serial No: 00002105

Acquisition Date: 1^St September 2014

Acquisition Cost: $23,000

Depreciation Method: Straight Line Method

Usage Life: 10 Year

Salvage Value: 0

Previous Depreciation: $2300

First Year %: 10%

Depreciation This Period: $2,300

Net Book Value As At 1^St September: $13,800

NB ;( a) % First Year=2300/23000*100=10%

       (b) The acquisition date that creates the 4years period is based on assumption have just  

              Assumed the photo copier has been in operation for 4years

A fixed asset register is a documental analysis that is used to account and track movement and valuation of fixed assets in a company department. This register is mainly kept and checked regularly within the period in which they are in use to be able to account for insurance claims in case of risks for supporting evidence purposes. It is likewise used to assist in planning for maintenance, servicing and repair to know when to replace or dispose of the fixed asset. For accounting purposes, the register is used to help in bookkeeping by giving the net book value of an asset after accounting for depreciation of that asset that is used to provide the financial position of the company.

Prime Cost Method is another name for a straight line method that assumes that a value of an asset decreases at a constant definite rate,

The cost of the asset is= $ 150,000.

Economic Useful Life= 3years

No = 55days in use, Constant decrease value in a year=150000/3=$50000

But the asset has been in operation for only 55/365=0.151

Hence the depreciation value using prime cost=55*50000/365=$ 7434

Ideally, a depreciation schedule is used to calculate a loss in value of an asset. This loss in value of an asset according to Australian Tax Office is classified as an income tax deduction that enables a taxpayer to recover a similar value in cost resulting from the value of the asset. Mostly this depreciation is used to reduce the tax burden by reducing the amount of profit that is to be taxed. This is done by factoring this depreciation as an expense in the profit and loss account hence minimizing the amount that is to be subjected to tax. Thus depreciation, in a nutshell, is deemed to be an allowable tax deduction that minimizes tax burden.

Prepare the calculation using the prime cost method to determine the deduction in value on a depreciating asset purchased 55 days into the financial year for $150,000 and an economic life of three years.

According to AASB 5 and AASB 1041, non-current assets are long-term assets of a firm that are mostly seen not be realized wholesomely in value within a financial year. These are assets whose costs are mostly allocated to the useful life of the asset contrary to what happens in current assets whose prices are allocated within that accounting year. Non-current assets are seen to appear as the debit balance in a trial balance as well as in the balance sheet. They are likewise seen to depreciate, amortize or deplete over the period in which it exists. Examples of these assets include investments, property plant, and equipment, machinery, land, and building among others. Non-current asset appears in many ways among them fixed asset hence fixed asset is just part of the non-current asset that mostly relates to property plant and equipment.

Adjusting entries in accounting relates to journal adjustments that are passed to recognize and realize revenue and expenditure that took place within an accounting period but have not been correctly captured in your books of accounts. It is done for the sole main purpose of correcting mistakes and errors to balance off debit and credit balances for accuracy purposes to be able to generate accurate and appropriate reports Dichev, Graham, Harvey and Rajgopal(2016.Pg.31.)Adjusting entries are mostly categorized as accruals, prepayments, estimates, and deferrals.

Businesses that deal with credit sales are most likely to experience bad debt. However such risks are at some point inevitable to control hence the need to allow and create the provision for these bad debts by ensuring that an expense account is created. These companies making credit sales are expected to have estimates percentage of credit sales that are likely to be defaulted calculated, and the similar provision of doubtful debt is allowed to curb sales credit loss.

The direct writing off of bad debt is accounted for in two accounts, i.e., bad debt account and account receivable account whereby it reduces the account receivable through the below entry;

                                                                     DR                                        CR

Bad Debt                                                      XXX

Account Receivables                                                                                  XXX

Similarly to the above entry, bad debt is termed as a loss hence an expense in the profit and loss account an aspect that makes it take a debit balance in the trial balance as an expense.

Cost of goods sold is the effect of what was incurred regarding cost to generate revenue. Calculation of Cost of Goods Sold ideally entails opening stock, purchases and closing stock, hence as we begin next years’ transaction there exist the need to know what stock we closed to guide us on what to control to improve our margins Sawyer (2015.Pg.110.) COGS have to be calculated before the beginning of a year to provide the position of making business in a firm by cost.

Describe how a depreciation schedule assists an organisation to maximise its taxation deductions.

General Ledger is the primary or master account whose balances results from journal entries of different minor ledgers Fay and Negangard (2017.Pg.40.) General ledger balances are done on a day to day basis since they are the pillar and master of the reporting done of trial balance, profit or loss account as well as balance sheet. This ledger is extraordinary since it is forming the final entries that are used in reporting for monthly as well as yearly hence the need to be updated on a daily basis and are mostly linked to journal entries that are passed regularly when transactions take place.

General Journal is a master or main journal with columns indicating the period, account title, debit and credit columns as well as narration that records transactions and entries taken place. A correcting journal entry is recorded by first identifying the error and then deciding which two double entry accounts are affected with one carrying a debit course and the other one a credit course.

The following are possible bank reconciliation discrepancy; Law, J (2018.Pg.5)

1. Un-cleared and Dishonored Cheques.
2. Items were appearing in the bank statement and not in the cashbook like bank charges and standing orders.
3. Un-presented cheques.
4. Wrong cashbook balances

When reconciling cash book against the bank statement there exist items that are accounted for by the bank but in the cash book no similar effect has been honored hence the need to make adjustment by deducting the bank charges, standing orders as well as any direct deductions that have been effected in the bank, similar to this the need to adjust the costs through reductions in the cash book will be achieved.

Financial reporting is done based on guidelines stipulated in;

Australian Accounting Standards (AASB), IAS, ISA, GAAPS, IFRS that ensures that all structured procedures of items relating to accounting are followed and adhered to. Likewise the Australian Tax Office Law and Company Act are of course the body and regulator of ensuring there is smooth conduct of business without infringing or bending the set standards that governs accounting and finance, ethics code of conduct the likes of honesty, due diligence, transparency and self-reliance are indeed interpersonal traits and skills that ensures that parties involved are responsible and due diligent as the environment involved for transaction is made conducive, safe and friendly.

Organization accounting system is a modified IT accounting software or paperwork of bookkeeping that is used to maintain, trail, track and fix revenue and expenses for reporting purposes. This system is configured in a way that it has modules functions that with part of financial reporting items like receivable, payables, ledgers with linked journals and others like trial balance that are integrated as one accounting information system that of course generate financial reports the likes of profit or loss account, comprehensive income statement, balance sheet and statement of changes in equity.

The sole elementary and vital principle of double entry is that every transaction has a corresponding opposite entry hence every transaction has two entries i.e. a debit or credit balance at the different scenario as reference by Laitinen (2018.Pg.51.) Each entry of course has different implication or outcome on items of financial statements whereby the debit transactions affects profit or loss account by decreasing revenue and of course increasing expenses while credit transaction affects profit or loss account by minimizing expense and increasing revenue. Dr and Cr likewise affects both asset and liability through a debit transaction that increase asset and reduces liabilities while credit transaction reduces asset and increase liabilities.

References

Dichev, I., Graham, J., Harvey, C.R. and Rajgopal, S., 2016. The misrepresentation of earnings. Financial Analysts Journal, 72(1), pp.22-35.

Fay, R. and Negangard, E.M., 2017. Manual journal entry testing: Data analytics and the risk of fraud. Journal of Accounting Education, 38, pp.37-49.

Laitinen, E.K., 2018. Entry-based financial statement analysis for small firms. International Journal of Management and Enterprise Development, 17(1), pp.36-52

Law, J., 2018. A Dictionary of Finance and Banking. Oxford University Press

Sawyer, T.Y., 2015. Cost of Goods Sold and Inventory Model: Plot Your Costs and Margins. In Financial Modeling for Business Owners and Entrepreneurs (pp. 105-126). Apress, Berkeley, CA.

Transport, C.O.A.G. and Council, I., 2015. Asset registers and heavy vehicle infrastructure ratings, accessed 7 March 2016.