1. Explain the sales ledger, purchase ledger and nominal ledger.
2. Explain the double-entry bookkeeping system of recording transactions.
3. Design a simple accounting system using accounting codes.
4. Extract a trial balance and prepare financial statements from source documents
Answer:
Introduction:
The report is prepared for analyzing the financial statements of HSC Trading Group Limited such as periodic trail balance, profit and loss statement and balance sheet. The periodic trail balance is the statement that provides detail of account balances in the general ledger and deals with the verification of total of debit and credit columns at the end of reporting period. Profit and loss statement is the financial report providing summary of expenses, revenue and losses attributable to company for any particular period. Balance sheet is the statement of financial position that discloses liabilities and assets of company (Maaloul and Zéghal 2015).
Discussion:
Set-Up and Recording Transaction in Sage 50:
Creating New Company File in Sage 50:
Customer Set Up:
Vendor Set Up:
Inventory Set Up:
Payroll Set Up:
Credit Sales Invoice Posting:
Credit Purchase Invoice Posting:
Analysis of Financial Statements:
The details of account balances such as land, vehicle, property, payable, creditors, administrative and staff salaries are provided in the trail balance. It can be seen that the total of all debit balances are equal to total of credit balances. Here, the total debit balance for HSC training group stood at $ 6018566.80 that is equivalent to $ 6018566.80. When the total of debit balance is not equal to credit balance, then this depict an occurrence of error. Suppose, if the account of staff salaries was mistakenly entered as $ 17000 instead of $ 18000. This would cause difference between total of debit and credit amount.
Now, looking at the statement of profit and loss, it can be seen that there are three charts of accounts comprising of sales, purchase, direct expenses and overhead account. HSC Trading group has segregated the accounts of balances in the profit and loss statement as direct expenses, sales and purchase account. Sales account includes export sales, product sales and sales of assets that totaled to $ 527270. Purchase account includes purchase, stock and purchase charges and this totaled to amount of $ 157764.30. Overhead account comprises of gross wages and heat, light and power and the total amount of all such accounts stood at $ 66000. It can be seen that the company is generating net profit of $ 303505.70 for the year ending 31st March, 2018. The main account mentioned in the profit and loss statement is that of the sales, purchase and expenses account that have been taken into consideration by HSC Trading group.
Balance sheet of an organization is divided into two parts that is assets and liabilities. Assets accounts are further subdivided into current assets and fixed assets. Liabilities are subdivided into two sections of short term liabilities and long term liabilities. Fixed assets of HSC trading includes property, plant and equipment, motor vehicle and office equipment and current assets on other hand include stock, bank account and debtors (James et al. 2015). It can be seen that value of fixed assets is more than that of current assets by amount $ 3069150.36. Current liabilities on other hand comprise of VAT liability and short term creditor at the amount of 71351.14 and 34348.80. The long term liabilities on other hand comprise of only long term creditors and the amount stood at $ 900000. Reserves and capital account comprises of P and L and reserves account. The amount of reserves stood at $ 397644.0 and the amount of profit and loss stood at $ 303505.70 respectively. The data in the balance sheet is presented in the tabular form where there is a column of current assets less current liabilities and total assets less current liabilities. The difference between current assets and current liabilities represents the working capital of amount $ 1213149.70 (Graham 2015). Therefore, balance sheet helps in presenting the need of working capital of HSC trading group.
Conclusion:
From the analysis of the financial statements of HSC trading group, it can be seen that the working capital of organization is positive and is large enough to cover the requirement of working capital. The long term liabilities of company are higher than short term liabilities indicating that the dependence of company on outside funds is comparatively higher. Analysis of all the account balances of company has been done by forming the different financial statements. Moreover, such financial statements also facilitate comparative analysis over a period of time. The account of balances of customers and suppliers are constructed through forming separate accounts and posting the ledger into different financial statements.
References list:
Brigham, E.F., Ehrhardt, M.C., Nason, R.R. and Gessaroli, J., 2016. Financial Managment: Theory And Practice, Canadian Edition. Nelson Education.
Bruce-Twum, E. and Mensah, C.C., 2015. Financial Statement Analysis.
Entwistle, G., 2015. Reflections on teaching financial statement analysis. Accounting Education, 24(6), pp.555-558.
Graham, R.E., 2015. Financial Statement Analysis and Investment Management Services for College Students.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
James, W.M., Stephen, B.P. and Mark, B.T., 2014. Financial Reporting, Financial Statement analysis, and Valuation-A Strategic Perspective, 8. Edition, Cengage Learning.
Maaloul, A. and Zéghal, D., 2015. Financial statement informativeness and intellectual capital disclosure: An empirical analysis. Journal of Financial Reporting and Accounting, 13(1), pp.66-90.
Pappa, A., 2015. Financial statement analysis of a multinational company and equity valuation of computer-based technology group.
