Final Project Summary Report Financial Statement Analysis
ACC 232 - Financial Accounting 1
Arizona State University
Introduction
After completing the financial statements for the company they were able to provide us
with an overview of the financial health and performance of the company.
As we look at the Income Statement, we can see that the business is profitable because it is
bringing in more money than it is spending. The Balance Sheet shows us that $20,474.17 of
the company's $145,884.17 in assets was funded by the owner and that most of the
company's resources are financed by debt incurrence. This suggests that cash outflows are
expected in the coming periods as the company pays off its debts. The Statement of
Owner's Equity shows that owner contributions account for a significant portion of the
company's equity and that distributions of $500 to the owner are relatively small. Finally,
the Financial Statements as a whole show that the business is profitable, does not require
significant distributions to owners and could pay its debts as they become due. (MindTap -
Cengage Learning, n.d.).
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
To produce Financial Statements that are useful and reliable, the process used in their
preparation must adhere to all IFRS requirements. A good system of controls in the
implementation of the accounting process indicates good means of producing quality
Financial Statements.
Part of the accounting process involves analyzing and recording the transactions, this is the
first step in the accounting process. Only transactions that can satisfy the recognition
criteria of asset, liability, equity, income, and expense must be recorded. The second step is
journalizing. This is done by always using the double entry system in which the debited and
credited amounts recorded must match. The last step in this process is posting to the
general ledger, which is when the joumal entry for an account is posted to its ledger account
during the classifying phase, which is when an account's running balance, including all of its
debits and credits, are visible (MindTap - Cengage Learning, n.d.).
Financial Statements meet the informational needs of the user by giving them a quantitative
way of evaluating the financial standing of the company. The Income Statement gives the
user an idea of the company's profitability. Users need information that will help them
decide on decisions such as investing and lending. The Balance Sheet gives the user an idea
of the company's liquidity and solvency. Statement of Owner's Equity gives the user an idea
as to the company's distribution to owners. Statement of Cash Flows gives the user an idea
as to the company's cash standing (MindTap - Cengage Learning, n.d.).
Process
Every business-related transaction that involves the company must be properly recorded, so
the first main step is to identify the transactions. These regular business transactions
happen when something is purchased from a supplier or sold to a customer (Bookkeeping,
2023).
Journal entries must be entered in full compliance with double-entry accounting principles
(or double-entry bookkeeping) and every time a transaction occurs, debit and credit must
be recorded in the journal. Using journal entries is the second step of the accounting cycle
steps (Bookkeeping, 2023).
The third step is to post to the general ledger. The general ledger provides an account-by-
account breakdown of all accounting activities, allowing a bookkeeper to track account-
specific financial positions and statuses. One of the most frequently referred to accounts in
the general ledger is the cash account, which details the available cash (Bookkeeping, 2023).
Creating a trial balance is the fourth step in the process. No accounting method is perfect,
so you'll almost always find discrepancies when balancing your books. Depending on the
business, the accounting period may be monthly, quarterly, or annual. The trial balance
shows the company how much money is in each account and if there are any problems
(Bookkeeping, 2023).
At this point, the financial statements are created. Using the trial balance sheet, we create
the balance sheet, income statement, and cash flow statement.
The final step in the accounting cycle is for a business to close its books at the end of the
business day on the closing date. The closing statements provide a report that can be used
to evaluate how things went over the period. After closing, the accounting cycle restarts
with a new reporting period. Typically, closing is a good time to file paperwork, plan for the
next reporting period, and review a schedule of upcoming events and tasks (Bookkeeping,
2023).
Overall, the accounting process is a methodical process that uses individual transaction data
to produce accurate account balances and financial statements. The process starts with the
recording of transactions in the journal and ends with the preparation of the financial
statements. During the process, the entity makes necessary adjustments to ensure that the
financial information is accurate and up to date. Both internal and external users use
financial statements to make informed decisions about the company and its future.
Financial Statement Analysis
Considering the company's profitable standing, it is expected that its good cash standing can
be reasonably maintained. The company is in a good cash position, having more cash than
accounts payable, wages payable, and notes payable combined. As a result, there is
reasonable assurance that the company can pay off its debts when they become due.
Additionally, net income as a percentage of sales ($3,224.17/ $6,225 = 51.79%) shows that
for every dollar of revenue earned, $51.79% goes to net income, proving that the company
is indeed profitable and that its profitability is fueled by sales.
Current liabilities to current assets position is as follows: Current Ratio current
assets/current liabilities = $143,180/$410349.22 This is a high current ratio, indicating that
the company is indeed liquid: for every dollar of current liability, the company has $349.22
in current assets to cover it.
Internal Controls
In addition to providing a financial analysis, a recommendation of a simple system of
controls to protect the company's assets, as well as the accuracy and the integrity of the
financial data as further growth is anticipated.
It is recommended that incompatible duties are separated. Functions like authorization,
recording, and custody should not be delegated to a single person, but rather to three
different people. The risk of fraud increases if the Authorization, Recording, and Custody
functions are delegated to a single person because fraudulent transactions (such as the
fictitious acquisition of merchandise inventory) can be employed and easily concealed
(Analytics, 2023). As an example, the person who can authorize the acquisition of additional
assets must be different from the person who records such transaction and from the person
entrusted with the custody of such asset (MindTap - Cengage Leaming, n.d.-b).
Looking to the Future
Asset valuation is the process of figuring out the current value of a business's assets, such as
stocks, properties, machinery, trademarks, goodwill, etc. This process frequently takes place
as part of a larger business valuation or before you buy, sell, or insure an asset (NI Business
Info, n.d.-a). Assets are referred to as current asset when it is held primarily for trading
purposes, expected to be realized within a year of the reporting period, and/or is cash and
cash equivalents and is expected to be realized within the normal operating cycle of the
company. An asset is considered a noncurrent asset or long-term if it does not fall under the
current asset criteria (MindTap - Cengage Learning, n.d.).
Except for land, fixed assets lose their ability to provide services over time; therefore, the
costs of fixed assets, such as equipment and buildings, should be recorded as expenses over
their useful lives. This process of depreciating fixed assets is known as depreciation
(MindTap -Cengage Learning, n.d.). Straight line method and double declining method are
two common ways to figure the depreciation value or amount. The straight line method is
the most commonly used and it is formulated by subtracting the acquisition cost from the
salvage value and dividing it by the asset's useful life ((acquisition cost- salvage value)/
useful life). The double declining method sees the expense of depreciation increase during
the first period of use before declining in subsequent periods. This is figured out by dividing
two by the useful life of the asset and then multiplying it by the carrying amount of the
asset (2/useful life x carrying amount of the asset) (MindTap - Cengage Leaming, n.d.).
Another thing to consider when dealing with merchandising assets is the order in which the
merchandise is sold so that the quality of the product does not decline. "Last In First Out"
"First In First Out" and "Average" are the methods used to determine the order
merchandise will be sold.
According to the "Last In, First Out" (LIFO) method of inventory valuation, the last item of
inventory purchased is the first one sold. For instance, if one inventory was purchased on
March 1 for $2, another was purchased on March 2 for $3, and a third was purchased on
March 4 for 50, the cost of the last inventory sold would be 53. Automotive industries are
one instance of a business using LIFO when they need to ship quickly.
In the "First In, First Out" (FIFO) method of inventory valuation, the first item of inventory
purchased is the first one sold. For instance, if one inventory was purchased on March 1 for
$2, another was purchased on March 2 for $3, and a third was purchased on March 4 for $5,
the cost of the first inventory sold under FIFO would be $2. An example of a company using
FIFO is a grocery store where perishable items are concerned.
And according to the "Average" method, if one inventory is purchased for $2 on March 1,
another is purchased for $3 on March 2, and another inventory is sold for $5 on March 4,
the cost of the inventory sold under the Average Method is $2.5 because this is the average
cost of the two inventories purchased [($2+$3/2)]. Gas or oil companies are usually known
to use this method.
Of course, as merchandise inventory is added the accounting will significantly change.. The
Income Statement will include a Cost of Goods Sold section. The Balance Sheet will include
Inventory as Current Assets. The Statement of Cash Flows will include payments to purchase
inventory and collections on the sale of inventory.
