Assignment Question(s): (Marks 5)
Q1. Discuss three of the accounting principles and assumptions with examples. (1 Mark)
Q2. In chapter 3, slide 42, there is a summary of the accounting cycle. Describe each step. (2 Marks)
Q3. Explain the purpose and the importance of the income statement, and prepare the income statement for ABC company based on the following information taken from the trial balance in 2020 (2 Marks)
1- Going Concern: A company is normally considered a going concern if it is expected to continue operating in the near future. It is presumed that the organization does not intend or require liquidation or a significant reduction in the extent of its operations.
2- Consistency: Accounting policies are assumed to be consistent from period to period.
3- Accrual: Revenues and costs are accrued, which means they are recognized when they are earned or incurred (rather than when money is received or paid) and reported in the financial statements for the periods in question.
1- The Matching Principle: The matching principle argues that each element of revenue must be matched with an element of expense. For example, if you offer burger sandwiches, you can determine the cost of the goods, meat, and toppings at the time the customer orders the sandwich. The accrual method of accounting is used when a company uses the revenue, expense, and matching concepts in practice.
2- The Cost Principle: According to the cost principle, you should utilize the historical cost of an item in the books rather than the selling price. If the company owns property, such as automobiles or real estate, the historical costs of the property must be represented, not the current fair market value.
3- The Objectivity Principle: The cost principle states that you should utilize the item’s historical cost in the books rather than its resale value. If the company owns property, such as automobiles or real estate, the historical costs must be represented rather than the current fair market value.
The accounting cycle has eight steps:
1. Analysis of transactions based on source documents.
2. Entering transactions into a journal.
3. Post journal entries to ledger accounts.
4. Complete the worksheet and prepare the Trial Balance of Accounts (including the adjustment of entries).
5. Financial Statements Preparation
6. Recording and publishing changes to entries.
7. Make a list of closing entries and publish them.
8. After the closing, prepare the trial balance.
An income statement is a document that summarizes a company’s financial performance over a specified time period in terms of profitability. As a result, the income statement is primarily concerned with two accounting elements: income and expenses.
|Income statement for ABC company|
Boundless. (n.d.). Boundless accounting. Lumen. Retrieved October 15, 2021, from https://courses.lumenlearning.com/boundless-accounting/chapter/the-accounting-cycle/.
Dutta, P. (2021, July 29). Fundamental accounting assumptions: Going Concern, Consistency & Accrual. CA Club. Retrieved October 15, 2021, from https://www.caclub.in/fundamental-accounting-assumptions/.
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