BM001-3--AS

Individual Assignment

201604

Table of Contents
Question 1: Financial account for ABC & CO...........................................................................2
Ledgers...................................................................................................................................2
Trial Balance for ABC & CO.................................................................................................7
Statement of Comprehensive Income for ABC & CO...........................................................8
Statement of Financial Position for ABC & CO....................................................................9
Question 2................................................................................................................................10
a) Definition of accounting term and discussion of the component of accounting equity10
b)

Trial Balance..............................................................................................................10

Question 3: Objectives and Importance of financial statements..............................................11

Objective and Importance of statement of financial position...............................................11
Objective and Importance of statement of cash flow...........................................................11
Objective and Importance of statement of owners equity...................................................11
Objective and Importance of statement of comprehensive income.....................................12
Question 4................................................................................................................................13
Matching concept.................................................................................................................13
Accrual Basis.......................................................................................................................13
Prudence concept.................................................................................................................13
Going Concern.....................................................................................................................13
Materiality Concept..............................................................................................................14

APU Level 1

Asia Pacific University of Technology and Innovation

Page 1 of 15

BM001-3--AS

Individual Assignment

201604

Question 1: Financial account for ABC & CO

Ledgers
Cash A/C
DATE

AMOUNT (RM)

DATE

AMOUNT (RM)

Dec 1

Capital A/C

200,000

Dec 1

Bank A/C

195,000

Dec 6

Sales A/C

60,000

Dec 8

Purchases A/C

20,000

Dec 31

Bank A/C

10,000

Dec 31

Balance c/d

35,000

260,000

260,000

Bank A/C

DATE
Dec 1
Dec 25
Dec 31

Cash A/C
Mr.

A/C
Cash A/C

AMOUNT

DAT

AMOUNT

(RM)

(RM)

195,000

Dec 2

20,000

Dec 3

10,000

Dec
21
Dec
31
Dec
31

Furniture
A/C
Vehicle A/C

50,000

Mr. A A/C

25,000

Salaries A/C

5,000

Balance c/d

130,000

225,000

APU Level 1

15,000

Asia Pacific University of Technology and Innovation

225,000

Page 2 of 15

BM001-3--AS

Individual Assignment

201604

Capital A/C

DATE
Dec 31

Balance
c/d

AMOUNT

DAT

AMOUNT

(RM)

(RM)

200,000

Dec 1

Cash
A/C

200,000

200,000
200,000

Furniture A/C

DATE
Dec 2

Bank
A/C

AMOUNT

DAT

(RM)

E
Dec

Balance

31

c/d

15,000

AMOUNT
(RM)

15,000

15,000
15,000

Vehicle A/C
DATE
Dec 3

Bank
A/C

AMOUNT (RM)

DATE

50,000

Dec 31

AMOUNT (RM)
Balance
c/d

50,000

APU Level 1

Asia Pacific University of Technology and Innovation

50,000
50,000

Page 3 of 15

BM001-3--AS

Individual Assignment

201604

Mr. A A/C
DAT

AMOUNT

DAT

AMOUNT

E
Dec

(RM)

(RM)

10,000

Dec 5

10
Dec
21
Dec
31

Purchases

Returned

A/C
Bank A/C

25,000

Balance c/d

15,000

Purchase
s

50,000

50,000

50,000

Sales A/C

DATE
Dec 18
Dec 31

Mr. B A/C
Balance
c/d

AMOUNT

DAT

AMOUNT

(RM)

(RM)

5,000

Dec 6

Cash A/C

Dec

Mr.

12

A/C

95,000
100,000

60,000
40,000
100,000

Purchases A/C
DATE
APU Level 1

AMOUNT

DAT

Asia Pacific University of Technology and Innovation

AMOUNT
Page 4 of 15

BM001-3--AS

Individual Assignment

(RM)
Dec 5

Mr. A A/C

50,000

Dec 8

Cash A/C

20,000

201604

E
Dec
10
Dec
31

(RM)
Mr. A A/C
Balance
c/d

70,000

10,000
60,000
70,000

Mr. B A/C
DAT
E
Dec

Sales

12

A/C

AMOUNT

DAT

(RM)

E
Dec

40,000

18
Dec
25
Dec
31

AMOUNT
(RM)
Sales

Returned

A/C

5,000

Bank A/C

20,000

Balance c/d

15,000

40,000

40,000

Salaries A/C

DATE
Dec 31

Bank
A/C

AMOUNT

DAT

AMOUNT

(RM)

E
Dec

(RM)
Balance

31

c/d

5,000
5,000

5,000
5,000

Expenses A/C
APU Level 1

Asia Pacific University of Technology and Innovation

Page 5 of 15

BM001-3--AS

Individual Assignment

DAT
E
Dec

Accrued

31

A/C

Expenses

201604

AMOUNT

DAT

(RM)

E
Dec

Balance

31

c/d

20,000

AMOUNT
(RM)

20,000

20,000
20,000

Accrued Expenses A/C

AMOUNT

DATE
Dec 31

(RM)
Balance
c/d

20,000

AMOUNT

DATE

(RM)

Dec

Expenses

31

A/C

20,000

APU Level 1

Asia Pacific University of Technology and Innovation

20,000
20,000

Page 6 of 15

BM001-3--AS

Individual Assignment

201604

Trial Balance for ABC & CO

L.F

LIST OF ACCOUNTS

DEBIT (RM)

Cash A/C

35,000

Bank A/C

130,000

Capital A/C

Furniture A/C

15,000

Vehicle A/C

50,000

Mr.A A/C

15,000

Sales A/C

95,000

Purchases A/C

60,000

Mr.B A/C

15,000

10

Salaries A/C

5,000

11

Expenses A/C

20,000

12

Accrued Expenses A/C

200,000

20,000
330,000

APU Level 1

CREDIT (RM)

Asia Pacific University of Technology and Innovation

330,000

Page 7 of 15

BM001-3--AS

Individual Assignment

201604

Statement of Comprehensive Income for ABC & CO

Statement of Comprehensive Income For the period ended at 31st Dec

PARTICULAR

AMOUNT

AMOUNT

(RM)

(RM)

Sales

95,000

Less: Cost Of Goods Sold

Purchases

60,000
35,000

Less: Operating Expenses

Salaries

5,000

Expenses

20,000
25,000

Net Profit

APU Level 1

10,000

Asia Pacific University of Technology and Innovation

Page 8 of 15

BM001-3--AS

Individual Assignment

201604

Statement of Financial Position for ABC & CO

Statement of Financial Position as at 31st Dec

AMOUN
T (RM)

AMOUN
T
(RM)

AMOUN

AMOUN

T (RM)

T (RM)

Current

Current Assets

Liabilities

Cash

35,000

Bank

130,000

Mr. B

15,000

Mr. A
Accrued
Expenses

15,000
20,000
35,000

180,000
Owners

Fixed Assets

Equity

Furniture

15,000

Capital

200,000

Vehicle

50,000

Add: Net Profit

10,000

APU Level 1

65,000

210,000

245,000

245,000

Asia Pacific University of Technology and Innovation

Page 9 of 15

BM001-3--AS

Individual Assignment

201604

Question 2
a) Definition of accounting term and discussion of the
component of accounting equity
Accounting is the systematic and comprehensive recording of financial transactions
pertaining to a business. Accounting also refers to the process of summarizing, analysing and
reporting these transactions. The financial statements that summarize a large company's
operations, financial position and cash flows over a particular period are a concise summary
of hundreds of thousands of financial transactions it may have entered into over this period.
The accounting equation (Assets = Liabilities + Owner Equity) is a simplified breakdown of
the values entered in the balance sheet. It illustrates the relationship between a
company's assets, liabilities and shareholder or owner equity. The accounting equation shows
the balance of a companys resources (those displayed on the balance sheet as assets). The
companys assets are shown on the left side of the equation, and the liabilities and equity are
shown on the right side. The equation illustrates that all of a companys resources (assets) are
provided by their creditors or their owners (through liabilities and equity). The accounting
equation also shows that every economic event that affects the balance sheet will have a dual
effect. The accounting equation is a simple way to view the relationship of financial activities
across a business.

b) Trial Balance
A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled
into debit and credit columns. A company prepares a trial balance periodically, usually at the
end of every reporting period. The general purpose of producing a trial balance is to ensure
the entries in a company's bookkeeping system are mathematically correct. Preparing a trial
balance for a company serves to detect any mathematical errors that have occurred in the
double-entry accounting system. Provided the total debts equal the total credits, the trial
balance is considered to be balanced, and there should be no mathematical errors in the
ledgers.

APU Level 1

Asia Pacific University of Technology and Innovation

Page 10 of 15

BM001-3--AS

Individual Assignment

201604

Question 3: Objectives and Importance of financial

statements
Objective and Importance of statement of financial position
Statement of financial position helps users of financial statements to assess the financial
health of an entity. When analysed over several accounting periods, balance sheets may assist
in identifying underlying trends in the financial position of the entity. It is particularly helpful
in determining the state of the entity's liquidity risk, financial risk, credit risk and business
risk. When used in conjunction with other financial statements of the entity and the financial
statements of its competitors, balance sheet may help to identify relationships and trends
which are indicative of potential problems or areas for further improvement. Analysis of the
statement of financial position could therefore assist the users of financial statements to
predict the amount, timing and volatility of entity's future earnings.

Objective and Importance of statement of cash flow

Statement of cash flows provides important insights about the liquidity and solvency of a
company which are vital for survival and growth of any organization. It also enables analysts
to use the information about historic cash flows to form projections of future cash flows of an
entity (e.g. in NPV analysis) on which to base their economic decisions. By summarizing key
changes in financial position during a period, cash flow statement serves to highlight
priorities of management. For example, increase in capital expenditure and development
costs may indicate a higher increase in future revenue streams whereas a trend of excessive
investment in short term investments may suggest lack of viable long term investment
opportunities. Furthermore, comparison of the cash flows of different entities may better
reveal the relative quality of their earnings since cash flow information is more objective as
opposed to the financial performance reflected in income statement which is susceptible to
significant variations caused by the adoption of different accounting policies.

Objective and Importance of statement of owners equity

Statement of owners equity helps users of financial statement to identify the factors that
cause a change in the owners' equity over the accounting periods. Whereas movement in
shareholder reserves can be observed from the balance sheet, statement of owners equity
APU Level 1

Asia Pacific University of Technology and Innovation

Page 11 of 15

BM001-3--AS

Individual Assignment

201604

discloses significant information about equity reserves that is not presented separately
elsewhere in the financial statements which may be useful in understanding the nature of
change in equity reserves. Examples of such information include share capital issue and
redemption during the period, the effects of changes in accounting policies and correction of
prior period errors, gains and losses recognized outside income statement, dividends declared
and bonus shares issued during the period.

Objective and Importance of statement of comprehensive

income
Comprehensive income is the sum of net income and other items that must bypass the income
statement because they have not been realized, including items like an unrealized holding
gain or loss from available for sale securities and foreign currency translation gains or losses.
Understanding the drivers of a company's daily operations is going to be the most important
consideration for a financial analyst, but looking at the statement of comprehensive income
can uncover other potentially major items. Insurance companies, banks and other financial
institutions have large investment portfolios that they manage. Realized gains and losses are
going to run through reported net income for the most part, but looking at the unrealized side
of the equation can demonstrate how it is managing its investments and if there is the
potential for big losses down the road. In this respect, statement of comprehensive income
can help an analyst get to a more accurate measure of the fair value of a company's
investments.

APU Level 1

Asia Pacific University of Technology and Innovation

Page 12 of 15

BM001-3--AS

Individual Assignment

201604

Question 4
Matching concept
Matching concept is one of the basic underlying guidelines in accounting. The matching
principle directs a company to report an expense on its income statement in the same period
as the related revenues. A significant relationship exists between revenue and expenses.
Expenses are incurred for the for the purpose of producing revenue. In measuring net income
for a period, revenue should be offset by all the expenses incurred in producing that revenue.
This concept of offsetting expenses against revenue on the basis of "causes and effect" is
called the Matching Concept.

Accrual Basis
Accrual accounting is an accounting method that measures the performance and position of a
company by recognizing economic events regardless of when cash transactions occur. The
general idea is that economic events are recognized by matching revenues to expenses (the
matching principle) at the time in which the transaction occurs rather than when payment is
made (or received). This method allows the current cash inflows/outflows to be combined
with future expected cash inflows/outflows to give a more accurate picture of a company's
current financial condition.

Prudence concept
Prudence is a key accounting principle which makes sure that assets and income are not
overstated and liabilities and expenses are not understated. Prudence concept will recognize
all probable losses as they are discovered and most expenditure as they are incurred. Revenue
will be deferred until it is verified. Having strict revenue-recognition criteria is one of the
most common forms of accounting conservatism. For example Periodic evaluations of assets
are made to make sure their carrying value does not exceed the benefits expected to be
derived from the asset, and if it does exceed, the impairment of fixed asset is recorded by
reducing its carrying amount.

APU Level 1

Asia Pacific University of Technology and Innovation

Page 13 of 15

BM001-3--AS

Individual Assignment

201604

Going Concern
Going Concern is one the fundamental assumptions in accounting on the basis of which
financial statements are prepared. Financial statements are prepared assuming that a business
entity will continue to operate in the foreseeable future without the need or intention on the
part of management to liquidate the entity or to significantly curtail its operational activities.
Therefore, it is assumed that the entity will realize its assets and settle its obligations in the
normal course of the business. For example, if we expected a company to go out of business
a few months from now, it would make no sense to record any long-term liabilities for that
firm, because we wouldn't expect the business to still be there to pay them.

Materiality Concept
Information is material if its omission or misstatement could influence the economic
decisions of users taken on the basis of the financial statements. Materiality therefore relates
to the significance of transactions, balances and errors contained in the financial statements.
Materiality defines the threshold after which financial information becomes relevant to the
decision making needs of the users. Information contained in the financial statements must
therefore be complete in all material respects in order for them to present a true and fair view
of the affairs of the entity. Materiality is relative to the size and particular circumstances of
individual companies. As an example of a clearly immaterial item, you may have prepaid
$100 of rent on a post office box that covers the next six months; under the matching
principle, you should charge the rent to expense over six months. However, the amount of the
expense is so small that no reader of the financial statements will be misled if you charge the
entire $100 to expense in the current period, rather than spreading it over the usage period. In
fact, if the financial statements are rounded to the nearest thousand or million dollars, this
transaction would not alter the financial statements at all.

APU Level 1

Asia Pacific University of Technology and Innovation

Page 14 of 15

BM001-3--AS

Individual Assignment

201604

References
"Accounting Definition | Investopedia". Investopedia. N.p., 2003. Web. 23 May 2016.
"Accounting Equation - Accountingtools". Accountingtools.com. N.p., 2016. Web. 23 May
2016.
"Prudence Concept | Definition And Examples". Accountingexplained.com. N.p., 2016. Web.
23 May 2016.
"Relevance Of Accounting Information And Its Examples". Accounting-simplified.com. N.p.,
2016. Web. 23 May 2016.
"Trial Balance Definition | Investopedia". Investopedia. N.p., 2007. Web. 23 May 2016.
"What Is The Accounting Equation? | Debitoor Accounting Glossary". Debitoor.com. N.p.,
2016. Web. 23 May 2016.

APU Level 1

Asia Pacific University of Technology and Innovation

Page 15 of 15