Dales Solar Clean Income Statement - Assignment Example

Question 1 Opening Capital= Opening assets-opening liabilities Opening assets: Cash 22,466 Accounts receivables 22,750 Inventory 10,023 Office furniture 21,600 Equipment 306,250 Office supplies 3,000 Totals 386,089 Less Opening liabilities: Accounts payable 62,402 Bank loan 250,000 (312,402) Opening Capital 73,687 Question 2 Assets Liabilities Equity Date Cash A/C Receivables Inventory Office furniture Office supplies Equipment A/c payables Bank Loan Capital Profit/ Loss April 1 22,466 22,750 22,750 21,600 3,000 306,250 62,402 250,000 73,687 Opening Balances 1 12,000 -12,000 -12,000 Insurance expense 3 110,000 110,000 Owners’ contribution 14 -3,550 -3,550 -3,550 Wages & salaries 17 19,600 19,600 19,600 Revenues 19 -800 -800 Drawings 20 3,520 3,520 3,520 Revenue 26 -750 -750 Office supplies 28 -3,550 -3,550 -3,550 Salary &wages Totals 140,136 41,550 22,750 21,600 3,000 306,250 62,402 250,000 186,157 4,020 May 1 140,136 41,550 22,750 21,600 3,000 306,250 62,402 250,000 186,157 4,020 Opening Balances 1 30,000 -30,000 Equipment on credit 5 930 -930 -930 Advertising Costs 7 6,833 6,833 6,833 revenues 9 8,000 -8,000 Office furniture on Credit 10 No transaction 12 -3,550 -3,550 -3,550 Wages and salaries 14 10,000 10,000 Grant 15 930 -930 Paid bill 17 -19,600 -19,600 Revenues 25 455 455 Supplies on credit 26 -3,550 -3,550 -3,550 Wages & salaries 30 6,500 6,500 6,500 revenues Totals 130,866 47,453 22,750 30,055 3,000 336,250 6,187 250,000 201,460 9,323 June 2 130,866 47,453 22,750 30,055 3,000 336,250 6,187 250,000 201,460 9,323 Opening balances 2 9,020 9,020 9,020 Revenues 6 -1,750 -1,750 -1,750 Rent expense 9 -3,550 -3,550 -3,550 Wages & salaries 12 -3,000 -3,000 Drawings 15 22,000 22,000 22,000 Revenues 16 2,500 17,500 20,000 20,000 Revenues 18 -455 -455 Paid bill 20 -390 -390 -390 Petrol& oil expense 22 9,020 -9,020 9,020 Revenues 23 -3,550 -3,550 -3,550 Wages & salaries 24 5,300 -4,700 5,300 Revenues 25 6,833 6,833 6,833 Revenues 26 17,500 17,500 17,500 Revenues 28 -30,000 -30,000 Pay for equipment on credit 30 -25,000 -25,000 Payments for loan 30 -2,300 -2,300 -2,300 Interest expense Adjustment -1,500 -1,500 -1,500 Insurance premium 3,550 3,550 3,550 Wages & salaries 10 Office supplies -5,200 Inventory -1,200 -1,200 -1,200 Depreciation expense -17,500 -17,500 -17,500 Depreciation expense -1,920 -1,920 -1,920 Depreciation expense Totals 104,074 86,953 12,850 28,400 3,010 316,830 6,187 225,000 213,703 68,886 Question 3 Dale’s Solar Clean Income Statement for the Period Ended June 30th 2015 Revenues $ Customer service revenues 89,673 Expenses: Rent 1,750 Wages & salaries 3,550 Petrol & oil 390 Interest expense 2,300 Insurance premium 1,500 Depreciation expense 20,620 (30,110) Net profit 59,563 Question 4 Dale’s Solar Clean Balance Sheet as at 30th June 2015 Current assets: Current liabilities: Cash 104,074 Accounts payable 6,187 Accounts receivables 86,953 Non-current liabilities: Inventory 12,850 Bank Loan 225,000 Non Current Assets: Owner’s Equity: Office furniture 28,400 Capital employed 213,703 Office supplies 3,010 Retained revenues 59,563 Equipment 316,830 Drawings 3,000 Bank overdraft 44,664 552,117 552,117 Question 5 The company’s income statement indicates that the level of profits has increased over the three-months in operations. The increase is highly attributed to increased revenues from customer service repairs as well as manageable expenses. Taking a closer look at the income statement, it can be noted that the level of revenues is highly position in comparison to the degree of expenses within the three-month period. The only substantial expense rests with the depreciation expense. Such expenses as wages and salaries have remained the same within the three-month period despite the fact that they personnel have made efforts to increase customer services revenues. Subsequently, the balance sheet indicates that the level of asset-base has increased within the period hence an indication that it can meet its short term obligations with the existing resources. These reliable resources are also a contributory factor of the increased revenues and this, profits for that matter within the same operational period. Looking at the balance sheet, it can be noted that amounts attributed to current assets are far much enough to cover the current liabilities in an enormous manner and ratio as shown below Current assets/current liabilities: (104,074+86,953+12,850)/ 6,187 = 32.85:1 The current ratio above indicates that the Company is able to meet its short term obligations given that for every current liability incurred, it has at least 32 current assets to cover for it. Question 6 Accrual basis of accounting is much more useful than a cash basis because it generates more accurate and a highly faithful representation of the financial statements, which means that these representations depict actual circumstances as they occur (Kober, Lee, & Ng, 2010). Accrual accounting allows for necessary adjustments of transactions since it emphasizes on the aspect of actual timing. It further allows for the assessment of performance measurement thus determining the profitability of a venture due to the activities being undertaken within any given moment in time (Diamond, 2002). It is important to note that under the accrual accounting basis, revenues are only reported whenever they are deemed to be earned and not when the cash attributed to it, is received (Diamond, 2002). On the other hand, expenses only in the event that they have been incurred and not necessary when they were paid. Adherence to accrual accounting ensures that a firm’s profitability, asset-base and liabilities as well as other forms of financial information is indeed aligned with the existing economic reality (Diamond, 2002). Additional information helps to produce accurate amounts involved in a transaction hence prevent possible over and underestimation of figures presented within the financial statements. It also ensures that the accounting data is posted in a timely fashion through a double-entry method that also make it certain that not a single entry is left out or only recorded once, which will likely affect the presentation of the financial statements within any given moment. Question 7 Dale should understand that depreciation for different assets are chosen in a manner that complements the level of revenues the assets will generate within a given period. Therefore, equipment purchased a same supplier cannot necessary be subjected to a similar depreciation method because they each have different utilisation rates hence standard rates are normally sought to estimate their respective useful lives . References List Diamond, J. 2002 Performance budgeting is accrual required. IMF Working Paper, vol.1, pp.1-31 Kober, R, Lee, J & Ng, J. 2010 Mind your accruals: Perceived usefulness of financial information in the Australian public sector under different accounting systems, Financial Accountability & Management, vol.26, no.3, pp.267-298 Read More