Golden Rules of Accounting Assignment Sample

• Subject Name : Accounting and Finance

Accounting And Financial Management - Internal Assignment - 1

Q.1.A. The Golden Rules of Accounting with Examples

For the presentation of financial statements to its stakeholders’, an entity is required to account its every single transaction. For uniformity and accurate accounting there are three Golden Rules of Accounting. These rules are the basis of recording journal entries which forms the basis of bookkeeping and accounting (Granof et al. 2016).

The golden accounting rules are based on the three types of accounts which are:

• Real Account
• Personal Account
• Nominal Account

Based on the above type of accounts, the three golden rules are as follows:

For example: Stark Enterprises conducted the following transactions:-

B. The Components of Fixed Assets

Fixed assets are long-term tangible equipments or properties that are owned and utilized by the business firm in its operations for income generating purposes. Fixed assets are expected not to be converted in consumed or cash in a year. The components of a fixed asset are important to acknowledge by the business as it helps in better management (Jollands and Quinn 2017). The primary components of a FA are:

• The value of the asset and the accounting valuation method.
• Depreciation: The charge for decline in the value of the asset for obsolescence, wear and tear, etc.
• Proper definition of Fixed Asset Groups
• The location of Fixed Asset
• The useful life of the asset and
• The salvage value at the end of useful life
• The type of FA, it can be plant, property and/ or equipment

Q.2.

1. Share Capital: The term share capital refers that an investor who purchases the shares of a company has become eligible to claim a share in the profits of the company against the money it provided to the business (Yanto et al. 2017).
2. Golden Rules of Accounting: For uniformity and accurate accounting there are three Golden Rules of Accounting which forms the basis of recording journal entries which forms the basis of bookkeeping and accounting.
3. Accounting Conventions: Guidelines to record business transactions there are four primary conventions in accounting, which are conservatism; full disclosure; materiality and consistency.
4. Economy of Scale: These are the cost advantages that entities obtain due to their scale of operation, which means the overall cost per unit of production decreases with increase in scale.
5. Marginal Costing: is the change in the overall cost that incurred when the produced quantity is increased by every single unit. In other words, it is the cost for producing an additional unit of good (McLeod 2020).

Accounting And Financial Management - Internal Assignment - 2

Q.1. A. The basic accounting concepts are as follows:

• Accrual concept. The concepts sates that revenues and incomes are required to be recognized when they are earned, irrespective of cash is received or not, similarly the expenses and losses are required to be recognized when incurred or when assets are consumed, whether actual cash transaction has happened or not. That means gains and losses as per income statement may vary from the cash flow statement which records transactions on cash basis. As per Ind AS, auditors will certify only those financial statements that are prepared as per accruals concept (Granof et al. 2016).

• Conservatism concept. Recognize revenue and assets only when there is a strong possibility that they will be received or realized, on the other hand expenses and losses needs to be recognized sooner, when there is uncertainty about their outcome.

• Consistency concept. The business should continue using the specific accounting methods that it chose initially on a go-forward basis. It helps in reliably comparing the financial statements prepared in multiple periods.

• Economic entity concept. The business transactions are separate from their owners.

• Going concern concept. Financial statements of a business are prepared by assuming that it is not going to liquidate in the future and will continue its business. Therefore, recognition of expense and revenue can be deferred to a future period, when the business is still operating (Jollands and Quinn 2017).

• Matching concept. The expenses that are associated with the revenues that have already been recognized are required to be recognized in the same period of revenue recognition.

• Materiality concept. The materiality concept dictates that those items or transactions that can impact the financial reporting and statements significantly are required to be accounted.

B. Difference between Realization Concept and Accrual Concept are as follows:

Realization concept: This accounting concept is also known as the principal of revenue recognition, and it determines the application of the concept of accruals (as discussed below) in order to recognize incomes or revenues. As per this concept, the revenues are recognized by the seller as soon as it is earned whether cash is received or not from the transaction (Whittle, Mueller and Carter 2016). 

Accrual Concept: The concepts sates that revenues and incomes are required to be recognized when they are earned, whether cash is received or not, similarly the expenses and losses are required to be recognized when incurred or when assets are consumed, whether actual cash transaction has happened or not. That means gains and losses as per income statement may vary from the cash flow statement which records transactions on cash basis. As per Ind AS, auditors will certify only those financial statements that are prepared as per accruals concept (Yanto et al. 2017).

Q.2.

1. Profitability Ratios: The ratios that measures the ability of a business to generate income in relation to its revenues, operating-income, assets, shareholders' equity, etc over time by using information from a specific point in time (McLeod 2020).
2. Cost, Volume and Profit Relationship: CVP relationship is a cost accounting tool that analyzes the impact of varying levels of volume and costs upon profit levels. It is also known as break-even analysis, used in determining the BEP for different sales volumes and cost structures (Granof et al. 2016).
3. Bank Reconciliation Statement (BRS): BRS is a summary of activities between bank and business and reconciles the bank account records of the entity with that of its financial records. BRS is a useful tool for financial internal control to prevent frauds.
4. Theories of Capital Structure: The theories of capital structure determine the relation between entity's equity and debt financing and the overall value of the firm.
5. Duties and Responsibilities of Finance Officer: Financial officers are tasked to develop budgets, monitor transactions, and prepare financial reports (Whittle, Mueller and Carter 2016).

Reference for Accounting And Financial Management

Granof, M.H., Khumawala, S.B., Calabrese, T.D. and Smith, D.L. 2016. Government and not-for-profit accounting: Concepts and practices. John Wiley & Sons.

Jollands, S. and Quinn, M. 2017. Politicising the sustaining of water supply in Ireland–the role of accounting concepts. Accounting, Auditing & Accountability Journal.

McLeod, C. 2020. Financial Reporting Principles and Accounting Concepts: A Collection of Case Studies.

Spalding, A. D., & Lawrie, G. R. 2019. A critical examination of the AICPA’s new “conceptual framework” ethics protocol. Journal of Business Ethics, 155(4), 1135-1152.

Whittle, A., Mueller, F. and Carter, C. 2016. The ‘Big Four’in the spotlight: Accountability and professional legitimacy in the UK audit market. Journal of Professions and Organization, 3(2), 119-141.

Yanto, H., Yulianto, A., Sebayang, L. K. B., and Mulyaga, F. 2017. Improving the compliance with accounting standards without public accountability (SAK ETAP) by developing organizational culture: A case of Indonesian SMEs. Journal of Applied Business Research (JABR), 33(5), 929-940.

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