Managerial Accounting
Assignment-1
Submitted by
HARPREET SINGH
2010PGP020
Answer 1-1)
Charles Company
Balance Sheet
December 31,20xx
Assets Liabilities and Owner Equity
Current Assets
Cash $12,000 Current liabilities
Inventory $95,000 Bank loan $40,000
Total $107,000 Total current Liability $40,000
Current Assets
Noncurrent $13,000 Owner equity(capital) $80,000
Assets
Total assets $120,000 Total liabilities and owners' equity $120,000
Answer1-2)
Basic Accounting equation
Assets = Liabilities + Owners’ equity , was applied.
year 1 year 2 year 3 year 4
Current assets $113,624 $90,442 $85,124 $69,090
Noncurrent assets $410,976 $198,014 $162,011 $151,021
Total assets $524,600 $288,456 $247,135 $220,111
Current liabilities $56,14 $40,220 $15,583 $17,539
Noncurrent liabilities $240,518 $71,297 $60,100 $30,222
Paid-in-capital $214,155 $173,295 $170,000 $170,000
Retained earnings $13,785 $3,644 $1,452 $2,350
Total liabilities and owners' $524,600 $288,456 $247,135 $220,111
equity
Answer 1-3)
Basic equations used are:
1) Gross margin = sales – cost of goods sold
2) Profit before tax = gross margin – other expenses
3) Net income = profit before tax – Tax expense
Year 4 cost of goods sold = Cost of goods sold (yr 1 +yr 2+yr3) /sales (yr 1 +yr 2+ yr3) X sales yr 4
Year 4 other expenses = Other expenses (yr 1 +yr 2+yr3) /sales (yr 1 +yr 2+ yr3) X sales yr 4
Year 4 tax other expenses =tax expenses (yr 1 +yr 2+yr3) /sales (yr 1 +yr 2+ yr3) X sales yr 4
Year 1 Year 2 Year 3 Year 4
sales $ 12,011.00 $11,968.00 $11,545.00 $ 10,000.00
cost of goods $3,011.00 $ 2,992.00 $ 2,886.00 $ 2,502.25
sold
Gross margin $9,000.00 $8,976.00 $ 8,659.00 $ 7,497.75
Other expenses $6,201.00 $6,429.00 $ 6,296.00 $ 5,327.66
profit before $2,799.00 $2,547.00 $ 2,363.00 $2170.09
taxes
Tax expense $1,120.00 $1,019.00 $ 945.00 $ 868.14
Net income $1,679.00 $1,528.00 $ 1,418.00 $ 1,301.95
Answer1-4)
a) 1) The owner invested $20,000,hence the owners’ equity increases by $20,000 and
also the cash increases by $20,000.
2) Equipment were purchased for $7,000, so assets under equipment increases by
$7,000, out of this $5,000 was paid in cash ,so cash in hand decreases by $5,000 and
he still has to pay $2,000, so liabilities under account payable increases by $2,000.
3) Supplies were bought for $1000, so inventories were increased by $1000 and cash
in hand decreases by $1000.
4) Salaries $4500 were paid, so cash in hand and owners’ equity were decreased by
$4500
5) Revenue of $10,000 were obtained, so owners’ equity increased by $10,000, out of
which $5000 was obtained in the form of cash, so cash in hand is increased by $5000
and $5000 are still left to be received, so account receivable has been incremented by
$5000.
6) Cash of $1500 was paid, so cash in hand has been decreased by $1500 and since
this amount was a liability, so liability under accounts payable is decreased by $1500
7) $1000 cash was received so cash in hand has been incremented by $1000 and since
this amount was to be received and has been received so account receivabledecreases
by $1000
8) Rent worth $750 was paid in cash, so cash in hand is reduced by $750 and owners’
equity is also reduced by $750
9) Utilities worth $500 were purchased by cash, so cash in hand is reduced by $500
and owners’ equity is reduced by $500
10) Travelling expenses worth $200 are to be paid, so account payable is increased by
$200 and owners’ equity is decreased by $200
11) Good were taken out or drawn out of the supply inventories, so it is reduced by
$200 and owners’ equity is also reduced by $200
b) The entry in red indicates the balance remaining under different heads after the
transaction.
Cash Account Supplies equipment Accounts Owner’s
receivable inventory payable equity
$20000 $20000
($5000) $7000 $2000
$15000 $7000 $2000 $20000
$1000 $1000
$14000 $1000 $7000 $2000 $20000
$4500 $4500
$9500 $1000 $7000 $2000 $15550
$5000 $5000 $10000
$14500 $5000 $1000 $7000 $2000 $25500
$1500 ($1500)
$13000 $5000 $1000 $7000 $500 $25500
$1000 $1000
$14000 $4000 $1000 $7000 $500 $25500
$750 ($750)
$13250 $4000 $1000 $7000 $500 $24750
$500 $200 (500)
$12750 $4000 $700 $24250
200
$12750 $4000 $1000 $7000 $700 24050
($200) (200)
$12750 $4000 $800 $7000 $700 $23850
$24550 $24550
Total assets has changed from $20000 to $24550
Owners’ equity changed from $20000 to $23850
Total liabilities changed from $0 to $700
C) Income statement for the month of July is as follow:
Acme Consulting
Income Statement for the month of July
Revenues $10,000
Less: Operating Cost
Month’s rent $750
Supplies $200
Travel $200
Utilities $500
Salaries $4500
Net Income $3850
Answer 1-5 .
Cash Accounts Supplies Equipment Account Owners' Description of
Receivable Inventory payable Equity transaction
25000 25000 Investment
-500 -500 Rent
8000 8000 Equipment
-500 500 Office supplies
-750 -750 Advertising
-3000 -3000 Salaries
2000 8000 10000 Travel
commission
-5000 -5000 Equipment
supplier
-100 -100 Office supplies
1000 -1000 Misc charges
a)
b)
Cash Account Supply equipmen Ren Account Owners Transaction
receivable inventory t t payable ’ equity
2500 25000 Investment
0
-500 500 Rent
Acc. 2450 500 25000
Equation 0
8000 8000 Equipment
Acc. 2450 8000 500 8000 25000
Equation 0
-500 500 Office supplies
Acc. 2400 500 8000 500 8000 25000
Equation 0
-750 -750 advertising
Acc. 2325 500 8000 500 8000 24250
Equation 0
-3000 -3000 salaries
Acc. 2025 500 8000 500 8000 21250
Equation 0
2000 8000 10000 Travel
commission
Acc. 2225 8000 500 8000 500 8000 31250
Equation 0
-5000 -5000 Equipment
supplier
Acc. 1725 8000 500 8000 500 3000 31250
Equation 0
-100 -100 Office supplies
Acc. 1725 8000 400 8000 500 3000 31150
Equation 0
1000 -1000 Misc expense
Acc. 1725 8000 400 8000 500 4000 30150
Equation 0
c)
Bon voyage Travel
Income Statement for the month of June
Travel Commission $10,000
Less: Operating Cost
Month’s rent $500
Office Supplies Consumption $100
Advertising Cost $750
Salaries $3,000
Miscellaneous Expenses $1,000
Net Income $4,650
Answer 2
Cash Account Supply equipment Account Owner’s Transaction
receivable inventory payable equity
150000 150000 Investment
45000 45000 Photographic
material
150000 45000 45000 150000
-60000 60000 Photographic
equipment
90000 45000 60000 45000 150000
75000 75000 Service
charges
received
165000 45000 60000 45000 225000
-25000 -25000 Paid creditor
140000 45000 60000 45000 200000
60000 60000 Loan paid
200000 45000 60000 105000 200000
95000 95000 Billed
customer
200000 95000 45000 60000 105000 295000
-12500 -12500 Rent
187500 95000 45000 60000 105000 282500
-6000 -6000 Electricity
charges
181500 95000 45000 60000 105000 276500
-20000 -20000 Divdend
161500 95000 45000 60000 105000 256500
Answer 3a)
1) Substance over form
It means that the financial statements reflect the financial reality of the entity (Substance)
rather than the legal form of the transactions and events (Form) which underlie them.
Substance over form emphasizes the economic substance of an event even though its legal
form may provide a different result
For example:
2) Prudence
It is the inclusion of a degree of caution in judgment needed in making the estimates
required under conditions of uncertainty, such that assets or income are not overstated and
liabilities or expenses are not understated.
For example:
A company has to value stock at the end of a month, its market value is lower than the
value at which it bought the same, then going by prudence, it should record the stock at the
market price since it is lower.
3) Management accounting information
The information which helps in the process of identification, measurement, accumulation,
analysis, preparation, interpretation and communication used by management to plan,
evaluate and control within an entity and to assure appropriate use of and accountability
for its resources. It also comprises the preparation of financial reports for non-
management groups such as shareholders, creditors, regulatory agencies and tax
authorities
For example:
Higher management has to finalize decision regarding jobs in which it is not directly
involved then it resorts to management accounting information.
4) Loss vs Expense
A loss is associated with a “peripheral” or “incidental” transaction whereas, an expense is
a cost used up in earning revenues in a company’s main operations.
For example:
By selling a product below the total cost involved in producing it company incurs a loss
and advertising expense, commission expense, rent expense, cost of goods sold, salaries
expense are expenses
5) Gain vs Income
Gain is from non-operating activities and income is from operating activities.
For example:
Gain is profit on sale of asset whereas, income is obtained from the sale of goods.
6) Double entry system of book-keeping
In this system ,each single commercial transaction is recorded twice .On the received
side and then again on the giver side.
In Every transaction has dual impact on the accounting records i.e. debits and credits
within the accounting equation such that:
Total assets = total liabilities + total owners’ equity
For example:
Let John buy a pair of shoes from Mike for $450
From john’s point of view buying shoes for cash.
From Mike’s point of view selling shoes for cash.
John receives shoes and gives Mike Receives money and gives shoes
money $450
Answer3b)
Harpreet Singh
Balance Sheet
As on August 1, 2010
Assets Liabilities and Owner Equity
Cash in hand Rs. 4,500 liabilities
Cash in bank Rs. bank loan Rs. 0
3,69,000
other items Rs. Owner equity(capital) Rs.
2,00,000 5,73,000
total assets Rs. total liabilities and owners' equity Rs.
5,73,500 5,73,000
