The Difference Between Current Assets And Fixed Assets Accounting Essay

The personal businesss of a concern are to be treated as being quite separate from the non-business activities of its proprietor ( s ) .

The accounting records reflect the fiscal activities of a specific corporate entity, separate and distinguishable from the people who finance it or work in it. It is one of the ‘ground regulations ‘ of accounting.

Accumulations Concept

Concerned with the difference between hard currency grosss and hard currency outgo ( existent payments and grosss of money for points ) and gross and outgo.

It states that point should be recorded when used and non when paid for.

Traveling Concern Concept

It implies that the concern will go on to run for the foreseeable hereafter.

Example: the premise should non be made are:

If the concern is traveling to shut down in the close hereafter.

Where deficit of hard currency makes it about certain that the concern will hold to discontinue trading.

Business has to shut down because of deficit of hard currency.

Consistency Concept

Each house should seek to take the methods which give the most dependable image of the concern.

This can non be done if one method is used in one twelvemonth and another method is use in the following twelvemonth and so on.

degree Celsius ) State why is it of import to distinguish between capital outgo and gross outgo, and briefly explain the accounting intervention of each type of outgo.

The difference between gross and capital outgo can be seen clearly with the entire cost of utilizing a motor new wave for a house.

To purchase a motor new wave is capital outgo, the motor new wave will be in usage for several old ages and is, hence, a fixed assets.

To pay for gasoline to utilize in the motor new wave for the following few yearss is gross outgo, this is because the outgo is used up in a few yearss and does non add to the value of fixed assets.

Capital outgo

Is made when a house spends money either to:

Buy fixed assets.

Add to the value of an bing fixed plus.

Included in such sums should be those spent on:

Geting fixed assets.

Bringing them in to the house.

Legal costs of purchasing edifice.

Passenger car inwards on machinery bought.

Any other cost needed to acquire the fixed plus ready for usage.

Gross outgo.

Outgo which is non for increasing the value of fixed assets, but for running the concern on a daily footing, is known as gross outgo.

Accounting intervention.

Expenses – Income statement.

Capital – Fixed assets – Balance sheet.

vitamin D ) Plant and Machinery was purchased on 1st June 2005 for RM100, 000 and estimated disposal value of RM10, 000. Calculate the depreciation for the old ages 2005 and 2006 utilizing the cut downing balance taking the rate as 10 % method.

Calculation:

2005 – RM 100,000 ten 10 % x 7/12 = 5833

RM 100,000 – 5833 = 94, 167

2006 – RM 94, 167 ten 10 % = 9417

RM 94, 167 – 9,417 = 84, 750

vitamin E ) The model for the readying and presentation of fiscal statements states that in order to be utile, fiscal information should run into four aims. These are:

Relevance – Relevance is one more factor that must be present in the information for it to be utile. Information that is non relevant is considered as waste of valuable clip in determination devising.

Reliability – The right determination based on set of fiscal information would besides depend on the dependability of the information. In this context, self generated information is considered to be most dependable as compared to information gather by 3rd parties. The user must be able to depend on the truthfulness of the information.

Comparability – This implies the ability for users to be able to compare similar companies in the same industry group and to do comparings of public presentation over clip. Much of the work that goes into puting accounting criterions is based around the demand for comparison.

Understandability – This implies the look, with lucidity, of accounting information in such a manner that it will be apprehensible to users – who are by and large assumed to hold a sensible cognition of concern and economic activities

degree Fahrenheit ) Identify any five users of accounting information.

Bank

Supplier

LHDN ( Inland Revenue )

Director

Potential portion holder

Bibliografy

Ebrary, 2011, Financial Accounting, A practical attack,

Retrieved 20th February

& A ; lt ; hypertext transfer protocol: //www.ebrary.com/corp/accounting.jsp & A ; gt ;

Ebrary. 2011, The Basicss of Hospitality Accounting, Qualitative of fiscal information,

Retrieved twentieth February,

& A ; lt ; hypertext transfer protocol: //www.ebrary.com/corp/financial-information.jsp & A ; gt ;

Ebrary. 2011, Accounting Concept, The of import construct in Accounting,

Rretrieved twentieth February,

& A ; lt ; hypertext transfer protocol: //www.ebrary.com/corp/collateral/en/Corporate/ebrary_accountingbasicsinformationconcept =OEFFFKKEPMPJ, & A ; gt ;

Question 2

You have been supplied with the undermentioned balance for Betsy Li, a exclusive bargainer, for the twelvemonth ended 31 December 2009:

RM

Property at cost 140,000

Equipment at cost 70,000

Provision for depreciation at 01/01/09:

-Property 4,200

-Equipment 17,500

Purchase 385,000

Gross saless 592, 000

Stock at 01/01/09 17,000

Discount allowed 14,000

Discount received 1,900

Returns outward 17,600

Wagess and wages 43,400

Creditors 28,500

Debtors 15,800

Bank overdraft 2,900

Cash in manus 520

Drawings 17,950

Provision for bad debt at 01/01/09 200

General disbursals 11,400

Long term loan 20,000

Capital at 01/01/09 30,670

The undermentioned accommodations need to be taken into history:

Stock at 31/12/09 is $ 21,600

Wagess and wages outstanding at 31/12/09 are $ 4,100

General disbursals includes a prepayment for rates of $ 1,000

The proviso for bad debt needs increasing to $ 280

Depreciation for the twelvemonth has still to be provided as follows:

Property 1.5 % per twelvemonth utilizing the consecutive line method.

Equipment 25 % per twelvemonth utilizing the cut downing balance method.

Loan involvement of $ 20,000

Required:

Fix a test balance for Betsy Li as at 31 December 2009/

Fix the Income Statement and Balance Sheet for Betsy Li for the period stoping 31 December 2009.

The Trial balance for Betsy Li as at 31 Dec 2009

Debit

Recognition

Property at cost

RM 140,000

Equipment at cost

RM 70,000

Provision for depreciation at 01/01/09

Property

RM 4,200

Equipment

RM 17, 500

Purchases

RM 385,000

Gross saless

RM 592,000

Stock at 01/01/09

RM 17,400

Discount allowed

RM 14,000

Discount received

RM 1,900

Tax returns outward

RM 17,600

Wagess and wages

RM 43, 400

Creditors

RM 28,500

Debtors

RM 15,800

Bank overdraft

RM 2,900

Cash in manus

RM 5,200

Pulling

RM 17,950

Provision for bad debts at 01/01/09

RM 200

General disbursals

RM 11,400

Loan

RM 20,000

Capital

RM 30, 670

RM 715,470

RM 715,470

Income statement for the twelvemonth stoping 31 Dec 2009

RM

RM

RM

Gross saless

592,000

Less ) Return inward

Net gross revenues

Less ) Cost of good sold

17,400

Purchases

385,000

Less )

( 17,600 )

Net purchase

367,400

384,800

Closing stock

( 21,600 )

( 363,200 )

228,800

Add ) Gross

1,900

Discount received

230,700

Less ) Expenses

Discount allowed

14,000

Wagess and wages

47,500

General disbursals

10,400

Provision for bad debt

80

Provision for depreciation: Property

2100

: Equipment

2000

Loan involvement

13,125

( 89,205 )

Net net income

141,495

Depreciation for the twelvemonth has still to be provided as follows:

Property 1.5 % per twelvemonth utilizing the consecutive line method.

1.5 % x 140,000 = 2,100.

Property = 2,100

Equipment 25 % per twelvemonth utilizing the cut downing balance method.

70,000 – 17, 500

52,500 ten 25 %

= 13,125

Equipment = 13,125

Balance sheet as at 31 Dec 2009

Fixed assets

RM

RM

RM

Property

140,000

Less ) Accumulated depreciation – belongings

( 6,300 )

133,700

Equipment

70,000

Less ) Accumulated depreciation – equipment

( 30,625 )

39,375

173,075

Current assets

Stock

21,600

Debtor

15,800

Less ) Provision for dubious debt

( 280 )

15,520

Cash

520

Prepaid disbursals

1,000

38,640

Less ) Current liabilities

Creditor

28,500

Accrued disbursals

6,100

Bank overdraft

2,900

( 37,500 )

Working capital

1,140

174,215

Financed by

Capital

30,670

Add ) Net net income

141,475

172,165

Less ) Pulling

( 17,950 )

154,215

Add ) Long term loan

20,000

174,215