Prepare an Income Statement and Statement of Financial Position for Harshim Trading LLC for the year ending on 31 December 2019 with all relevant workings.

Income statements:

Balance sheet:

Task 2:

Required: 

1.      Arrange the Assets, Liabilities and Owner’s Equity accounts in an Accounting Equation, using the following account titles: Cash, Trucks, Equipment, Account Receivables, Account Payable and Owner’s Equity                                                

Ans.

Accounting equation:

Assets = liabilities + owner’s equity

 Owner’s equity= OMR 600000

Truck = OMR 430000

Equipment = OMR 9000

Accounts payable = OMR 7200

Cash = OMR 6000

Cash = OMR 22300

Cash= OMR-5000

Expense paid on cash = OMR 1700

Drawings = OMR 1200

Assets = Liabilities+ Owner’s equity

Truck+ Equipment+ accounts receivable+ cash+ cash-cash-cash= owner’s equity+ accounts payable-drawings

430000+9000+7200+6000+22300-5000-1700= 600000+9000-1200

460600= 607800                                                                           

2.      Prepare the following T Accounts                                                  

a.      Cash account

b.      Accounts Receivable

c.       Accounts Payable

Task 3:

Required:                                                                              

1.      To define if the accounting concepts and conventions function as guidance in preparing financial statements.

Ans. accounting concepts and conventions play a very important role in the financing position of the company. While in preparing the financial statement of the company that includes the income statement and balance sheet and many others. The accounting concepts and conventions play a very important to establish the statements according to the requirement of the finance and different accounting standards and regulations also helpful in preparing the statements according to national and international standards. It provides a complete set of guidance about the preparation of financial statements and tells the management that which action performs in what way and how its effects occur in the business. accounting concepts help the company to prepare all the financial statement in which it covers all the transactions financial actions that may affect the profitability and position of the company and manage them according to some standards to provide a clear path that how to manage the financial statements according to their preparation and make a clear view about the financial position of the company through its proper statements and record all the data occur in the company (Balakrishnan, et al., 2015). The financial statements can be developed Based on the accounting concepts and standards specified by the international organizations and groups. The financial statements such as balance sheet and income statement consider the roles and concepts of accounting which are also known as basic accounting principles. For instance, going-concern business concept is an accounting concept for the development of financial statements.

2.      To ascertain if accounting concepts and conventions assist in proving useful information for economic decision-making.

Ans. different accounting concepts and conventions also help the company to make better about its performance and this will also affect the economy of the country. When the accounting concepts help the company to prepare its all the financial statements and manage them most effectively then it will also guide that how the financial information explains the performance and position of the company and its profitability explain that how much the company working most productively and generate more income. When the performance of the company affects the market then the decision of the company also occurs in the economy and the company has to manage its effective decision-making strategies in such a way that the company showed a positive effect in the economy and they generate more profit for developing the economy and overall market. So accounting concepts help the company to manage its financial position most effectively and show positive and major affects in the internal economy to developing the world at large scale and manage the financial issue most suitably (Ozyasar, 2020). The accounting concepts also provide essential details to the financial managers and users of financial reports in the decision making process. For instance, going concern accounting concept encourage the business managers to take decision which benefit the business in future as well. Instead of making decisions that benefit for the short term duration only. Therefore, it can be said that accounting concepts are supportive for effective decision making process in the organizations.

3.      To ascertain if accounting concepts and conventions assist in recognizing how accounting transactions are looked into.

Ans. accounting concepts help organizations to manage their accounting and finance areas and manage them most effectively. All the financial transactions involved in the company must be recorded in a clear way and the most understandable method. The company has to follow the accounting concepts and conventions to present all the financial information and transactions recorded in the company and all the financial events occur in the company. Accounting concepts and standards help the company to present all the financial and monetary transactions most effectively and manage according to their effects and mention all the areas that get affected due to any transactions. The company has to record all the financial information with proper formatting and in all the clear statements that mention according to standards of accounting and financial regulations. So company according to accounting concepts and conventions record all the financial data and manage them according to the actual requirement of the company to show every step in a clear way and easily understandable (Iedunote.com, 2020). Accounting concepts and conventions provide basic assumptions that benefit the financial managers to recognize and identify various accounting transaction and hidden nature of these transactions. For instance, because of accounting concepts, we understand that business owner and organization are the two sperate entities that we cannot consider as same entities while recording financial transactions. Moreover, the cost concept and matching concept (accounting concepts) enable the administration to identify which transaction of sales is required to be mentioned in the financial statement of which year.

4.      To define if accounting concepts and conventions lead to producing more meaningful and reliable financial reports.

Accounting concepts and conventions help the company and business record all the information in a clear way and also manage all the records to keep the record safe and useful for the future. The company keeps its financial record to determine its profitability and manage all the records to determine its costs and expenses and also its income as per company requirements. Accounting standards help the organization through providing complete formats that how to prepare their financial statements in a most presentable and attractive way and how they can clearly explain the position of the company and its financial state among its competitors. So reliable financial reporting guidance provides through the accounting standards and manages them according to the financial requirements of the company and its relevant economy. (Needles & Powers, 2010). The accounting concepts provide support for the development of financial statements such as balance sheet and income statement of each fiscal year. For instance, considering the matching concept and cost concept, we cannot mention advanced rent payment of two year duration in the operating expense (in income statement) of a single fiscal year. Thus, based on these accounting concepts, we understand the real reference of each transaction with the relevant fiscal year. Conclusively, accounting concepts such as matching concept, realization concept, business entity concept, cost concept, and accounting period concept provide meaning and reliable information for the financial reports. Based on these concepts, companies make their financial statements more informative and clear for the potential investors to evaluate the financial position of the company before investing in the equity.

Task 4:

Explain the reasons why Accounting is important for your business, regardless if it is small or large.

Ans. accounting is the most important part of every organization to manage its financial transactions and show how the company manages its cash inflow and outflow most effectively. The accounting importance of the companies never overcome because of their size. The company may be large, medium, or small, it needs proper accounting transaction entry and the record must be maintained related to every transaction and activity. Every company needs to prepare the following statements to record all the transactions and maintain their complete record. These statements include the income statement, Balance sheet, and cash flow cycle of the company. Income statement helps the organization to present its income or profitability, balance sheet explains it all the assets and liabilities according to the requirement of the company and cash flow explain how much cash in or out in the company according to its requirements.

References of importance of accounting

Balakrishnan, K., Goico, B. & Arjmand, E. M., 2015. Applying Cost Accounting to Operating Room Staffing in Otolaryngology: Time-Driven Activity-Based Costing and Outpatient Adenotonsillectomy. Otolaryngology--Head and Neck Surgery, 152(4), pp. 684-690.

Iedunote.com, 2020. 5 Accounting Principles. [Online]
Available at: https://www.iedunote.com/accounting-principles

Needles, B. E. & Powers, M., 2010. Financial Accounting. s.l.:Cengage Learning.

Ozyasar, H., 2020. The Accounting Cycle & the Importance of Using Generally Accepted Practices. [Online]
Available at: https://smallbusiness.chron.com/accounting-cycle-importance-using-generally-accepted-practices-21341.html