- Bus 3061 Unit 4 Assignment 1 Accounting Theory And Merchandising Organizations.
Week 4 Assignment Template
Accounting Theory and Merchandising Accounting
Respond to the following seven questions using grammatically correct language. Save the document and submit it in the courtroom.
1. Discuss the effects of all five major accounting assumptions on the accounting
business entity, assuming that each business exists separately from its owners, creditors, employees, customers, interested parties, and other companies. For each business (such as a horse stable or a fitness centre), the business, not the business owner, is the accounting entity.
Going concern (continuity) states that an entity will continue to operate indefinitely unless strong evidence exists that the entity will terminate. The termination of an entity occurs when a company ceases business operations and sells its assets. Money measurement uses a monetary unit, such as the dollar, instead of physical or other units of measurement. Using a particular monetary unit provides accountants with a standard unit of measurement to report economic activity.
A stable dollar is accepted as a reasonably stable unit of measurement. Thus, accountants make no adjustments for the dollar’s changing value in the primary financial statements.
Accountants divide an entity’s life into months or years to report its economic activities. Then, accountants attempt to prepare accurate reports on the entity’s activities for these periods.
Bus 3061 Unit 4 Assignment 1 Accounting Theory And Merchandising Organizations
2. Describe all five concepts’ impact on the accounting
General-purpose financial statements. Meet many of the information needs of external parties and top-level internal managers. In contrast, accountants can gather special-purpose financial information for a specific decision, usually on a one-time basis.
Substance over form. Encourages the accountant to record the true nature of a transaction rather than its apparent nature.
Consistency. Generally, a company must use the same accounting principles and reporting practices every accounting period.
Double Entry. Every transaction has a two-sided effect on each company or party engaging in the transaction.
Articulation. Financial statements are fundamentally related and articulate (interact) with each other.
3. GAAP sets forth standards or methods for presenting financial accounting information. Describe all five major accounting principles.
Exchange-price (or cost) principle. Requires an accountant to record transfers of resources at prices agreed on by the parties to the exchange at the time of exchange. This principle sets forth (1) what goes into the accounting system — transaction data; (2) when it is recorded — at the time of exchange; and (3) the amounts — exchange prices — at which assets, liabilities, stockholders’ equity, revenues, and expenses are recorded.
Revenue recognition principle. Tells an accountant not to record revenues until they are earned and realized. Even though company activities may generate revenue, under this principle, revenues are not recognized until they are substantially earned. Recognizing revenue at the time of sale is advantageous. It demonstrates an observable event: revenue can easily be measured, loss due to price decline or destruction of goods is passed to the buyer, and expense and net income can be measured because the revenue has been earned.
These principles are critical in understanding the foundations of accounting, as explored in Bus 3061 Unit 4 Assignment 1 Accounting Theory and Merchandising Organizations, where the focus is on how these concepts apply to merchandising organizations.
Bus 3061 Unit 4 Assignment 1 Accounting Theory And Merchandising Organizations
Matching principle. States that expenses should be recognized (recorded) as they are incurred to produce revenues. A cost is the outflow or use of assets to generate revenue. Firms voluntarily incur expenses to grow revenue.
Gain and loss recognition principle. States that we record gains only when realized but losses when they become evident. Thus, we recognize losses at an earlier point than gains. This principle is related to the conservatism concept. Gains typically result from selling long-term assets for more than their book value. Losses consume assets, as do expenses. However, unlike expenses, they do not produce revenues.
Full disclosure principle. States that information important enough to influence the decisions of an informed user of the financial statements should be disclosed. Depending on its nature, companies should disclose this information in the financial statements, notes to the financial statements, or supplemental statements. In judging whether to disclose information, it is better to err on the side of too much disclosure rather than too little
4. In certain instances, companies do not strictly apply accounting principles because of modifying conventions or Identify and describe the impact on the accounting process of the three modifying conventions.
Cost-benefit is when accountants decide whether the benefits of giving optional information in financial statements outweigh the costs. Providing information is costly, and the measurement of benefits is a difficult practice of modifying conventions.
Materiality is when accountants can deal with unimportant items in a practical but theoretically incorrect way.
Conservatism is when the accountant is careful and wise in ensuring that the assets and net incomes are not exaggerated.
5. Correctly state the letter or letters of the principle(s), assumption(s), or concept(s) used to justify the accounting procedure followed for at least four of the accounting procedures. These procedures are all correct.
Principle(s), Assumption(s), Concept(s):
Business
Earning principle of revenue
Going concern (continuity).
Exchange-price (cost)
Matching
Period cost (or principle of immediate recognition of expense).
Realization
Stable dollar
Accounting Procedures:
Inventory is recorded at the lower of cost or market (B)
d
b
c
g
b
f
e
a
(A) truck purchased in January was reported at 80 per cent of its cost even though its market value at year-end was only 70 per cent of its cost.
(D) The collection of $40,000 cash for services to be performed next year was reported as a current liability.
(C) The president’s salary was treated as an expense of the year even though he spent most of his time planning the next two years’ activities.
(G) No entry was made to record the company’s receipt of an offer of
$800,000 for land carried in its accounts at $435,000.
(B) A supply of printed stationery, checks, and invoices with a cost of
$8,500 was treated as a current asset at year-end, even though it had no value to others.
(F) A tract of land acquired for $180,000 was recorded at that price even though it was appraised at $230,000, and the company would have been willing to pay that amount. (E)
The company paid and charged to expense the $4,200 paid to Craig Nelson for the rent of a truck owned by Craig Nelson, who is the company’s sole stockholder. (A)
In each of the following equations, supply the missing term(s):
Net sales = Gross sales – (Sales Discounts + Sales returns and allowances).
Cost of goods sold = Beginning inventory + Net cost of purchases – Ending invent.
Gross margin = Net sales – Cost of goods
Income from operations = Gross margin – Operating
Net Income = Income from operations + Gross Margin – Operating
7. To calculate the cost of goods sold, it is necessary to determine the value of goods on hand, termed merchandise inventory. Accountants use two basic methods for determining the amount of merchandise. Identify the two methods and describe the circumstances (including examples of users of each method) under which each method would be used.
Perpetual inventory procedure. It would incorporate companies that sold inventory of high individual net unit value and/or have entry to reasonable computerization.
Periodic inventory procedure. Companies that sell inventory to low individual net worth and/or do not have access to reasonable computerization would be used.