Accountancy & Auditing

Inventory Turnover: $\frac{\text{COGS}}{\text{Average Inventory}} = \frac{540,000}{(120,000+150,000)/2} = 4 \text{ times}$ A/R Turnover: $\frac{\text{Net Credit Sales}}{\text{Average A/R}} = \frac{1,825,000}{(380,000+350,000)/2} = 5 \text{ times}$ 3. Profitability and Operating Rates Gross Profit Percentage: Sales − COGS Sales = 1 , 825 , 000 − 540 , 000 1 , 825 , 000 × 100 = 70.41 % \frac{\text{Sales} - \text{COGS}}{\text{Sales}} = \frac{1,825,000 - 540,000}{1,825,000} \times 100 = 70.41\% Sales Sales − COGS ​ = 1 , 825 , 000 1 , 825 , 000 − 540 , 000 ​ × 100 = 70.41% Net Profit Percentage: Gross Profit − Operating Expenses Sales = 1 , 285 , 000 − 600 , 000 1 , 825 , 000 × 100 = 37.53 % \frac{\text{Gross Profit} - \text{Operating Expenses}}{\text{Sales}} = \frac{1,285,000 - 600,000}{1,825,000} \times 100 = 37.53\% Sales Gross Profit − Operating Expenses ​ = 1 , 825 , 000 1 , 285 , 000 − 600 , 000 ​ × 100 = 37.53% Operating Expenses Rate: Operating Expenses Sales = 600 , 000 1 , 825 , 000 × 100 = 32.88 % \frac{\text{Operating Expenses}}{\text{Sales}} = \frac{600,000}{1,825,000} \times 100 = 32.88\% Sales Operating Expenses ​ = 1 , 825 , 000 600 , 000 ​ × 100 = 32.88% 9 The non current asset section of Aadil & Co. at December 31, 2005 is as under:- Land Rs. 1,000,000 Office equipment Rs. 5,000,000 Less: accumulated depreciation 250,000 4,750,000 Machinery Rs. 600,000 Less: accumulated depreciation 120,000 480,000 Total non current asset 6,230,000 OTHER INFORMATION: All assets were purchased on January 2, 2004 The firm depreciates all assets on a straight line basis with no residual value and with the following lives: Office equipment 40 years Machinery 10 years The following transactions occurred during 2006: Apr. 01. A new additional equipment was purchased for Rs. 1,000,000 and machinery at a cost of Rs. 50,000. All items were paid for in cash. Jul. 15. Repairs of Rs. 5,000 were made for cash on machinery. Sep. 30. Machinery with a cost of Rs. 100,000 and accumulated depreciation of Rs. 20,000 (as of 31st December, 2005) was sold for Rs. 82,000 cash. Dec. 31. Machinery with a cost of Rs. 50,000 and accumulated depreciation of Rs. 10,000 (as of 31st December, 2005) was traded in for new machinery. The firm received a trade-in allowance of Rs. 32,000. The list price of the new machinery is Rs. 85,000. REQUIRED: Make all the required Journal entries. Show all necessary computations.

At the beginning of 2000, Mr. Saadiq decided to open an advertising agency called The Best Agency. During 2000 the following transactions occurred. Saadiq invested Rs. 300,000 cash in the business. In addition, the local bank lent the firm Rs. 100,000. The firm used the cash to purchase land for Rs. 50,000, a building for Rs. 100,000, and office furniture and fixtures for Rs. 80,000. In addition, the firm purchased another Rs. 50,000 of furniture and fixtures on account, all of which will be paid for next year. The following summary of revenue and expense transactions and other transactions took place during 2000. Commissions earned during the year amounted to Rs. 125,000. By the end of the year, Rs. 110,000 of these commissions had been collected in cash. The firm expects to collect the remaining cash early next year. Various operating expenses of Rs. 105,000 were incurred and paid in cash during the year. Saadiq withdrew Rs. 5,000 from office to pay the utility bills of his residence. REQUIRED: Using the above information, prepare the following financial statements: Income statement for the year ended December 31, 2000. Statement of owner's equity at December 31, 2000. Balance Sheet as at December 31, 2000.

Financial statements are described as the major product of the accounting information systems. Explain this statement and briefly describe the four principal financial statements.

What is the relationship between the need to prepare financial statements on timely basis and the matching convention?

Why is it necessary to make adjusting entries? Can you think of a situation when adjusting entries would not be required?