Brave Brands Marketing is a well-renowned marketing organisation with a strong workforce of dedicated employees. However, the CEO has recently identified that many of his staff members have a poor understanding of financial statements and difficulty in interpreting financial data as their tertiary education has not exposed them to such information. As a financial advisor, you have been asked to answer the following questions in preparation for the training course that you will perform internally for the company.

Task 1. Accounting systems (60 marks)

Brave Brands Marketing is a well-renowned marketing organisation with a strong workforce of dedicated employees. However, the CEO has recently identified that many of his staff members have a poor understanding of financial statements and difficulty in interpreting financial data as their tertiary education has not exposed them to such information. As a financial advisor, you have been asked to answer the following questions in preparation for the training course that you will perform internally for the company.

  • In a brief but comprehensive response, define the role of accounting. (You are required, amongst others, to address accounting information, users of financial information, the accounting process and the role of financial accounting vs. management accounting)

(20 marks)

  • In general, explain what the statement of comprehensive income (income statement) and statement of financial position (balance sheet) portray about a business entity and briefly discuss what is contained in each statement

(25 marks)

  • The CEO has described an item in the financial statements of Brave Brands Marketing as “…a present obligation, arising from a past event, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits” State what element of the accounting equation the CEO is referring to, explain how it is classified on the basis of time period and provide 2 examples for each type

(15 marks)

Task 2. Transaction analysis, Journals, T accounts and Trial Balances (40 marks)

 

The following list of transactions relates to a computer repair business, Dalco Computer Repairs Ltd, during July, which is its first month of business. The business has two shareholders Jamie T and Paul S.

 

July Transaction
1 The main shareholder, Jamie, puts £10,000 cash into the business
2 The second shareholder, Paul, puts a further £8,000 cash into the business
3 The manager of the business buys a vehicle for £6,500 cash
4 The company receives a bill of £125 for electricity consumed
5 The company purchases stationery for office use, paying £ 250 cash
6 The company pays the electricity bill for £125 cash
7 The manager pays monthly rental of £240  for a computer used to keep customer records
8 The manager buys computer spare parts for £150 cash to use in repairs
9 The manager buys spare parts worth £3,750 on credit terms
10 The company pays garage service bills for van using £360 cash
11 The company fills van with petrol, using credit account at local garage, to be paid at the start of next month. The cost was £85.
12 The employees carry out repairs for customers for £4,060 cash
13 The employees carry out repairs for customers on credit terms for £5,605
14 The manager pays wages of £1,850 to an employee
15 The shareholders withdraw cash of £2,500 for their personal use. Jamie receives £1,500 and Paul receives £1,000.
16 The owner checks the inventory (stock) of spare parts at the end of the month and estimates it to be worth £1,600 measured at cost price.
  • Prepare a journal to show the transactions of, Dalco Computer Repairs Ltd, between July 1 and July 16. DO NOT write any narratives in your journal. Use only the following account headings: Cash and Bank, Trade Receivables (or Debtors), Inventory, Vehicles, Trade Payables (or Creditors), Capital (Contributed or Withdrawn), Revenue (or Sales) and Expenses. Confirm that the sum of debits equals the sum of credits.

 

Dalco Computer Repairs Ltd, July 1 and July 16
Date Account Debit Credit

 

  • Using your journal, prepare the following T accounts (ledger accounts); Cash and Bank A/C, Trade Receivables (or Debtors) A/C, Inventory A/C, Vehicles A/C, Trade Payables (or Creditors) A/C, Capital (Contributed or Withdrawn) A/C, Revenue (or Sales) A/C, Expense A/C.