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Assignment title ACCOUNTING PRINCIPLES

LO 01 Examine the context and purpose of accounting

Prepare basic financial statements for unincorporated and small business organisations in
LO 02
accordance with accounting principles, conventions, and standards.

LO 03 Interpret financial statements

LO 04 Prepare budgets for planning, control and decision making using spreadsheets

You have joined as a graduate trainee at an accounting firm, you work closely with sole proprietors and
small businesses under the supervision of an account manager, providing assistance with various accounting
tasks. Your responsibilities encompass assisting clients in preparing accounting statements, calculating, and
analyzing accounting ratios, and assisting with budget preparation.
Your support as an accounting trainee plays a crucial role in helping sole proprietors and small businesses
manage their accounting tasks effectively. Through preparing accurate statements, ratio analysis, and budget
assistance, you contribute to their financial well-being and overall success. You are given the following
responsibilities by your accounts manager:

Preparing a Presentation and leaflet

Presentation: As part of your ongoing training, you have been asked to prepare a presentation with speaker
notes titled ‘Beginner’s Guide to Accounting for Small Business Owners’ which can be used by your
manager during the local small business network event to be held next month. The presentation should
critically evaluate the importance of accounting in an organization and its role in decision-making and
should be aimed at the local audience.
Your evaluation should refer to accounting’s main purposes, requirements for
adhering to reporting standards and regulations, and how it meets the needs and expectations of stakeholders.
Benefits, risks and limitations of financial information should be considered, including the outsourcing of
services to others.
Finally, your presentation should critically evaluate how accounting supports decision-making for owners,
including the challenges of, and opportunities for, using accounting data.
effectively.
Leaflet: It is normal at these events to provide a supporting leaflet, relevant to the presentation, for attendees
to take away with them and use as a resource.
The accompanying one-page double sided leaflet should critically assess the relevance of financial
information as part of an accounting function. It should focus on the roles, skills and competences required,
and highlight the broader societal impact of interrelationships between accounting and finance in
increasingly complex environments.
The recommended word limit for the presentation and one-page double sided leaflet is 1,000-1,500 words by
using the Harvard referencing system. You will also need to provide a bibliography using the Harvard
referencing system for both the presentation and leaflet. Inaccurate use of referencing may lead to issues of
plagiarism if not applied correctly.

NOTE: Create a link for the presentation and add that link in the main assignment document under task1.
PPT and leaflet need to be submitted separately on the LMS.

Preparation of financial statements

Your supervisor was very happy with your work and has now asked you to prepare the year-end financial
statements for three different clients, a sole trader, a partnership firm and a not-for-profit organization. The
accuracy of the financial statements is crucial, not only for clients’ understanding but also for potential future
endeavours such as expanding their business or securing business finance.
From the Trial Balances given below for all three organizations, prepare and produce financial statements,
taking into consideration accounting principles, conventions, and standards and make adjustments as
necessary.
I. Sole proprietor: Albert, a sole trader who runs a small consulting business has provided you with the
trial balance as at 31st December 2023 and asked you to prepare the financial statements. Additionally, he
has given you two adjustments to consider given after the trial balance.

Preparation of financial statements

Your supervisor was very happy with your work and has now asked you to prepare the year-end financial
statements for three different clients, a sole trader, a partnership firm and a not-for-profit organization. The
accuracy of the financial statements is crucial, not only for clients’ understanding but also for potential future
endeavours such as expanding their business or securing business finance.
From the Trial Balances given below for all three organizations, prepare and produce financial statements,
taking into consideration accounting principles, conventions, and standards and make adjustments as
necessary.

II.Sole proprietor: Albert, a sole trader who runs a small consulting business has provided you with the
trial balance as at 31st December 2023 and asked you to prepare the financial statements. Additionally, he
has given you two adjustments to consider given after the trial balance.

Trial Balance as at 31st December 2023

Account Debit (AED) Credit (AED)

Capital 400,000
Drawings 65,000
Revenue 400,000
Purchases 150,000
Salaries 90,000
Rent 60,000
Utilities 70,000
Office Equipment 120,000
Accounts Receivable 70,000
Accounts Payable 25,000
Bank 200,000
Total 825,000 825,000

Adjustments:
 Closing Stock at 31st December 2023 is AED 25,000.
 Depreciation On Office Equipment at 20% per annum.

Required: Prepare the Financial Statements (Income Statement and Balance Sheet) for the sole trader as at
31st December 2023.
III.PARTNERSHIP: Now you are asked to prepare a financial statement for the partnership firm ABC &
Co., operated by partners Mr. Anwar and Mr. Barakat. At the end of the financial year, the partners have
provided you with the trial balance as at 31st December 2023 and asked you to prepare the financial
statements.

Trial Balance as at 31st December 2023

Account Debit (AED) Credit (AED)

Capital - Mr. Anwar 40,000
Capital - Mr. Barakat 60,000
Drawings - Mr. Anwar 20,000
Drawings - Mr. Barakat 10,000
Sales 300,000
Purchases 120,000
Salaries 50,000
Rent 30,000
Utilities 20,000
Furniture and Fixtures 60,000
Accounts Receivable 40,000
Accounts Payable 30,000

Bank 80,000
430,000 430,000

Adjustments:
 Closing Stock on 31st December 2023 is AED 40,000.
 Interest on capital and drawings was to be charged at 10% p.a. and 8% p.a. respectively.

Required: Prepare the Financial Statements (Income Statement, Partners’ Capital Account and Balance
Sheet) for the partnership firm ABC & Co. as at 31st December 2023.

IV. Not-for-Profit Organization

Now you need to prepare financial statements for not-for-profit organization called "Community Care” for
the year ended December 31, 2023. The following trial balance has been provided:

Trial Balance as at December 31, 2023

Account Debit ($) Credit ($)
Cash 20,000
Donations Received 61,000
Grants 20,000
Office Supplies Expense 5,000
Account Debit ($) Credit ($)
Salaries Expense 25,000
Equipment 30,000
Accounts Payable 9,000
Rent Expense 10,000
Program Expenses 15,000
Fundraising Revenue 15,000
Total 105,000 105,000

Adjustments:
 Depreciation on Equipment for the year is $3,000.
 Unrecorded Donations of $4,000 were received at the end of the year.
Required:
Prepare the Statement of Financial Position and the Statement of Activities for Community Care for the year
ended December 31, 2023.

Interpretation of financial statements

Based on the financial statements prepared above for three clients, your manager now wants you to assess
and compare their performance with the industry benchmark given to you below:

 Calculate the following relevant ratios.

 Compare financial ratios for the year 2023 with the benchmark ratios of the industry provided below:

Ratios Sole Trader Partnership

Current Ratio 6:1 3:1
Debt-Equity Ratio 1.3:1 1.8:1
NP (Surplus) Ratio 15% 20%
Return on Asset 12% 38%
Inventory Turnover Ratio 7 times 4 times

NPO Ratios:
2022 Not-for-profit Organization
Current Ratio 3:1
Surplus Ratio 25%
Operating Expenses to 35%
Revenue Ratio
Program Efficiency Ratio 15%
Revenue Diversity Ratio:
 Donation received ratio: 50%
Grants Ratio: 30%
Fundraising Revenue Ratio: 20%

Financial Ratios for 2022 (Benchmark)

Critically interpret and evaluate the performance of the organisation by referring to the ratios, you have
calculated in the task above and provide justified recommendations for improving the performance and
highlight limitations of ratio analysis, as a tool to evaluate performance.

Cash Budget

You now have been tasked by your supervisor to work with these businesses to prepare their cash budget for
the next financial year 2024 by taking 2023 as base. These businesses are particularly in need of support and
guidance with budgeting and how it can be used to inform efficient resource allocation and support effective
control and decision-making.

Sole Trader:
 Sales: Sales for the last quarter of 2023 are AED 100,000 and for 2024 are expected to be constant
for the first two quarters at AED 125,000 and for the remaining two quarters at AED 160,000. 50%
of sales are on a cash basis and remaining amount to be received in the next quarter.
 Purchases: Purchases are expected to increase by 20% each quarter in 2024 compared to the
purchase in the last quarter of 2023 i.e. AED 50,000. Purchases are paid 50% during the purchase and
remaining in the next quarter.
 Additional equipment: An additional equipment purchase worth AED 10,000 is scheduled for
August 2024.
 Expenses: The rest of all the expenses are estimated to increase by 10% each quarter in 2024. The
details are given below for the last quarter of 2023:
o Salaries: AED 25,000
o Rent: AED 30,000
o Utilities: AED 15,000

Partnership:

 Sales: Sales are forecasted to increase by 50% in all the quarters of 2024 compared to AED 75,000 in
the last quarter of 2023. Sales are made on a cash basis.
 Purchases: The purchases in the first quarter of 2024 were estimated at AED 125,000 and for the
 remaining quarters it is estimated to 135,000 each quarter against the first quarter. 50% payment for
purchase is made in the same quarter of purchase and remaining in the following quarter.
 Expenses: Expenses in the year 2024 were estimated as below for each quarter:
o Salaries: AED 15,000,
o Rent: AED 10,000
o Utilities: AED 5,000
 An insurance premium of AED 1000 per quarter is to be paid in the beginning of each quarter.

Not-for-profit:
 Revenues:
o Donations are expected to improve by 40% in each quarters of 2024 compared to $ 15,000 in
the last quarter of 2023.
o Grants and Fundraising revenue are also expected to increase by 20% each quarter in 2024
against a quarterly average of 2023 which is $ 5,000 and $ 3,750 respectively.
 A one-time expense of $ 5,000 is planned for the construction of a new library in the last quarter.
 Salary: Salary expenses for 2024 is estimated to be $ 9,000 each quarter.
 Other expenses: Other expenses for each quarter of 2024 are expected as below:
o Office Supplies Expenses: $1,500
o Rent: $2,000
o Program Expenses: $ 3,000
Required:
Create a cash budget for each type of business for the next year, broken down by quarter (4 quarters in total).
Include all the estimated changes in income and expenses.
Ensure to consider the timing of the additional expenses, such as the equipment purchase and insurance
premium payments. Present the cash budget in a clear and organized format.

 Discuss the benefits and limitations of budgets and budgetary planning and control on organisations.
 Justify a range of budgetary control solutions to support organizational decision-making and ensure
efficient and effective deployment of resources.
 Discuss the use of budgets and budgetary planning to reveal any corrective actions for effective
decision-making relevant to each organisation’s owner(s). Your critical evaluation should inform
justification for suggested budgetary control solutions to ensure the efficient and effective
deployment of resources.

Note:
  Use a Spreadsheet or Excel sheet to show your calculation in tasks 2, 3, and 4.
 For task 1 you need to justify your response using supporting evidence from a range of academic
sources, including textbooks and journals.
 This should be written in a concise, formal business style using single spacing and font size 12.
 You are required to make use of headings, paragraphs, and subsections as appropriate, and all work
must be supported with research and referenced using the Harvard Referencing System.
 Provide a Reference List using the Harvard Referencing System.
 The recommended word limit is a minimum of 5000 words with a levy of 10%.

Suggested Reading Materials & Recommended Resources

1. ATRILL, P. and McLANEY, E. (2018) Accounting and Finance for Non-Specialists. 11th Ed.
Harlow: Pearson.
2. DRURY, C. (2015) Management and Cost Accounting. 9th Ed. Cengage Learning.
3. SEAL, W. et al (2018) Management Accounting. 6th Ed. Maidenhead: McGraw-Hill.
4. Weetman, P. (2019). Financial and Management Accounting: An Introduction. Harlow: Pearson
Harlow: Pearson.

Websites
www.accountingcoach.com Accounting Coach : Online free courses (General reference)
Association of Chartered Certified Accountants (General reference)
Chartered Institute of Management Accountants
www.accaglobal.com Tutor Resource Hub

Corporate Finance Institute Resources

www.cimaglobal.com

Weblinks:
 Accounting Coach courses. Available at:
https://www.accountingcoach.com/accounting-basics/explanation
 The Association of Chartered Certified Accountants ACCA). Available at: https://www.
accaglobal.com/gb/en.html
 Chartered Institute of Management Accountants. Available at: https://www.cimaglobal. com/
 Indeed Career Guide to Memo Writing. Available at: https://www.indeed.com/career-advice/career-
development/memo-writing-guide