To complete the unit requirements safely and effectively, the individual must:

• Explain double-entry bookkeeping principles
• Identify general journal and general ledger entries
• List the key provisions of relevant legislation, regulations, standards and codes of practice that may preparation of financial reports
• Describe organisational accounting systems
• Outline relevant organisational policies, procedures and accounting standards. 

Assessment must be conducted in a safe environment where evidence gathered demonstrates consistent performance of typical activities experienced in the financial administration field of work and include access to:

• Office equipment and resources
• Computer equipment and relevant software
• Relevant standards
• Samples of financial data
• Workplace reference materials such procedural manuals and company policy
• Case studies and, where possible, real situations.

Bank account

Capital a/c

Inventory a/c

GST paid and collected

Rent a/c

Accounts payable

Motor vehicle

Insurance

Sales>

Trial balance as at 30^th June (Extract)

Recording of assets –

• Purchased computer on 1/7/2016 for $ 14,000 with nil residual value and additional $ 1,000 for software installation. Method of depreciation is straight line and estimated useful life is 5 years.

Depreciation = ($ 14,000+$1000 – 0)/5 = $ 3000 per year

• Purchased computer on 1/9/2016 for $ 9,000 with nil residual value and additional $ 3,000 for installation. Method of depreciation is straight line and estimated useful life is 4 years.

Depreciation = ($ 9,000+$3000 – 0)/4 = $ 3,000 per year

• Purchased motor vehicle on 1/8/2016 for $ 18,000 with nil residual value and additional $ 2,000 for music system. Method of depreciation is straight line and estimated useful life is 5 years.

Depreciation = ($ 18,000+$2,000 – 0)/5 = $ 4,000 per year

Profit or loss on disposal –

4.3 project work activity

Answer 1

Register for PPE is the register that lists all the fixed assets owned by business and includes details like the type of asset, location of the asset, date and purchase price and useful life of asset. Fixed asset register includes the following items –

• Serial number that shows the entries count
• Identification
• Description of the asset
• Name of the asset
• Date of purchase
• Purchase costs
• Date on which the asset is put to use
• Method of depreciation
• Rate of depreciation
• Amount of the depreciation
• Asset’s gross book value
• Asset’s net book value
• Salvage value expected from the asset

Depreciation is allocation of asset’s cost over the useful life of the asset on systematic basis. On the basis of generally accepted accounting principles the method of depreciation is determined. Various factors considered while determining the appropriate method of depreciation are as follows –

• If it is considered that the equal amount of the asset will be used in each period on continuous basis throughout the useful life of the asset straight line method will be most appropriate. Assets for which this method is used are office furniture and building.
• If the measurable units are produces by the asset, units-of-production method is used. It allocates the depreciation on per unit basis in each period (Frias?Aceituno, Rodríguez?Ariza and Garcia?Sánchez 2014).  
• If the asset is used more in early years of the asset’s life as compared to the later years of the asset’s life declining balance method will be appropriate.

Fixed asset register is maintained on a book or on excel spreadsheet that includes the below mentioned details –

• Identification and serial number
• Name of the asset
• Date of purchase
• Purchase costs
• Method of depreciation
• Rate of depreciation
• Amount of the depreciation and accumulated depreciation
• Asset’s net book value

At end of each month accountant shall prepare the depreciation schedule for each line item using the rate of depreciation and describing in the sub-section.

There are 2 ways of computing the depreciation on the assets – diminishing balance method and straight line method. Hence, the entities are required to determine the appropriate method that will be suitable for them. Eventually, they are required to record the depreciation in the journal entry.

Prepaid expenses are the future expenses payment for which has been made in advance. In other words, the prepaid expenses are for which costs have been paid but the services has not been availed yet. Prepaid expenses are reported in the balance sheet of the company under current assets. On the other hand, accrual expenses and revenues are that which have already been availed or consumed however, the related payment has not yet been made. Accruals are reported in the balance sheet of the company as liability (Trotman and Carson 2018).

Bad debts are those debts that are not expected to be recovered. Bad debt expenses are recorded in the income statement as expense. Bad debts can be recorded in 2 ways – allowance method or direct write off method. Under direct write off method when it is probable that invoice from specific customer will not be paid invoice amount is recorded to the bad debt expenses directly. It is debit to the bad debt expenses and credit to the receivable account. on the other hand, as per allowance method while the sales transaction is recorded an associated amount for bad debt expense is recorded. It is recorded as debit to bad debt expense account and credit to allowance for the doubtful accounts (Zeff, van der Wel and Camfferman 2016).

1^st journal entry is recorded for clearing the opening balance of inventories through debiting the income summary and crediting the inventories for an equal amount of opening balance of inventories. 2^nd adjusting journal entry is recorded through debiting the inventories and crediting the income summary for the inventory values at the closing of the accounting period (Macve 2015).  

Main purposes of the adjusting entries are adjusting the expenses and revenues to accounting period to which it pertains. After making the entries in accounting journals they are posted or recorded in the general ledger in same way as other journal entries are recorded.

Every time a transaction takes place shall be recorded. After recording the transactions in journal, they are transferred to general ledger. Each transaction from the journal entry shall be posted to ledger. Ledger is the final entry book and is used for classifying and organizing the transactions. Each of the journal entry is transferred to individual account. These line items are known as ledger accounts (Cao, Chychyla and Stewart 2015).

Final ledger accounts are prepared for reflecting the gross as well as net profits to evaluate the way in which the entity has performed during particular time period. This evaluation can be used for making future decisions.

Revenue statements are prepared for evaluating the entity’s past performance that provides the basis for predicting future performance. It is prepared by taking into consideration all the revenues and deducting the expenses from that (Minnis and Sutherland 2017).

Balance sheet is prepared for revealing the performance of the company. It is regarded as the documented proof regarding the assets and liabilities of the company and the claims of residual ownership against the equity at particular point of time. Balance sheet gives clear idea regarding the assets of the company and liability claims against it. It is prepared through showing the assets that is segregated into current assets and non-current assets, liabilities that is segregated into current liabilities and non-current liabilities and owner’s equity (Kwok 2017).

Reference 

Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons, 29(2), pp.423-429.

Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.

Frias?Aceituno, J.V., Rodríguez?Ariza, L. and Garcia?Sánchez, I.M., 2014. Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), pp.56-72.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Kwok, B.K., 2017. Accounting irregularities in financial statements: A definitive guide for litigators, auditors and fraud investigators. Routledge.

Lane, C. and Farleigh, W., 2017. Annual Report and financial statements.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.

Robinson, T.R., Henry, E., Pirie, W.L., Broihahn, M.A. and Cope, A.T., 2015. International Financial Statement Analysis, (CFA Institute Investment Series). John Wiley & Sons.

Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.

Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.

Zeff, S.A., van der Wel, F. and Camfferman, C., 2016. Company financial reporting: A historical and comparative study of the Dutch regulatory process. Routledge.