AC210 Financial Accounting For Non-Accountants Assignment Example Maynooth University Ireland

This module is about applying accounting to understand the world around us. We assume students have not previously taken any subject related to this area, so no previous knowledge is required for you.

The module will teach you about the nature and role of accounting information, as well as how different people use this type in their everyday life. Students can expect to prepare trading statements for investors or profit-and-loss accounts as well as examine financial positions on a company’s balance sheet. Students will demonstrate their knowledge and understanding of financial statements by being able to analyze the set of accounts.

Assessment Answers of AC210: Financial Accounting For Non-Accountants

On successful completion of the module, students should be able to:

Assignment Task 1: Record business transactions using the double-entry system of bookkeeping

To record business transactions using the double-entry system of bookkeeping, you will need to know what a transaction is. A transaction is an event or occurrence that takes place in the course of business and which affects the financial position of a company. For every transaction, there will be two entries made in the books of account – one debit and one credit.

The purpose of the double-entry system is to ensure that the books of account always balance i.e. the total of all debits should equal the total of all credits. This is achieved by making sure that for every debit, there is a corresponding credit and that each entry is recorded in at least two different accounts.

To record a business transaction using the double-entry system of bookkeeping, you need to know the following:

1. The name of the account you are recording the transaction in
2. The type of transaction: income, expense, asset or liability
3. The amount of the transaction
4. The source of the information
5. The date of the transaction

For example, let’s say a business buys some new office furniture for €1,000. The business would debit the Office Furniture account (an asset account) by €1,000 and credit the Cash account by €1,000. This is because the Cash account has been decreased by €1,000 (the amount of money that was paid for the furniture) and the Office Furniture account has been increased by €1,000 (the cost of the new office furniture).

Assignment Task 2: Construct, complete and balance where appropriate the accounting records of a business

Constructing the accounting records of a business is about inputting all the relevant information into the company’s books. This will be done for you in the following module.

The trading statements consist of income statements (or profit-and-loss accounts) and balance sheets. The income statement shows how much profit (or how many losses) a business has made during an accounting year. The balance sheet shows what the company owns and owes at a single point in time.

The trading statements are prepared for any company that is involved in selling goods or services i.e. it must be engaged in trading activities. Other types of companies such as retail companies, manufacturing companies, and service companies are not required to prepare trading statements.

Balance sheets are prepared for most types of businesses except sole traders i.e. people who are working on their own doing business under their own name alone e.g. plumbers, electricians, taxi drivers, etc. So if your business is a limited company or partnership, you will be required to prepare balance sheets.

To complete and balance the accounting records of a business, you need to do two things:

• The first step is ensuring that the books of account are always balanced. This is done by making sure that for every debit, there is a corresponding credit and that each entry is recorded in at least two different accounts.
• The second step is to balance the various accounts in the ledger. This is done by ensuring that the total of all the balances in each account equals zero. If this is not the case, then you will need to look at the previous transactions you have carried out and find out why this is the case.

Assignment Task 3: Complete and balance bank reconciliations

A bank reconciliation is a process whereby you compare the transactions that have taken place in your company’s bank account with the transactions that have been recorded in your company’s books of account. This will help you to identify any discrepancies and find out why the accounts are not in balance.

The purpose of a bank reconciliation is to ensure that the amounts shown in the company’s books of account are correct and that the company’s bank balance is accurate. A bank reconciliation should be carried out on a regular basis, e.g. once a month.

To complete and balance a bank reconciliation, you need to do two things:

• The first step is to reconcile the transactions that have taken place in the company’s bank account. This is done by matching the transactions that have taken place in the bank account with the transactions that have been recorded in the company’s books of account.
• The second step is to balance the accounts in the company’s books of account. This is done by ensuring that the total of all the balances in each account equals zero. If this is not the case, then you will need to look at the previous transactions you have carried out and find out why this is the case.

Assignment Task 4: Analyze and interpret financial information

Financial information is used by businesses to make informed decisions about the future of the company. This information can be used to help you assess the financial position of the company, measure its performance, and make decisions about how to improve its financial position.

Financial information can be divided into two categories:

• The first category is financial statements, which provide a picture of the financial position and performance of a company at a certain date e.g. year-end, half-year end, etc. Financial statements are usually prepared on an annual basis for companies whose shares are publicly traded on the stock exchange i.e. they can be bought and sold by anyone who wants to buy them whether or not the person owns any shares in the company.
• The second category is management accounting information, which is used by managers within a company to make decisions about the future of the company. Management accounting information is not made available to the public and is only for internal use within the company.

The interpretation of financial information involves analysis and comparison. You need to analyze the information to find out what it tells you about a particular aspect of a company or its performance, and then compare this with similar information for other companies in the same industry to see how they compare.

Assignment Task 5: Understand Cash Budgeting:

Cash budgeting is the planning of future cash receipts and payments. By planning your cash requirements well in advance, you will avoid having to forego profitable opportunities because you don’t have the necessary funds available or not being able to pay lenders on time causing them to charge penalties.

The main objective for preparing a cash budget is to ensure that there is enough cash available to meet the company’s obligations as they fall due. This can be done by estimating the cash receipts and payments for a future period of time and then ensuring that there is enough cash available to cover these estimated amounts.

A cash budget should be prepared on a regular basis, e.g. monthly or quarterly, and should be updated as new information becomes available.

There are three steps involved in preparing a cash budget:

• The first step is to estimate the cash receipts for the period. This can be done by calculating the expected sales revenue and then subtracting any discounts, returns, and allowances that are expected. You should also include any other income that is expected during the period, e.g. fees from loans, etc.
• The second step is to estimate the cash payments for the period. This can be done by looking at all of your current liabilities and determining when payment will need to be made on each account. You should also include any expected new purchases that you will make during the period as well as any other payments that are expected, e.g. loan payments, rent, etc.
• The third step is to calculate the difference between the cash receipts and payments. This will give you an estimate of how much cash you will have available during the period. If this amount is less than what is required to meet your obligations, then you will need to find a way to cover the shortfall. One way to do this is by arranging for short-term loans from a financial institution.

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