HOW TO PREPARE PRACTICAL FINANCIAL STATEMENTS
To prepare practical financial statements, accountant should understand the following issues:
- Make chart of account- what kind of business that company runs.
- Material or immaterial types of transactions or events in company.
- Accounting policy for company
- Which transaction use accrual or cash basis
In practice, financial statement formats, chart of account for financial statements and accounting policy are different from companies to other companies.
Let’s practice with the following questions:
Question 1
PEB IMPORT & EXPORT Co.,Ltd is local company that makes accounting transactions locally and overseas, and company buys and sells two major goods such as cars and computers , but cars are imported from overseas while computers are bought from local market. You are accountant, so you are required to draft the financial statements.
The following extracts of transactions in relation to the tax year ended 31 December 2016.
| Date | Transactions: |
| 1-Jan-16 | The first capitals of company for investment as follows:
– Beginning costs of inventories for 10 cars and 40 Dell model computers are assumed $190,000 and $22,900 respectively. – Beginning cash on hand and cash at bank of $5,000 and $400,000 respectively. |
| 10-Jan-16 | Company bought the following assets as cash at bank:
– Computers of $3,000 – LCD of $700 – Scanner of $600 – Printer of $500 – Meeting table of $1,000 – Small chair of $50 – Table of $800 – Car of $12,000 – Motorcycle of $2,000 – Generator of $1,000 – Armchair of $1,200 – Photocopier of $800 |
| 10-Feb-16 | Company imports 20 cars from overseas; each car is $15,000 and purchase in cash. |
| 11-Feb-16 | Company uses service from famous customs clearance company for importation of cars on Feb 10,2016 , and following assumption costs are follows:
– Import tax of $30,000 – Specific tax of $50,000 – VAT Input from customs $38,000 – Other importation costs of $50 – Clearance costs of $1,000 – Transportation in of $4,000 – VAT input from clearance company of $500 Company assumes these costs are from one supplier, Trading & Clearance Co and paid immediately to this clearance company. |
| 17-April-16 | Purchased computers as follows.
-100 Dell model computers on credit, and each cost is $600 (exclude VAT) -50 Lenovo model computers in cash, and each cost is $550(exclude VAT) -VAT input = $8,750 |
| 18-April-16 | Transportation in and handling costs are $1,500 for purchasing computers on April 17, 2016. |
| 20-Sep-16 | Sold 3 cars of $90,000 ( include VAT) |
| 30-Nov-16 | Sold 10 Dell model computers of $10,000 (include VAT) |
| 31-Dec-16 | The following expenses during year 2016 are as follows:
– Salary expenses of $5,000 -Electricity and water supply of $500 -Transportation of goods sold to customers of $700 -Office and warehouse rental of $2,000 -Office repair of $500 – Staff party expense for coming new year 2017 of $1,500 -Patent expense of $300 – Company promoted products via Facebook page of $300 – Accounting system preparation expense for company of $ $3,000 – office supply expenses of $100 |
| 31-Dec-16 | At the end of year, company calculated costs of ending inventories as follows:
– 130 Dell model computers of $ 78,175 – 50 Lenovo model computers of $ 28,000 – 27 Cars of $ 518,050 |
Required:
Based on your professional adjustment, you are required to prepare and solve the following issues:
- Make accounting policy
- Make chart of account for this company ( importation company)
- Prepare practical income statement
- Prepare practical balance sheet
Question 2
AAA Website Service Company Co., Ltd is company that designs website, database and other customized software for customers nationwide.
Under the tax regulations, AAA Website Service Company Co., Ltd is required to calculate and pay annual Tax on Profit. AAA Website Service Company Co., Ltd is subject to profit tax rate of 20%. Company has capital of $50,000.
Expenses and payments from each month for 2015 as follows:
| Month | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Total |
| Salary Expense | 4,000 | 4,000 | 4,000 | 3,350 | 3,350 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 4,000 | 46,700 |
| Tax on Salary | 149 | 149 | 149 | 125 | 125 | 149 | 149 | 149 | 149 | 149 | 149 | 149 | 1,740 |
| Net Expense for Rental (Note 1) | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 400 | 4,800 |
| Purchase Car | 20,000 | 20,000 | |||||||||||
| Purchase photocopy machine | 2,000 | 2,000 | |||||||||||
| Purchase Computers | 3,000 | 3,000 |
Additional Expenses as follows:
- Patent expense of $285.
- Advertising expense is $5,000.
- Fuel expenses of $1,000
- Office supplies expense of $600
- Other Expenses of $800
The notes as follows:
- AAA Website Service Company Co., Ltd paid withholding tax for rental on behalf of lessor.
- Withholding tax rate of 10%.
- Withholding tax, tax on salary, prepayment of profit tax and VAT output occurred during months are paid to tax admin the following months.
Service revenues from each month for 2015 as follows:
| Month | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Total |
| Revenue | 2,000 | 5,000 | 7,000 | – | 7,720 | – | 7,750 | 4,900 | – | 1,000 | – | 4,864 | 40,234 |
| VAT Output | 200 | 500 | 700 | – | 772 | – | 775 | 490 | – | 100 | – | 486 | 4,023 |
| Prepayment of Profit Tax | 20 | 50 | 70 | – | 77 | – | 78 | 49 | – | 10 | – | 49 | 402 |
Required:
Because cost of services supplied is difficult to classify which costs are direct expenses related with services earned from customers, so company decided to ignore cost of service.
Ignore other information, solve the following issues:
- Prepare accounting policy
- Make chart of account this service company
- Prepare practical income statement
- Prepare practical balance sheet