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Adequacy of Profit & Loss and Balance Sheet as reports

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A) THE ADEQUACY OF PROFIT & LOSS AND BALANCE SHEET AS REPORTS HIGH LIGHTING BUSINESS SITUATION 1.1 Why the adequacy Profit and Loss Account as report business situation Before the profit and Loss Account prepared, businesses prepare the Trading Account. In the trading account businesses only get the gross profit or gross loss, but this is not actual profit or losses. Further step businesses have to prepare the Profit and Loss Account. The businesses prepared the Profit and Loss Account is to calculate all the expenses and gain of the business. It's easily for the businesses to understand in this Profit and Loss Account where all the expenses and the gain are summarized in this account. All expanses are written down in this account like transport cost, salaries, rent and other expenses. That mean businesses know what they have expanse during the operation of the business and immediately know all the expanses they have expand. For example of expenses: a) Rent = $10,000 / month b) Transport cost = $500 spend in a month c) Salaries = $6,000 for all workers in a month The total of rent, transport cost and salaries for that month is $16,500. ...read more.


=$86,000 The assets of the business is $86,000 B) SALES RETURNS AND PURCHASES RETURNS ARE SEPARATELY IDENTIFIED FROM THE RECORDED SALES AND PURCHASES 1.3 Returns of Goods Mostly good are sold in credit by the business. Some good have to return back because: 1) The goods defective or faulty construction 2) Wrongly specification, type, quality and the size 3) Goods are damaged In business transaction good always sold on credit and usually written down in form of credit note. Credit note always sends by the seller to the buyer, which to inform the buyer account is credited in their (seller) former's book. There are two types of returned goods: 1) Return Inward (Sales Return) 2) Return Outward (Purchases Return) 1.4.1 Return Inwards In Return Inward Journal or Sales Return Book always recorded the good return by the buyer. When customer overcharged, this book also records the deduction amount in a customer's account which refers from the copies of credit note. It's important to separate the account from sales ledger and return inwards journal because in the return inwards journal, it had complete detail. ...read more.


Business bought insurance for some purpose for reclaiming loses, if in case there's problem occurs during transportation. Insurance also debited in trading account, it's also increase the value of purchases. D) NOTES TO FINANCIAL STATEMENTS 1.6 Why Notes on Financial Statements Indispensable Financial Statement is important because it's the summaries and the analysis of an organization. Investor need for decision for investment purpose. Creditor need financial statement from the firm for approval their credit sales / loan. Governments need the financial statement for the taxation purpose. An auditor is enquiring for auditing purpose. Manager needed financial statement to analyst and to running business in decision making for future business planning. These are the reasons for making the notes on Financial Statements: a) Users of Financial Statement must understand the details of the happening of the important transactions; b) Investors need the notes for investment. The investors want to know the situation of the business. c) Auditing also need this note for checking the business operation. If there any mistake in the accounting for adequacy. Sometime for checking the corruption in the business. d) Government needs the note, especially for collecting the tax. This is important because the tax is part of the government income. ...read more.

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