ACCOUNTING PROJECT

Chapter 1. The balance sheet

1.1 Theoretical considerations A balance sheet is one of the main essential financial statements of any company. It is used to view the company's financial standpoint at any given time. It keeps the current financial records of the given fiscal year or quarter, depending on how the company sets their year. Unlike an income statement, which contains temporary accounts such as revenues and expenses, a balance sheet contains the permanent financial records. The balance sheet reports the financial position of a company at a point in time, usually at the end of year. The balance sheet (sometimes called the statement of financial position) reflects a firm's solvency while the income statement shows profitability. A balance sheet lists the firm's assets, liabilities and owner equity at a specific moment in time. The balance sheet provides information about an entity's assets, liabilities, and equity and their relationship to one another at a particular time. The balance sheet has two parts: on the left side are the assets on the right side are the liabilities and owner's equity Both parts of the balance sheet must be in balance. Assets and liabilities are listed in a specific order. The assets are listed in order they can be converted in cash and the liabilities in order they must be liquidated. Assets = Liabilities + Owner's Equity Assets are known as resources and include such items as cash, land and buildings. In accounting the resources of business organization are called assets. Liabilities are debts owed by a firm and usually must be paid by a specific date. Liabilities include amounts owed suppliers for goods purchased with a promise to pay the amount owed at a later date. Owner's equity reflects the owner's interest in the business. Owner's equity is equal to assets minus liabilities. The structure of the balance sheet The assets of a European company are usually divided into two categories: fixed assets and current assets. Fixed assets Fixed assets are materials, goods, services and land used in the production of a company's goods. Are long term assets acquired for use in business operation. Fixed assets are used in a period longer than one year.

Are divided into three categories: intangible assets, tangible assets and financial assets. I Intangible assets Are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. They include: formation expenses, development costs, concessions, patents, licenses, trade mark and similar right, goodwill, other intangible assets, intangible assets in progress, payment on account. II Tangible assets Tangible assets are assets having a physical existence such as: land, buildings, plant, machinery, furniture, motor vehicles, other tangible assets, tangible assets in progress. III Financial assets Financial assets include: security investment (shares, bonds), long term loans, receivables immobilized, etc. Security investment is shares held in the capital of the other companies that give right to dividend and control over the company which issued. Current assets Current assets are used by a company in a period of one year. Can be converted into cash in a short period of time. Include: stocks, debtors (claims), investments, cash at bank and in hand. Liabilities Liabilities are legal obligation, are divided into two categories: short term liabilities and long term liabilities. Kinds of liabilities: suppliers, bills of exchange payable, sundry creditors, loans and similar debts.

1.2 The Balance Sheet for Company SC.STANLEY DESIGN.SA SC.STANLEY DESIGN.SA is an active and diversified furniture firm which provides professional services for its costumers. The firm is capable of working with diverse projects from furniture design and hand painted furniture to antique furniture restauration. Our philosophy has always been to combine design excellence with technical know-how. SC.STANLEY DESIGN.SA was founded in the early stages of 1997 and until now it has developed and raised its number of employees. Stanley Design company activity is production of furniture.

Balance Sheet of company SC. STANLEY DESIGN.SA at 30.06.2009 Assets Amount Owners equity+Liabilities Land Buildings Finished goods Consumables Raw materials Merchandise Bills of exchange receivable Customers Cash at bank Cash in hand TOTAL 15000 20000 6000 1000 3000 2000 3000 10000 20000 15000 95000 TOTAL Subscribed capital Other reserves Profit for the financial year Long term bank loan Suppliers Advance receipts from customers Dividends payable Salaries payable

Amount 25000 15000 12000 18000 11000 5000 2000 7000

95000

1.3 The analytical structure 3

I Fixed Assets 1. Intangible assets: formation expenses cont no.201 development costs cont no.203 purchased concessions, patents, licenses, trademarks and similar cont no. 2051 2. Tangible assets: land cont no. 2111 buildings cont no.212 plant and machinery cont no.2131 fixtures and fitting cont no.214 3.Fianancial assets: Investments in subsidiaries cont no.261 Investments in companies excluded from consolidation cont no.262 Strategic investments within the group cont no.2635 Strategic investments excluded from consolidation- - cont no.2636 Other long term receivables cont no.2678 II Current assets 1. Stocks Raw materials cont no.301 Auxiliary materials - cont no.3021 Other consumables - cont no.3028 Packaging materials - cont no.3023 Work in progress- cont no.331 Semi-finished goods- cont no.341 Finished goods- cont no.345 2.Cash at bank and in hand Cash in bank and in hand cont no. 5121 III Liabilities and owners equity Subscribed and paid in share capital cont no.1012 Other reserves cont no.1068 Suppliers cont no.401 Bills of exchange payable cont no.403

Chapter 2. The account

2.1 Theoretical considerations The account is the detailed record of any component of the patrimony - asset, liability, owners' equity, revenue or expense resulted after economic transactions in an economic entity. Account is the detailed record of a particular asset, liability, owners' equity, revenue or expense. The account may take many possible forms, and accounting practice commonly uses several. Perhaps the most useful form of the account for textbooks, problems, and examinations is the T-account. Actual practice doesnt use this form of the account, except perhaps for memoranda or preliminary analyses. However, the T-account satisfies the requirement of an account and is easy to use. As the name indicates, the T-account looks like the letter T, with a horizontal line bisected by a vertical line. The name or title of the account appears on the horizontal line. One side of the space formed by the vertical line records increases in the item and the other side records decreases. Dates and other information can appear as well. Each account has a left side (called the debit side) and a right side (called the credit side). Recording an amount on the debit side of the account is called debiting the account, debit, or debit entry. Recording an amount on the credit side of the account is called crediting the account, credit, or credit entry. Assets Liabilities+ Owners equity

The goal of T accounts is CREDIT DEBIT DEBIT CREDIT for debit entries to equal credit entries, i.e. total assets to equal total liabilities and equity. For every adjustment made to the left side of a T, there must be one or more adjustments made to the right side of one or more Ts so that the net entries balance. T accounts allow you to visualize how the debits and credits of a particular entry work and how they impact the financial statements. T accounts are a time tested tool in helping to analyze and decipher accounting entries. T accounts work because they are visually effective and simple to understand. Example: Receiving a bank loan of $100 would require two postings in a general ledger, and, if drawn on T accounts, two postings on T accounts. The $100 cash received would be listed as an asset on the left side of a T account labeled 'Cash', and the $100 owed to the bank would be listed as a liability on the right side of a T account labeled 'Bank Loans'. The entries balance.

If you are only trying to figure out how some journal entries should be written, then it is not necessary to summarize the T-Accounts for the ending account balance. However, there are times when you may want to know the ending balance of an account in order to compare it with the account balance found on a financial statement or general ledger. Using T-Accounts to help solve accounting problems is one of your most valuable tools.

2.2 Accounting records in July 2009 1. Purchasing of raw materials from the supplier , at an acquisition cost of 2000 with VAT Deductible of 19%. We are using the following accounts: 401 suppliers P + (C) 301 raw material A + (D) 4426 VAT Deductible A + (D) The accounting formula will be:

% 301 4426

401 / / /

2380 2000 380

2. Obtaining of finished goods such as: chairs: 30 pieces x 30 lei and furniture: 10 pieces x 100 lei (transfer goods no.23) We are using the following accounts: 345 finished goods A + (D) 711 variation of inventory P + (C) The accounting formula will be:

345

= 711/1900

3. Stanley Design sales the finished goods to the Azora Design SRL; sales: chairs-20 x 35 lei and furniture 7 x 110 lei , with VAT Collected of 19%.( invoice no.201) a) Selling the finished goods We are using the following accounts: 4111 customers A + (D) 701 sales of finished goods P + (C) 4427 VAT collected P + (C) The accounting formula will be:

4111

= % / 1750 701 / 1470 4427 / 280

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b) Removing the finished goods We are using the following accounts: 711 variation of inventory P (D) 345 finished goods A (C) The accounting formula will be:

711

= 345 / 1900

4. Stanley Design receipt in cash in hand from Azora Design 1500 amounts(formal receipt no.133) Receiving cash in hand We are using the following accounts: 5311 cash in hand A + (D) 4111 customers A ( C ) The accounting formula will be:

5311 = 4111 / 1500

5. Acquisition of consumables for 3000, from the suppliers, with VAT Deductible of 19%( invoice no.347) We are using the following accounts: 302 consumables A + (D) 4426 - VAT Deductible A + (D) 401 - Suppliers P + (C) The accounting formula will be:

% = 302 4426

401 / 3570 / 3000 / 570

6. Give to consumption ( consumer goods no.1200) the above mentioned consumables We are using the following accounts: 302 - consumables A- (C) 602 expenses with consumables A + ( D ) The accounting formula will be:

602 = 302 / 3000

7. Payment of the suppliers for 1000 lei (OP warrant of payment no.17) We are using the following accounts: 401 suppliers P ( D) 5121 cash at bank A (C ) The accounting formula will be:

401 = 5121 / 1000

8. Selling merchandise to the customers at a price of 3500 with VAT collected of 19%. We are using the following accounts: 4111 customers A + (D) 707 sale of goods purchased for resale P + (C) 4427 VAT collected P + (C) The accounting formula will be:

4111

% / 4165 707 / 3500 4427 / 665

9. Record the gross salaries 15000 amount (payroll no.5) We are using the following accounts: 641 expenses with salaries A + (D) 421 employees salaries payable P + (C) The accounting formula will be:

641 = 421 / 15000

10. Receipt of interest of 4000 lei We are using the following accounts: 5121 cash at bank A + (D) 766 interest income P + (C) The accounting formula will be:

5121 = 766 / 4000

11. Receipt of advance from client 3000 through bank. We are using the following accounts: 5121 cash at bank A + (D) 419 advance payments from customers P + (C) The accounting formula will be:

5121 = 419 / 3000

12.Acquisition of merchandise for 1500 lei ,with VAT deductible (invoice no.150) We are using the following accounts: 371 merchandise A + (D) 4426 VAT deductible A+(D) 401 suppliers P + (C) The accounting formula will be:

% =

401 /1785

371 4426
1. Closing the revenues accounts:

/1500 /285

2.3 Closing the revenues and expenses account at the end of 31.07.2009

121 = % / 18000 602 / 3000 641 / 15000

2. Closing the expenses accounts:

% = 701 707 766

121 / / / /

8970 1470 3500 4000

The T Account

D 1012(Subscribed capital) C
Si: 25000 SfC: 25000

D 1068 (Other reserves ) C

Si: 15000 Sf C: 15000

D 1621( LTBL)
Si: 2000 SfC: 2000

2111( Land)

Si: 15000 SfC: 15000

212( Buildings)

D 301( Raw material) Si: 3000 SfD: 3000

Si: 20000 SfD: 20000

D 345 ( Finished goods) D 302( Consumables) 3000 TSC: 3000 C Si: 6000 SfD: 6000 Si: 1000 3000 TSD: 4000 SfD: 1000

371 ( Merchendise)

D 1000

401(Suppliers) SiD: 4000 3355 TSC: 7355 SfC: 6355

TSD: 1000

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Si: 2000 2000 TSD: 4000 SfD: 500

1500 1000 TSC: 2500

4111 (Customers) 1500 TSC: 1500

D 413( Bills of exchange receivable) C

SiD: 10000 5915 TSD: 15915 SfD: 14415

Si: 3000

SfD: 3000

D 5121(Cash at bank)

641(Salaries payable)

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SiD: 20000 7000 TSD: 27000 SFD: 26000

1000

15000

SiC: 7000

SfD: 8000

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Chapter 3. The Trial Balance

3.1 Theoretical considerations In accounting, the trial balance is a worksheet listing the balance at a certain date, of each ledger account in two columns, namely debit and credit. Under the double-entry system, in any transaction the total of any debits must equal the total of any credits, so in a Trial Balance the total of the debit side should always be equal to the total of the credit side. The trial balance thus serves as a tool to detect errors, which can result in the totals not being equal. Often credits will be represented as a negative, in which case the total of the trial balance should be 0. A balanced trial balance does not guarantee that there is no error. The following are the main classes of error that are not detected by the trial balance: An error of original entry is when both sides of a transaction include the wrong amount. For example, if a purchase invoice for 21 is entered as 12, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for 9 less, so the total of both columns will be 9 less, and will thus balance. An error of omission is when a transaction is completely omitted from the accounting records. As the debits and credits for the transaction would balance, omitting it would still leave the totals balanced. An error of reversal is when entries are made to the correct amount, but with debits instead of credits, and vice versa. For example, if a cash sale for 100 is debited to the Sales account, and credited to the Cash account. Such an error will not affect the totals. An error of commission is when the entries are made at the correct amount, and the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type. For example, if fuel costs are incorrectly debited to the postage account (both expense accounts). This will not affect the totals. An error of principle is when the entries are made to the correct amount, and the appropriate side (debit or credit), as with an error of commission, but the wrong type of account is used. For example, if fuel costs (an expense account), are debited to stock (an asset account). This will not affect the totals. Compensating errors are multiple unrelated errors that would individually lead to an imbalance, but together cancel each other out.

A Transposition Error is a Computing error caused by switching the position of two adjacent digits. Since the resulting error is always divisible by 9, accountants use this fact to locate the misentered number. For example, a total is off by 72, dividing it by 9 gives 8 which indicates that one of the switched digit is either more, or less, by 8 than the other digit. Hence the error was caused by switching the digits 8 and 0 or 1 and 9. This will also not affect the totals. The Trial Balance at 31.07.2009

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Symbol Account of acc. name Subscribed 1012 capital Other 1608 reserves Long term 1621 bank loans 2111 212 301 302 345 371 401 4111 413 457 5121 5311 641

Initial sold D C ___ 25000 ___ 15000 ___ 18000 ___ Land 15000 ___ Buildings 20000 Raw ___ materials 3000 ___ Consumable 1000 Finished ___ goods 6000 ___ Merchandise 2000 ___ Suppliers 4000 ___ Customers 10000 Bills of Ex. ___ Receivable 3000 Dividends ___ payable 2000 Cash at ___ bank 20000 Cash in ___ hand 15000 Salaries ___ payable 7000

D ___ ___ ___ ___ ___ ___ 3000 ___ ___

Rulaje C ___ ___ ___ ___ ___ ___ 3000 ___ 1500

Total sum D C ___ 25000 ___ 15000 ___ 18000 ___ 15000 ___ 20000 ___ 3000 4000 6000 2000 1000 15915 3000 ___ 2000 27000 16500 1000 ___ 7000 1500 7355 1500 ___ 3000 ___

Final sold D C ___ 25000 ___ 15000 ___ 18000 ___ 15000 ___ 20000 ___ 3000 ___ 1000 ___ 6000 ___ 500 ___ 6355 ___ 14915 ___ 3000 ___ 2000 ___ 28000 ___ 16500 ___ 8000 TOTAL TOTAL 73355 73355

1000 5915 ___ ___ 7000 1500

3355 1500 ___ ___ 1000 ___ ___

15000

15000

Chapter 4. The Accounting Documents

4.1 Theoretical considerations 14

Original records which evidence a financial transaction, such as debit/credit memos, invoices, receipts, orders, and vouchers. An invoice or bill is a commercial document issued by a seller to the buyer, indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. An invoice indicates the buyer must pay the seller, according to the payment terms. In the rental industry, an invoice must include a specific reference to the duration of the time being billed, so rather than quantity, price and discount the invoicing amount is based on quantity, price, discount and duration. Generally speaking each line of a rental invoice will refer to the actual hours, days, weeks, months etc being billed. From the point of view of a seller, an invoice is a sales invoice. From the point of view of a buyer, an invoice is a purchase invoice. The document indicates the buyer and seller, but the term invoice indicates money is owed or owing. In English, the context of the term invoice is usually used to clarify its meaning, such as "We sent them an invoice" (they owe us money) or "We received an invoice from them" (we owe them money). A receipt is a written acknowledgement that a specified article or sum of money has been received as an exchange for goods or services. The receipt acts as the title to the property obtained in the exchange. In English speaking countries the term most frequently applies to the printed record given to a customer at checkout that lists the purchases made, the total amount of the transaction including taxes, discounts and other adjustments, the amount paid and the method of payment. Increasingly, these receipts may also include messages from the retailer, warranty or return details, special offers, advertisements or coupons. Receipts may also be provided for non-retail operations such as banking transactions. Printed receipts are usually produced by thermal printing on rolls of narrow paper tape, although dot-matrix technology is also used. Recent innovations have led to multi-colored thermal printing technology and the ability to print double-sided receipts. A voucher is a bond which is worth a certain monetary value and which may only be spent for specific reasons or on specific goods. Examples include but are not limited to housing, travel and food vouchers. The term voucher is also a synonym for receipt, and is often used to refer to receipts used as evidence of, for example, the declaration that a service has been performed or that an expenditure has been made. The term is also commonly used for education vouchers which are somewhat different.

References 1. Accounting- theory and practice

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Authors: Michel William Edgard Brian Underdown House publishing: Pitman Publishing Year of publishing: 2001 2. Accounting and finance Authors: Peter Atrill Eddie Mclaney House of publishing: Prentice Hall Year of publishing: 2003 Contabilitate- Manual pentru clasa a 10-a Autor: Violeta Isai House of publishing: ALL Year of publishing: 2005

3.

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