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ACC 1202 Topic one.pdf - ACC 1202: INTRODUCTION TO...

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ACC 1202: INTRODUCTION TO ACCOUNTING IITopic oneIncomplete records1.0 IntroductionAccounting information is required by diverse group of users in making economic decisions.Theinformation is also used to evaluate the management performance of their stewardshipresponsibility.However, some businesses are not in a position to maintain proper accountingrecords, more particularly small and medium sized organization. The main reason why a businessentity may not keep proper records is due to different circumstances such as;1.Lack of adequate resources to design and implement a complete accounting system2.Lack of the technical skills required to implement the system3.Destruction of accounting records due to disasters such fire or Malicious softwareIrrespective of the business entity situation, basic accounting information must be extracted to aiddifferent group of users in making economic decisions.The overall approach depends on theinformation available which differs from one circumstances to the other as follows1.Statement of affairs2.Accounting errors3.Single entry (reconstructing the accounting records)1.2 Statement of affairsA statement of affairs is an estimation of the financial position of the business at a particular pointin time.The financial position is established by verifying the assets and liabilities.The equitycapital is then determined as the residual difference between assets and liabilities ieAssets = Capital + Liabilities.Where it is possible to estimate the financial position at the end of the year and at the start of theyear, then the financial performance can be estimated from change in capital.Change in capital isthe difference between the closing capital and opening capital.Change in capital = Closing capital - Opening capitalChange in capital is caused by profit or loss, drawings and capital injections which is given byChange in capital = profit /lossDrawings + Capital injectionsProfit and loss can therefore be estimated as
Profit/(loss) = Change in capital + Drawingcapital injectionsExample oneSunrise traders does not maintain proper books of accounts.The following information isextracted from verification of assets and liabilities1stJan 2020 sh 00031stDec 2020Total assets87,600125,670Total liabilities54,26073,480Net assets (Capital = assetsliabilities)?Drawing during the year is Ksh 1,654,000 while capital injections amounted to Ksh 7.2 millionRequireda)Determine the change in capitalb)Compute the profit and losesc)Prepare the statement of changes in net assets?
Less drawings(1,654)Capital as at 31st Dec 202052,190Example two

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Term
Spring
Professor
N/A
Tags
Balance Sheet, Capital Expenditure, Generally Accepted Accounting Principles, Opening Capital

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