2. Introduction:
Kim Fuller, who was working in a large chemical firm
as a District Sales Engineer.
He learned about use for the recycled material, in
pulverized form, made from plastic bottles.
So he decided to start the business of bottle supply,
grind the bottles and deliver the pulverized form to
chemical firms.
3. Continued..
In November 2006,Fuller estimates the prices of
truck, trailers, grinding machines, supplies and part to
run and maintain machines. He also looked up for
personal computer for use in company. These assets
cost him around $65,000.
Fuller had saved $75,000 and invested in company.
He also bought warehouse of $162,000 that had a
excellent business location.
4. Continued..
He borrowed $90,000 from his siblings and made a
down payment of $50,000 for the warehouse and also
borrowed some mortgage loan for that same building.
He talked to his neighbour, Marion Zimmer was an
accountant about his business. Zimmer install a
accounting software and taught him about how to
operate it. Zimmer also taught him about balance
sheets and income statements of organization.
Then Fuller opened warehouse, hired truck driver and
grinding machine workers. He also signed contracts
with two chemical companies.
5. CONCEPTS USED
Going Concern Concept:
In accounting, it is assumed that an entity is a going concern-
that it will be continue to be operate for an indefinitely long
period in future.
Under the going concept there is no need to constantly measure
an entity’s worth to potential buyer.
Instead it is assumed that the resources currently available to
the entity will be used in future operation.
6. Continued…
The Accounting Period Concept:
It is simply difference between money that comes in and the
money that goes out.
Few business ventures have short life of some months, other
operates for many years. As per going concern concept, we
usually assume that the life of business is indefinitely long .
But management and other interested parties are not willing to
wait for end of business to obtain information .They had to
know at frequent intervals how things are going.
This need lead to accounting period concept. Accounting
measures activities for a specified interval of time, called the
accounting period. In most of business accounting year or
fiscal year, correspondence to calendar year but many business
used natural business year instead of it.
7. Continued…
Money Measurement Concept:
Accounting records only those facts that can be expressed in
monetary terms.
The advantage of such a record is that money provides
common denominator.
This concept imposes a severe limitations on the scope of an
accounting reports.
E.g. Accounting does not report the state of the president’s
health.
8. Continued…
Dual Aspect Concept:
The economic resources of an entity are called assets. The
claims of various parties against these assets are called equities.
There are two types of equities.
1) Liabilities 2) Owner’s Equity
Equation:
Asset=Liabilities + Owner’s Equity.
9. Accounting and Non accounting
Information
Accounting Information:
Acquired Used truck,3 trailers,two grinding machines, machine
part, personal computer for total of $65,000.
Owned capital was of $75,000 from his savings.
Bought a warehouse cost of $162,000 and borrowed $90,000
from his siblings.
Paid a down payment of $50,000 of warehouse and take a loan
from bank for that same building for rest of money.
10. Non accounting Information:
Fuller hired two grinding machine workers and one truck drive
to supply bottles.
He also found account assistance-Marion Zimmer.
He also installed and learnt about the accounting software
named “off-the-shelf”.
He signed contracts with two chemical companies to supply
bottles to them.
List out the purchased items, debts and other information in
Accounting Software.
11.
12. Kim Fuller Ltd.
Balance Sheet
as of 31st December 2007 Figures in $
ASSETS AMOUNT LIABILITIES AMOUNT
CASH 50,000 OWNER’s EQUITY 75,000
FIXED ASSETS
(Items
purchased)
65,000 FAMILY LOAN
(Siblings
Investment)
90,000
WAREHOUSE 162,000 MORTGAGE
LOAN
(Against the
warehouse)
112,000
TOTAL 277,000 TOTAL 277,000
13. ASSUMPTIONS:
Transportation cost of $100.
Wages paid to truck driver and grinding
workers of $1,500.
Depreciation on Fixed assets @10% $6,500.
Interest paid on Mortgage Loan @10%
$11,200.
Interest paid on Family Loan @5% $4,500.
14. Continued..
Appreciation on warehouse due to excellent
location @20% $32,400.
Purchased Accounting Software $200.
During the year, stock purchased of $3,500
Sales made worth $5,000 (cost price $3,000).
Closing stock at the end of year $1,000.
15. INCOME STATEMENT For the year ended 2007-2008
figures in $
Revenue Amount
Sales Revenue
Appreciation on Building
5,000
32,400
(x)Total 37,400
Expenses Amount
Wages paid to workers
Interest on mortgage Loan
Interest on Family Loan
Depreciation on Fixed Assets
Transportation Cost
1,500
11,200
4,500
6,500
100
(y)Total 23,800
Net Income(x-y) 13,600
16. Balance Sheet of Kim Fuller as on 31st
Dec 2008 figures in $
Assets Amount Liabilities Amount
Cash 32,700 Owner’s Equity 75,000
A/c. Receivable 3800 Mortgage Loan 112,000
Closing Stock 1000 Family Loan 90,000
Fixed Assets (Excluding
Depreciation)
58,500 Retained Earnings 13,600
Warehouse(Including
Appreciation)
194,400
Accounting Software 200
Total 290600 Total 290600
17. Question-3
Information required to do profit and loss are revenues,
cash of sales, administrative expenses, operating expenses
and taxation.
Fuller should prepare income statement and cash flow
statement to keep track of his business.
The financial statements can be done quarterly since it’s a
small business but as the business grows, Fuller should do
it monthly basis or weekly basis to keep his business
under control.
18. Question-4
Fuller should keep track of his assets depreciation or
appreciation value; identify new assets purchased with
estimated lifespan of the assets.
Changes in liabilities such as interest rate, mortgage
tenure, and progressive interest charged by the banks,
assets which changes from mortgage to owner’s equity.
For owner’s claim, he should know how much he could
claim as his salary and capital/dividend payment to
investors/shareholders.
