Reporting/Recording Financial Information

There are two effects in every transaction. For instance, if an individual transacts a purchase of an antibiotic, he/she pays the cash to the pharmacist and in return gets the drugs. From the perspective of both the seller (pharmacist) and the buyer (patient), this simple transaction has two effects. The buyer will acquire a tablet of antibiotics while on the other hand the cash balance of the patient/client (buyer) would reduce by the sum of the purchase cost (Soll, 2014). Conversely, the cash balance of the pharmacist would increase by the price of the antibiotics though the seller will be some antibiotic tablets short. Double-entry accounting is used in the U.S. Generally Accepted Accounting Principles to help accountants avoid making mistakes since it provides it provides a good check-and-balance system (Soll, 2014). It is, therefore, easier to trace the source of any entry errors. Additionally, double-entry accounting provides complete and more useful information as every transaction contains a destination and a source. Valuable details are provided by double entry as it reports the amount of money spent and where it all went.

The net change in national assets ownership is reflected by the capital account. The debits increase while the credits decrease in capital account (Jeanne, Subramanian, & Williamson, 2012). The sales of assets or borrowings mean that the ownership of the nation is increasing to foreign assets rather than payment for work. An example in a T account:

 

 

 

 

 

 

Date Transaction Debit Credit
Apr 15

 

 

 

 

17

 

 

 

 

 

19

 

 

20

Dr Drawings

Cr Bank

Interior withdrew funds for personal use

Dr Bank

Cr Services Rendered (income)

Catering services

Dr Services (expense)

Cr Bank

Dr creditors (liability)

Cr Bank

Paid telephone bill

Dr Loan

Cr Bank

Repayment of loan

500

 

 

 

 

10500

 

 

 

 

 

 

 

4000

 

 

 

 

 

200

 

 

 

 

 

 

 

 

 

4000

 

 

 

500

 

 

 

 

 

10500

 

 

 

 

 

4000

 

 

200

 

 

 

4000

 

Debit                                                          Credit

17 services rendered 10500                       15 Drawings            500

19 Salaries                4000

20 Creditors              200

20 loan                      4000

 

 

 

 

Debit                          Credit

Purchased equipment                                                                      15,000

Patient bills                                                                                      40, 000                     40,000

Managed care company expenses                                                    10,000                      10,000

Supplies                                                                                           20,000

Accounts                                                                                           5,000

Note cash                                                                                                                           30,000

Accounts receivable                                                                                                          10,000

Borrowed note                                                                                   7,000                        7,000

 

 

 

 

Debit                                                          Credit

 

 

Purchased equipment                    15,000          Patient bills                                   40,000

Patient bills                                    40,000          Managed care company expenses 10,000

Managed care company expenses 10,000           Note Cash                                      30,000

Supplies                                          20,000         Accounts receivable                       10,000

Accounts                                          5,000         Borrowed note                                  7,000

Borrowed note                                  7,000

 

 

 

 

Organizations prepare cash flows because it can tell when the organization is losing out money while the organization is profitable, if the management if taking too much money out of the business, as well as being in a position to see the way bank loan payments are doing to the business cash. In this case, profits are significant for any business, but cash is even more imperative (Hales, & Orpurt 2013). A fast growing business can run out of cash while it is profitable.  Additionally, owners of the organizations can take out money in form of distributions from the business (Hales, & Orpurt 2013). A cash flow can, therefore, help report this. Preparing operating statements also, have a number of advantages to an organization. An operating system shows how much of the produces/services an organization has sold. Also, an operating system reports fixed fees which the owner of the organization has to pay out regardless of the amount of revenue the business has generated (Bhandari, & Iyer 2013). Most importantly, preparing an operating statement helps to observe the business performance. In this case, the management will identify if the business is doing well or not. If the business is not doing well, the owner of the organization can find out through operating systems.

 

 

 

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