A stakeholder is a party that
has an interest in a company and can either affected or be affect by business. According
to facts Samuel is a stake holder as he owns the Sam’s Pizza and runs the
business himself. All the losses and profit are bared by him. Another stake
holder of this business is Jerry Finney as he is interested in purchasing the
business from Samuel. Adding further customers, community and suppliers are
also stake holders in this situation.
(b) Sam didn’t act ethically upon not
revealing the real situation. All of the reasons given by Samuel are
irrelevant. Jerry should be explained the real situation as he unfamiliar with
Seri Kembang district and it would be unfair if Jerry will come to know the
reality after buying the business.
(c) Preparation of Financial Statement
Jerry requested Sam to show
the financial statements of Sam’s pizza. Following are the accounting concepts
used for preparing financial statement.
1) Matching Concept
This is one of the basic concept of the accounting for preparing financial
statement. This is for reorganization of revenues and expenses related to them.
In simple words the accountants job to find and record all costs incurred in
generating sales. It also includes the cost of producing and delivering the
product. The matching concept is
an accounting practice whereby firms recognize revenues and their related
expenses in the same accounting period (Schmidt, 2018). For example A car
company pays $20,000 monthly to its 5 managers. Per month sales are $500,000.
$100,000 worth of monthly salaries should be matched with $500,00 of revenue generated.
2) Money Measurement Concept
The money measurement concept states that a business
should only record an accounting transaction if it can be expressed in terms of
money (Bragg, 2012). In simple words,
all the material transactions which cannot be converted into monetary values
are not mentioned in financial statement. This includes productivity of
employees, product life, skill life and much more. As they can be related with
money so they are not recorded in financial statement. For example in Malaysia
all the accounting reports are recorded in ringgits currency.
3) Dual Aspect Concept
The dual aspect concept states that every business transaction requires
recordation in two different accounts. This concept is the basis of double
entry accounting, which is required by all accounting frameworks in order to
produce reliable financial statements (Bragg, 2015). This concept is
derived from an equation which is as follows
= Liabilities + Equity
This equation is visible in balance sheet, where the total amount of assets should be
equal to all liabilities and equity. For example every transaction have 2 sides
such as, Mr. Lee bought goods for his business by cash. Here one entry will be
purchase of goods (increasing asset) the other entry will be the cash paid for
the goods (decreasing of asset). This is how the dual concept works in making a
4) Business Entity Concept
The business entity concept states that the transactions associated
with a business must be separately recorded from those of its owners or other
businesses (Bragg, 2017). According to this
concept a business or an organization and its owner(s) are treated as two
different parties. For this purpose separate accounting records for organization
that totally eliminate the assets and liabilities of other owners. Without this
concept, the records of several entities would be merged and it would be
difficult to segregate them for a single business. For example the owner of a
business loans $500,000 to his company. This is recorded by the company as
liability, and as a loan receivable for owner.
5) Going Concern Principle
This concept can be explained as that a business entity will continue to
operate and complete its objectives for minimum 12 months. The going concern
principle is the assumption that an entity will remain in business for the
foreseeable future (Bragg, 2017). In other words the
business will not be forced to cut off its operations and liquidates its assets
in near. For example if John’s pizza
cannot pay one their loan back to one of his creditor.
The creditor took the case to court. Court ordered of liquidating John’s pizza
upon the request of the creditor, then John pizza is no longer a going concern
because the business cannot continue its operations in future.
Books of prime entry
Books of prime entry are the books where certain types of transactions are
recorded before they become the part of the double entry system. For every type
of transaction there are different types of book.
Following are the four books of prime entry.
1) Sales Day Book:
This book is manually maintained ledger in which detailed information about
credit sale of each customer is recorded. Normally the information is added at
the end of each business day based on all customers invoices issued. After this
the total sale listed in sales day book is moved into sales ledger. But the
detail of credit sales is still present in sales day book as sales ledger only
has the total of credit sales per der. Most of the sales invoice format is like
The source documents used for
sales are outgoing invoices and debit note issued. This book is only used in
manual accounting systems. The reason it is not used in computerized accounting
systems is that the accounting software automatically stores and aggregates all
2) Purchase Day Book
As the word explains all the transactions of purchase are recorded in it. This
is also a part of manual accounting systems, in which all the purchases are
recorded in the ledger are by hand. The main use of purchase day book is
decrease the burden of purchasing transactions from general ledger.
Following is the basic information recorded in a purchases daybook
The source documents used for
purchase day books are incoming invoices and debits notes received. At the end
of reporting period the transactions in the daybook are posted to general ledger.
In the same way to check the detailed version of transaction one has to return
to day book.
3) Return Inwards Book
This is the type of book in
which all the sales which are returned by customer are reordered. All the pages
of sales return day book are numbered in serial.
A ‘debit note’ is also sent along with the goods from customer to seller. If
the seller accepts the claim, then he will make out a credit note in duplicate.
Ink color is kept red to assure customer that his claim has been accepted. Its
duplicate is then back to customer. One more duplicate is made and given to
worker for entering it into the return inwards book. The sourced documents for
this type of book will be credit notes sent out and debits notes received from
4) Return Outwards Book
In the return outwards book
goods which are returned back to the supplier from business end are recorded in
it. Usually the reason for returning the goods is either the product is having
any fault, or the contract is being written to return goods. While returning
goods a ‘debit note’ is send to the seller. It contains the number of products
with the reason of returning goods. Two copies of debit note are made again.
One is sent to send to customer and the other one is given to put transactions
in the return outwards book. The source documents used for this book are debits
notes send out and credit notes received.
discount is referred to as a discount, given by the seller to the buyer at the
time of purchase of goods, as a deduction in the list price of the quantity
sold (S, 2014).
is referred to as a discount, allowed to customers by the seller at the time of
making the payment of purchases, as a reduction in the invoice price of the
commodity. (S, 2014)
Difference between Trade and Cash discounts
discount is given on the invoice price whereas cash discount is given on
discount is for all of the customers while cash discount is only for the
customers who buy goods on cash.
A trade discount is shown as deduction in the
invoice. On the other hand, cash discount is not shown at all.
discount is allowed at time when payment is made whereas trade account is
allowed while purchase.
Suppose khan bought goods from John at list price of
200$. John gave him 10% discount to khan on list price for purchasing in bulk.
An additional 10$ discount was also given for paying at the spot.
Now discount allowed
on list price, 10% of 200$=20$ this trade discount. In contrary to that 10$
discount allowed due to quick payment was cash discount.