Acc406 Group Assignment PDF

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1 INTRODUCTIONThe assignment assigned for us to do a research on how a certain business use the accounting principles and how the owner applies it on his business in order to prepare financial position statement. We want to know whether the business in our research apply and use the correct accounti...

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INTRODUCTION The assignment assigned for us to do a research on how a certain business use the accounting principles and how the owner applies it on his business in order to prepare financial position statement. We want to know whether the business in our research apply and use the correct accounting system. Therefore, we have decided to do a research on a sole trading or sole proprietorship business called Zulan Samudera Enterprise. This business is the business that provide food service in Masria Dining Hall, a dining hall in female student’s college in UiTM Kedah. Since we are living in the college as well, we’ve decided that Zulan Samudera Enterprise is the easiest and most familiar sole proprietor that we have all know.

Our group research aim is to know on how the business is formed. We also want to know about the background of the business such as who is the owner, the business types and its characteristics. Based on our research, we have known that Zulan Samudera Enterprise is a sole proprietorship and was register in the year of 2014, the business takes the tender in the Masria Dining Hall of UiTM Kedah since last September 2017. This business also run its catering services in the area of Sungai Petani to cater a lot of events of other group of people, organisation, and individuals. The owner decided to do the catering business because it is the easiest to form and need the least amount of cost to open. Encik Roslan, the owner who run the business after his retirement decided to involve in this area of business because he knows he will gain more profits much better that other types of businesses This type of business is more flexible. This business can only be established by the owner by using his own name as the owner and he is the only person that will manage the business. Another thing that we have known based on this research is that business does not have to pay for the corporate taxes but the person who organised the business will have to pay for the personal income tax on the profits made. The person also needs to make the accounting much simple. The objective of sole proprietorship is focus on the making of profits.

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BACKGROUND OF THE ORGANIZATION Zulan Samudera Enterprise started its business operation in 2014. The owner of the business is Encik Roslan bin Mohd Harun. He is 47 years old retired army. Before he open Zulan Samudera Enterprise, he started his first business by opening a Nasi Lemak stall soon after he retired from the army. In the early 2014, Encik Roslan open Zulan Samudera Enterprise using his own pension as beginning capital. Later on, in September 2017 he gets to own a catering tender at Masria Dining Hall in Uitm Merbok, Kedah and at the same time Zulan Samudera Enterprise also own a catering tender in SK Muzaffar Shah, Sungai Petani, Kedah.

The dining hall is open everyday starting from lunch hour until night. Most student that stayed in Masria and Murni college usually come to the dining hall to buy the food because the price is cheaper than other café in Uitm Merbok. The type of the business entity is sole proprietorship or sole traders. The owner brought RM100000 as a beginning capital to start this business.

The business activities beside catering in UiTM are catering for VVIP event, catering for wedding ceremony, catering for factory event and others. The business has 17 workers in Masria Dining Hall not included part-time worker. The cost for every event is calculated by divided it into three part which is capital, wage and profit.

The company get its stocks from its suppliers which is from Pasar Raya Makro Utara and Pasar Basah Semeling. The business assets may include furniture such as the table and chairs in the hall, kitchen equipment such as freezer, catering set and other kitchen tools. The estimated value of asset of Zulan Samudera Enteprise in Masria Dining Hall right now is around RM150,000. The profit earned by the company in for one month is around RM 100 000 and the expense on workers ‘s wages is around RM1800 to each worker.

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CLASSIFICATION OF BUSINESS ITEMS

Business items can be classified into assets, liabilities, drawing, capital, revenues and expenses. 3.1

Assets

Assets are the things that are owned by a business which have future economic value that can be measured and can be expressed in currency. Assets can be classified into non-current assets, current assets and non-current investment. Noncurrent assets can be categorized in to tangible and intangible assets. Non-current assets are the resources owned by a business and were keep in the business for more than a year and several accounting period. It can be divided into two types which were tangible and intangible assets. Tangible assets are the one having have physical features such as vehicles and machinery while intangible assets are the assets that have no physical dimension but still have value on it. For example, patents and trademark. Current assets are the assets that were usually kept in a business for less than a year. This is because these assets can easily convert into cash. For example, account receivable and stocks. Non-current investment is a sum of money that was invest in other organisation with the hope to get more money in return. Zulan Samudera Enterprise also have some assets. For its non-current assets, Zulan Samudera Enterprise owned assets such as vehicle which is a pickup truck, furniture like table and chairs in Masria Dining Hall, kitchen equipment, fixtures and fittings, cooking utensils, and catering equipment. Zulan Samudera Enterprise also owned a building located in Sungai Petani. According to its owner, the value of the non-current assets only in Masria Dining Hall is already around RM 150 000. Besides, Zulan Enterprise also have current assets such as its account payable, inventories, cash in hand and cash in bank. Its account payable was mostly the community of UiTM Kedah and the community of SK Sultan Muzaffar Shah. Its owner said that Zulan Samudera Enterprise usually provide catering services to events in the college using credit transaction. The amount usually will be paid by the debtors after the events were over.

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Liabilities

Liabilities are the financial obligation of a business to its creditors. Liabilities can also be classified as non-current liabilities and current liabilities. Increase of liability will be recorded on the credit side of the ledger. Non-current liabilities are the debts that maybe cannot be paid in 1 year. It will need more than one year to be paid because of the huge value. For example, long term loan and mortgage. On the other hand, current liabilities are the debts that can be paid within year because of its small value which can be afford by a business can afford in short duration of time. For example, account payables, bank overdraft and accrued expenses. Zulan Samudera Enterprise does not have any non-current liabilities because its owner does not make any loan to support the business. The owner, Encik Roslan, stated that he starts the business using his own money and even now the business does not need to make any loan due to the business impressive income and revenues. However, Zulan Samudera Enterprise does have current liability which is account payable. Its account payable is their current suppliers. The suppliers are Pasar Raya Makro Utara Sdn. Bhd. and Pasar Basah Semeling. This is where this business gets its daily and monthly stocks. The business’s stocks for a month were bought on credit and the owner will paid it at the end of the month. The value was around RM 60 000.

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Drawings

Drawings refers to the act of withdrawing cash or assets from the business by the owner for personal use. Drawings can occur by withdrawing cash or goods from a business account it but can also include anything that is considered a business asset, such as products or equipment that is removed from the business for personal use by the owners. Any type of drawings reduces the capital or owner’s equity of a business. However, drawings are not considered a business expense. Zulan Samudera Enteprise’s owner always make a drawing week for his family personal use. Everyday, he will take around RM 400 from the business to give to his family for their home expenditure. Besides, he also said that he will take a few goods such as cooking inventories from his business for his personal use though it is not as often as he took the cash.

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Capital

Capital can refer to funds raised to support a particular business or project. Capital can also represent the accumulated wealth of a business, represented by its assets less liabilities. Capital can also mean stock or ownership in a company. Capital might be cash that were held in deposit accounts, tangible machinery like production equipment, machinery, storage buildings, and more. Raw materials used in manufacturing are not considered capital. When Zulan Samudera Enterprise first started on business, the beginning capital brought by the owner was RM 100 000. Besides, the owner also brought some of his own assets into the business such as vehicle and kitchen equipment. After a few years, Zulan Samudera Enteprise’s owner injects another RM 50 000 of capital into the business. In this year, the owner said that Zulan Samudera Enterprise RM150000 of capital in the form of cash.

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Revenues

Revenues represent the monetary value of certain goods and services that have been supplied to the customers. Revenues will increase owner’s equity. Revenues can be categorized into operating revenues and non-operating revenues. Operating revenues are the revenues that were earned from the primary business activity. For example, a bookstore gets revenues from the books sold. Non-operating revenues are the revenues received from unrelated activity to the business. For example, receiving dividend of fixed deposits. Zulan Samudera Enterprise received operating revenues from its daily business transaction. Everyday, this business set the target to achieve at least RM 3000 of revenues. However, this business always achieves around RM 4000 to RM 6000 each day which make their operating revenues for a month around RM 200 000. Zulan Samudera Enterprise also received non-operating revenues such as rent received when the business rented its catering equipment or vehicle to other people. Besides, the business also received revenues when some of the assets were sold. The owner said that they have sold one of business old freezer for RM 3500 in this year.

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2.6

Expense

Expense is the cost of assets used or services used in generating the revenue. Expenses can be classified into operating expenses and non-operating expenses. Operating expenses are expenses which are directly involved in the business everyday operations. It can be subdivided into selling and distribution expenses, general and administrative expenses and financial expenses. Non-operating expenses are the expenses which are not directly involved in daily business transaction. For example, interest on bank loan. Zulan Samudera Enterprise has a lot of operating expenses. For example, utility expense for RM 2000 per month, worker’s salary for RM 18 000 per month, rent expense on Masria Dining Hall for RM 20 000 per year, travelling expense for RM 1000 per month, insurance expense RM1400 per month and general expense for RM 150 per month. For non-operating expense, Zulan Samudera Enterprise has also made some expenses. For example, assets depreciation and tax expense.

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CHARACTERISTIC OF THE BUSINESS Zulan Samudera Enterprise is a sole proprietorship company. Sole proprietorship is

the simplest form of business that can be easily established. A sole proprietorship can easily be distinguished from other business type because the business usually has the word ‘enterprise’ behind its name just like the word ‘enterprise’ in Zulan Samudera Enterprise. Next, Zulan Samudera Enterprise is a business that provides catering services. Catering is a business that provides food service at social events or institutions such as school, university and companies. Currently, Zulan Samudera Enterprise is taking tender to provide its service in a school and university in Sungai Petani, Kedah which is SK Sultan Muzaffar and UiTM Kedah. Besides, it is also provided catering service for events such as marriage ceremonies and government events whenever they got the offers to do so. As a sole proprietorship, the business is registered in Suruhanjaya Syarikat Malaysia (SSM). Zulan Samudera Enterprise is owned by one owner who is Encik Roslan bin Mohd Harun. The business opening capital comes from its owner personal saving. The business was handled by the owner itself with the help of his workers at and may be some of his family members. Zulan Samudera Enterprise also hire part-time workers if the events they handle was too big and need many helping hands. Zulan Samudera assets and liabilities are unlimited. It may have all the assets and liabilities it wants depends on the owner financial capabilities. Another characteristic of the business is that all the profits will earn by the owner. The owner is also liable for all the liabilities in the business.

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The Recording Process of The Business The accounting cycle is a series of activities that compiles an organization’s transactions at the end of an accounting period in order to prepare important financial statements. 5.1

Source Documents

First, a source document is the original record containing the details to substantiate a transaction entered in an accounting system. For example, a company’s source document for the recording of merchandise purchased is the supplier’s invoice supported by the company’s purchase order and receiving ticket. Zulan Samudera Enterprise just use a certain of documents like bank statements, purchase order and invoices in his transaction business but other documents were not always used. 5.2

Books of Prime Entry / Journal

A journal is a detailed account that records all the financial transactions of a business, to be used for future reconciling of and transfer to other official accounting records. The types of journal in accounting is purchase journal, sales journal, cash receipts journal, cash payment journal, purchase return journal, sales return journal and general journal. Zulan Samudera Enterprise not record the event occurs in appropriate journal because the owner just manages the business himself, not appoint any employees to work in this area of accounting which is he just write down in his note book manually. 5.3

Ledgers

Ledger, traditionally known as T-accounts, with debits on the left side and credits on the right side. Another format of presenting ledger is a three-column ledger account. En. Roslan who are the owner of Zulan Samudera Enterprise also not record the transaction occurs in the ledger. He just notes in any book which he wants. 5.4

Trial Balance

Trial balance is an accounting report that lists the balances in each of an organization’s general ledger accounts. The balances of all ledgers are compiled into debit and credit account column totals that are equal. A company prepares a trial balance periodically, usually at the end of every reporting period. Since En. Roslan does not record the transaction of his business in the appropriate journal and also ledger, he does not prepare the trial balance too.

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Adjusted Entries

Adjustments to assets and liability accounts (and corresponding revenues or expenses) to reflect the impact of accounting periods on underlying transactions. They commonly result in accruals and prepayments, depreciation and inventory adjustments. En. Roslan rarely do adjustment in his business but in certain parts, of course these events will happen. So, he said he will just write down in his note book what happen in the adjustments and recalculate the value again. 5.6

Adjusted Trial Balance

The business not making any adjusted trial balance since from the beginning the business did not use any proper accounting system. 5.7

Financial Statement

Financial statement presents the results of operations and the financial position of the company. The owner also not doing this step because the time constraints he faced. He also not appointing anyone to prepare the financial statement for him. Therefore, he just knows the profit when he calculates the sales and pays all the expenses occurs like salaries and so on in monthly but not to prepare this statement.\ 5.8

Reversing Entries

Reversing entries is an optional journal entry that is recorded at the beginning of an accounting period to undo the prior period’s adjusting entries. In other words, these entries cancel out or reverse the adjusting journal entries recorded at the end of the prior accounting period. It necessary to keep track of this expense so that the transaction will be allocated properly between the two periods. Reversing entries are a way to handle such transaction. This last step also not done by the owner.

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Strength and Weaknesses of The Business

6.1

Strength i.

The Beginning Capital The funding and investment that the owner contributes to start the business is about RM100 000 and the amount is large for the business. This amount is enough for the business to buy and assets. The owner does not even need to make a loan to support Zulan Samudera Enterprise.

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Assets of The Business Assets that the business owned is about in the large amount at about which is about RM 500 000. The assets include a pickup truck that may be bought on cost for RM 100 000. There are other assets such as the furniture in Masria Dining Hall, refrigerators, cash, inventories, kitchen equipment and others.

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The Business Form Is Simple. Zulan Samudera Enterprise is business is sole proprietorship which is the easy business to set up and the simplest. This business didn’t use a lot of cost to form. It is the prominent way to start business.

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High profit of the business The business target sales of the day are about RM4000. However, Zulan Samudera Enterprise manage to reach more than the target stated. It can even achieve RM6000 per day which means the monthly gross profit is around RM200000. The profit is only the business happen in UiTM Kedah and not included its other profit from other business.

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6.2 i.

Weakness Does not use systematic accounting method and principles. The business is large and very profitable. However, it needs a proper accounting system to record its transaction so that the business will be able track down all their revenues, loses and their financial position.

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The number of workers is not enough. The business needs the workers to provide foods, serve customers and others but it doesn’t have enough workers. It will be difficult for the business to be operated smoothly in the future.

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Need more promotion and offer. The business needs to do more promotion and offer to increase its revenues. The business has a good potential to do more promotional activities since it always packed with customers.

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Conclusion In a nutshell, a certain business has applied the accounting concept in their

businesses, but a few is not like still stick to their own way such as recording their business activities manually in note book. Accounting is a service activity. It is important as it provides quantitative information of financi...