Question

Assume Tata Company began operations on January 1 and completed the following transactions during its first month of operations. Arrange the following asset, liability, and equity titles in a table like Exhibit 1.9: Cash; Accounts Receivable; Equipment; Accounts Payable; J. Tata, Capital; J. Tata, Withdrawals; Revenues; and Expenses. Jan. 1 Jamsetji Tata invested $4,000 cash in Tata Company The company purchased $2,000 of equipment on credit. 14 The company provided $540 of services for a client on credit. 21 The company paid $250 cash for an employee's salary. 5

Discuss the ethical issues of Sherry preparing her own financial statements (100 words).

Answer 1

Cash + Accounts Receivable + Equipment Accounts Payable + J Tata Drawings + Revenue J Tata Capital $4,000 Expenses $4,000 1 2 $2,000 $2,000 Check $0 $0 $0 $0 $0 $540 $5401 3 4 -$250 Totals $3,750 -$250 $250 $540 $2,000 $2,000 $4,000 $0 $540 Total Assets $6,290 Total Liabilities $2,000 Total Equity $4,2901 Check $0 Ethical issues in preparation of financial statements: Sherry should prepare the financial statement in line with GAAP principles and concepts of accounting. There are various concepts of accounting to be following in accounting like accrual, revenue recognition, Since Sherry is preparing her own financial statements she should ensure personal transactions are not clubbed with the business transactions. Both should be kept separate and accounted separately as per business entity concept. For example If there are any money withdrawal from the business during the year such withdrawal should be accounted as drawings. This will ensure the business transactions are separate from personal transactions