case study on journal entries

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Case Study on Journal Entries Requirements

Accounting entries are supposed to be made in accordance with the internationally recognized accounting standards. If an error is made, the income statement and the balance sheet at the end of the financial year will show incorrect balances. Accountants should be keen to note any cases of errors in the records made. If an error is recognized in the records, the accountant should correct immediately before posting the balances in the balance sheets and income statements.

Related Papers

Niamh M. Brennan

A multiple choice questionnaire (MCQ) style examination typically consists of 20/30 short statements, each of which is followed by a number of alternative answers. Only one answer is strictly correct. This allows the examiner to mark candidates' responses in an objective rather than subjective fashion. This style of examination question has recently been adopted by the Institute of Chartered Accountants in Ireland and is also used in third level institutions. MCQs have a number of advantages over traditional examination formats. First, they allow the examiner to ask questions on every topic on the syllabus and thus test the candidates range of knowledge. Perhaps more importantly, correction of answers is entirely objective and comparatively easy. Large numbers of scripts can be objectively tested in a short space of time. Objective tests can also be an effective teaching tool. The topics covered in each chapter are logically sequenced so that as the student progresses through the chapter they build up their knowledge and skills in relation to that topic. In addition, the book emphasises problem areas and attempts to help students avoid common mistakes in financial accounting. Thus the tutor can indicate the correct solution and also explain or seek responses as to why other plausible answers are incorrect to the given statement. Such a process should ensure greater understanding of the topic under discussion. This book is suitable for students taking introductory financial accounting examinations of the professional accountancy bodies, third level accounting students or other students studying introductory financial accounting courses. The three revision examinations at the end of this book are reproduced with the kind permission of the Institute of Chartered Accountants in Ireland.

1. Identify Transactions

2. analyze transactions, 3. journalizing transactions, common journal entry questions.

Journal entries are the first step in the accounting cycle and are used to record all business transactions and events in the accounting system. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation. For example, when the company spends cash to purchase a new vehicle, the cash account is decreased or credited and the vehicle account is increased or debited.

How to Make a Journal Entry

Here are the steps to making an accounting journal entry.

There are generally three steps to making a journal entry. First, the business transaction has to be identified. Obviously, if you don’t know a transaction occurred, you can’t record one. Using our vehicle example above, you must identify what transaction took place. In this case, the company purchased a vehicle. This means a new asset must be added to the accounting equation.

After an event is identified to have an economic impact on the accounting equation, the business event must be analyzed to see how the transaction changed the accounting equation. When the company purchased the vehicle, it spent cash and received a vehicle. Both of these accounts are asset accounts, so the overall accounting equation didn’t change. Total assets increased and decreased by the same amount, but an economic transaction still took place because the cash was essentially transferred into a vehicle.

After the business event is identified and analyzed, it can be recorded. Journal entries use debits and credits to record the changes of the accounting equation in the general journal. Traditional journal entry format dictates that debited accounts are listed before credited accounts. Each journal entry is also accompanied by the transaction date, title, and description of the event. Here is an example of how the vehicle purchase would be recorded.

Since there are so many different types of business transactions, accountants usually categorize them and record them in separate journal to help keep track of business events. For instance, cash was used to purchase this vehicle, so this transaction would most likely be recorded in the cash disbursements journal. There are numerous other journals like the sales journal, purchases journal, and accounts receivable journal.

We are following Paul around for the first year as he starts his guitar store called Paul’s Guitar Shop, Inc. Here are the events that take place.

Entry #1 — Paul forms the corporation by purchasing 10,000 shares of $1 par stock.

Entry #2 — Paul finds a nice retail storefront in the local mall and signs a lease for $500 a month.

Entry #3 — PGS takes out a bank loan to renovate the new store location for $100,000 and agrees to pay $1,000 a month. He spends all of the money on improving and updating the store’s fixtures and looks.

Entry #4 — PGS purchases $50,000 worth of inventory to sell to customers on account with its vendors. He agrees to pay $1,000 a month.

Entry #5 — PGS’s first rent payment is due.

Entry #6 — PGS has a grand opening and makes it first sale. It sells a guitar for $500 that cost $100.

Entry #7 — PGS sells another guitar to a customer on account for $300. The cost of this guitar was $100.

Entry #8 — PGS pays electric bill for $200.

Entry #9 — PGS purchases supplies to use around the store.

Entry #10 — Paul is getting so busy that he decides to hire an employee for $500 a week. Pay makes his first payroll payment.

Entry #11 — PGS’s first vendor inventory payment is due of $1,000.

Entry #12 — Paul starts giving guitar lessons and receives $2,000 in lesson income.

Entry #13 — PGS’s first bank loan payment is due.

Entry #14 — PGS has more cash sales of $25,000 with cost of goods of $10,000.

Entry #15 — In lieu of paying himself, Paul decides to declare a $1,000 dividend for the year.

Now that these transactions are recorded in their journals, they must be posted to the T-accounts or ledger accounts in the next step of the accounting cycle .

Here is an additional list of the most common business transactions and the journal entry examples to go with them.

Depreciation Expense Entry
Accumulated Depreciation Entry
Accrued Expense Entry

What is a manual Journal Entry?

Manual journal entries were used before modern, computerized accounting systems were invented. The entries above would be manually written in a journal throughout the year as business transactions occurred. These entries would then be totaled at the end of the period and transferred to the ledger. Today, accounting systems do this automatically with computer systems.

What is a general journal entry in accounting?

An accounting journal entry is the written record of a business transaction in a double entry accounting system. Every entry contains an equal debit and credit along with the names of the accounts, description of the transaction, and date of the business event.

What is the purpose of a journal and ledger?

The purpose of an accounting journal is record business transactions and keep a record of all the company’s financial events that take place during the year. An accounting ledger, on the other hand, is a listing of all accounts in the accounting system along with their balances.

What is the purpose of a journal entry?

A journal entry records financial transactions that a business engages in throughout the accounting period. These entries are initially used to create ledgers and trial balances. Eventually, they are used to create a full set of financial statements of the company.

Accounting & CPA Exam Expert

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

Financial Accounting Basics
Accounting Principles
Accounting Cycle
Unadjusted Trial Balance
Adjusting Entries
Adjusted Trial Balance
Financial Statement Prep
Accounting Worksheet
Closing Entries
Income Summary Account
Post Closing Trial Balance
Reversing Entries
Financial Statements
Financial Ratios

Introduction to Accounting Skills for Managers
Key Accounting Concepts
Accounting Business Transactions and the Accounting Equation

Accounting Skills - Case Study

Rules of Debit and Credit
Maintaining Accounting Records
Cheat Sheet - Accounting for Common Business Transactions

Accounting Case Study - Journal Entries

Accounting Case Study - General Ledger and Trial Balance

We had started our case study for explaining accounting concepts. You can view the case study introduction at the following link:

In this part, we present the journal entries for the transactions at Web Design Inc. We have prepared a PDF document containing the transactions and their respective journal entries.

These can be viewed below:

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UGC NET Paper 1

Journal, Ledger & Trial Balance (Financial Accounting) – Practical Problems and Solutions

Journal, Ledger and Trial Balance (Financial Accounting)

In this article, we will discuss the basic concepts of financial accounting i.e. journal, ledger, and trial balance as per financial accounting rules. In this topic, we also cover how to prepare journal, ledger, and trial balance with practical problems and solutions.

Types of Journal

There are two types of the journal in financial accounting:

General Journal : General Journal is one in which a small business entity records all the day to day business transactions
Special Journal : In the case of big business houses, the journal is classified into different books called as special journals. Transactions are recorded in these special journals on the basis of their nature. These books are also known as subsidiary books . It includes cash book, purchase day book, sales day book, bills receivable book, bills payable book, return inward book, return outward book and journal proper.The journal proper is used for entering infrequent transactions such as opening entries, closing entries and rectification entries.

Journalizing Process

The process of recording transactions in the journal is called Journalizing . The transactions are recorded in the journal in the manner of their occurrence along with a suitable explanation, called ‘ Narration ‘ which supports the entry.

The steps involved in the process of Journalizing in financial accounting are as under:

Identification of Accounts : The first and foremost step in any given transaction is to identify the accounts which are being affected with it.
Recognition of Account type : Once the accounts are identified, the type of account is ascertained, i.e. whether it is a personal account, real account or nominal account.
Applying the golden rules of accounting : The rules of debit and credit, i.e. the golden rules of accounting are to be applied to the accounts which are affected by the transactions.

The debit and credit sides of the journal must be equal. There are some transactions in which you will find there are more than one debit for a single credit, more than one credit for a single debit or multiple debits and credits for an entry. Such entries are called as a compound journal entry . Nevertheless, the aggregate amount of debit and credit in an entry must tally.

Format of Journal

Date : In this column, we mention the date of the transaction along with the month in which the transaction took place. The year is indicated at the top only once and not repeated with every date.
Particulars : This column indicates the accounts which are affected, i.e. debited or credited, by the transaction. In the very first line, we write the account which is debited and then in the extreme right of the same line and column we write Dr. which indicates Debit.In the next line, after leaving some space, we write the account which is credited starting with the preposition ‘to’. A small narration for the respective transaction is given in the third line which explains the entry in the brackets, and it starts with the word ‘being’.
Voucher Number : In this column, we enter the number written on the voucher of the concerned transaction.
L.F. or Ledger Folio : As we know that transactions entered in the journal are then taken to the Ledger, in their respective accounts. In this column, the page number concerning the entry in the ledger is mentioned.
Dr. Amount : The amount to be debited for a particular entry is written in the same line, where the debited account is indicated.
Cr. Amount : The amount to be credited for a particular entry is written in the same line, where the concerned credited account is written.

All the columns are to be filled at the time of recording the transaction in the journal, except the ledger folio column which is filled when the transaction is posted to the ledger.

The journal entries may extend to multiple pages, and so both the two columns are totalled at the end of each page, with the word Total c/f , i.e. carried forward. Further, at the beginning of the next page, the amounts in debit and credit columns in the previous page is written with the words Total b/f , i.e. brought forward. Finally, on the last page of the entry, the Grand Total is written, and the columns are totaled.

Topic: Journal, ledger, and Trial balance (CONTINUE…)

Types of accounts.

To understand the Golden Rules of Financial Accounting we must first understand the types of accounts.

There are three types of accounts:

Real Account
Personal Account
Nominal Account

A Real Account is a general ledger account relating to Assets and Liabilities other than people accounts. These are accounts that don’t close at year-end and are carried forward.

A Personal Account is a General ledger account connected to all persons like individuals, firms, and associations.

A Nominal account is a General ledger account pertaining to all income, expenses, losses, and gains.

Golden rules of accounting

Looking at the nature of all the accounts, the financial accounting rules have been devised. For each account, there is a set of Golden Rules and hence there are three Golden Rules of Accounting.

Illustration

An entity named Orange Ltd. has the following financial accounting transactions.

It deposits Rs.10,000 into Bank
It buys goods worth Rs.50,000 from Apple Ltd.
It sells goods worth Rs.35,000 to Melon Ltd.
It pays Rs.12,000 as Rent for its premises
It earns Rs.3,000 as interest on bank account.

First of all, let us identify the accounts involved in these transactions and classify them into the different types of accounts:

Now applying the golden rules of Financial Accounting to each of the transactions we will get the following journal entries :

Deposit Rs.10,000 in Bank

Both Bank and Cash are real accounts and so the Golden rule is:

Debit what comes into the business
Credit what goes out from the business

So the entry will be:

Purchase goods worth Rs.50,000 from Apple Ltd.

The Purchase Account is a Nominal account and the Creditors Account is a Personal account.

Applying Golden Rule for Nominal account and Personal account:

Debit the expense or loss
Credit the giver

The entry will be:

Sale of goods worth Rs.35,000 to Melon Ltd.

The sale account is a Nominal account and the Debtors Account is a Personal account.

Hence the Golden Rule to be applied is:

Debit the receiver
Credit the income or gain

Thus the entry will be:

Pays Rs.12,000 as rent

Rent is a Nominal account and Bank is a real account.

The Golden Rule to be applied is:

Credit what goes out of business

The entry thus will be:

Earn Rs.3,000 as interest on Bank Account

Interest and Bank are Nominal account and Real Account.

The Golden rule to be applied is:

Hence the entry will be:

Topic: Journal, ledger, and Trial balance – Financial Accounting (CONTINUE…)

Format of ledger.

When the debit and credit items are transferred from a journal to the specific ledger accounts, the process is called as Posting. The rules with respect to the ledger posting are discussed as under:

Individual accounts are to be opened in ledger books for each group, i.e. purchases, sales, cash etc. and the entries from the journal are posted to their account.
It should be kept in mind that the account name used in the ledger should be the same used in the journal.
In the date column, we enter the date of the transaction.
While posting the entries in the debit side, we add the prefix ‘To’ with the concerned accounts posted in the particulars column and the prefix ‘by’ is used with the accounts entered in the particulars column of the credit part.
When it comes to posting the entries, the accounts debited in the journal are to be debited in the ledger, however, reference is given to the concerned credit account.
The accounts are balanced at the end of each month or the financial year. And to do so both sides are totaled first and then the difference between the two sides is ascertained. This difference is called the balance, which is added to the side which falls short. When the credit side is greater than the debit side, it is called a credit balance which is indicated as ‘To balance c/d’.On the other hand, when the debit side is in excess of the credit side it is termed as debit balance, which is indicated as ‘By balance c/d’. Here, the word c/d refers to carried down. Similarly while opening the account for the next month or period. The balance on the debit balance is taken to the debit side as ‘To Balance b/d’ and vice versa. The word ‘b/d’ expands to brought down.
In the folio column, we will enter the page number of the journal from which entry is posted to the ledger.
The amount column is filled with the respective amount against the entry.

Subdivision of Ledger

Debtors Ledger : Debtors are the persons to whom goods are sold. So, it includes the accounts of individual trade debtors of the entity are covered in this category.
Creditors Ledger : Creditors are the persons or firm from whom we purchase the goods. So, it encompasses the accounts of individual trade creditors of the business enterprise.
Cash Book : It is the book that contains all the cash and bank transactions.
Nominal Ledger : The ledger accounts relating to incomes such as Sales A/c, Rent received A/c, Commission earned A/c, Interest received A/c, etc. and expenses such as Wages A/c, Salaries A/c, Purchases A/c, Electricity A/c. Rent Paid A/c, Commission Paid A/c, etc. are covered in this category.
Private Ledge r: The ledger in which entries concerned with assets and liabilities are entered is called Private Ledger.

3. TRIAL BALANCE

The statement which is prepared at a particular date with the ledger account balances to test the arithmetical accuracy of the ledger accounts and also to facilitate the preparation of financial statements is called a trial balance.

It is to be noted that trial balance is not an account; it is a mere statement.

A trial balance contains the columns – serial number of ledger accounts,

If a trial balance agrees i.e. a total of debit money column and a total of credit money column are equal, it proves that the ledger accounts are arithmetically accurate.

The famous writer R.N. Carter says;

A trial balance is a schedule or a list of balances both debit and credit extracted from the accounts in the ledger and including the cash and bank balances from the cash book.

According to J.R. Batliboi,

A trial balance may be defined as a statement of debit and credit balances extracted from the ledger with a view to testing the arithmetical accuracy of the books.

Characteristics of Trial Balance

It appears from the definitions of trial balance that the trial balance contains the following features;

The trial balance is neither an account nor a part of it. It is a statement containing all balances of ledger accounts.
It is not recorded in any book of account. The trial balance is prepared in a separate sheet of paper.
The trial balance is prepared with the balances of accounts at the end of a particular accounting period. A trial balance is prepared before the preparation of financial statements at the end of the accounting period.
The statement contains all kinds of accounts, irrespective of their classifications, such as assets liabilities, income-expenses, etc. It helps to test the arithmetical accuracy of accounts.

Objects of Trial Balance

Although trial balance is not an account, it is prepared to fulfill the following objects;

The main object of the trial balance is to prove the arithmetical accuracy of accounts.
It is prepared to check whether the debit and credit accounts of each transaction have been recorded properly.
For the convenient preparation of financial statements, the trial balance is prepared to bring debit and credit ledger balances together.
To proof the accurate balancing of a ledger account.
To detect mistakes in the process of accounts, if any.
To provide information to the proper authority in time.
To compare the balances of various ledger accounts of the current year with those of the previous year.

Why do both Sides of Trial Balance Agree

According to a double-entry system every transaction is recorded in a journal debiting one account and crediting the other for the same amount of money with an explanation.

At the time of posting of the transaction from journal to ledger debit account of the journal is debited in the same account and the credit account of the journal is credited in the same account in the ledger.

As a result, a total of the debit balance of ledger accounts becomes equal to the total credit balance of ledger accounts.

Therefore, According to double-entry principle;

If all correctly drawn ledger accord balance is recorded in trial balance in debit and credit money columns properly, the totals of both columns of trial balance become equal.

Preparing Trial Balance From Journal and Ledger (How To)

To prepare a trial balance, first, we need to know to make sure the transactions are journalized and have been posted to ledgers.

The final balance from the ledger needs to be properly placed on the debit and credit column while preparing the trial balance, to make sure the accounting process is correct.

How to Prepare a Trial Balance

Business transactions are first recorded in the journal and thereafter these are posted in the ledger under different heads of accounts.

It may be mentioned that transactions may directly be posted in the ledger accounts without recording them in the journal.

At the end of a particular accounting period, a trial balance is prepared in a separate sheet of prescribed form recording debit ledger balance, in the debit column and credit ledger balances in the credit money column.

Besides ledger balances, cash balance, and bank balance of cash book of that particular date are also included in the trial balance.

Thereafter the total of debit and credit money columns of a trial balance is calculated. The agreement of trial balance is the conclusive evidence of the accuracy of the ledger and trial balance.

The format for Preparing Trial Balance

A short description of the format of the trial balance is given below:

Preparing Trial Balance From Journal and Ledger

Titles: In the middle of the format name of the company, the trial balance and date of preparation are written.
Accounts serial number: In this column, the serial numbers of ledger accounts are written.
Account Titles: The serial number of that account of the ledger which has been written in the first column, the full title of that account is written in this column. For example, Capital account, Furniture account, Cash account etc.
Ledger Folio: The number of the ledger page from where ledger balances are brought is written in this column.
Debit balance: All debit balances of ledger accounts are written in this column.
Credit balance: All credit balances of ledger accounts are written in this column.

Ledger Account Balance and Trial Balance

Rules for recording debit ledger account balances and credit ledger account balances in debit money column and credit money column of trial balance in absence of ledger account:

Important to remember:

Opening cash and bank balance are not shown in the trial balance as these are included in closing cash and bank balances.
Closing stock is not shown in the trial balance because this remains included with opening stock and purchase of the accounting year. But if opening stock and purchase remain absent in trial balance and the adjusted purchase is shown in the trial balance, in that case, the closing stock is shown in the debit money column of the trial balance.

PRACTICAL PROBLEM AND SOLUTIONS

Record the following transactions in the Journal and post them into the ledger and prepare a Trial Balance

Topic: Journal, ledger, and Trial balance – Financial Accounting (CONTINUE…)

General Ledger [Books of Mr. Neel]

Trial Balance [Modern Method]

Problem – 2

Enter the following transactions in the Journal and post them into the ledger and from the information obtained prepare a Trail Balance.

General Ledger [Books of Mrs. Roy]

Trial Balance [Modern Method]

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Dr. Gaurav has a doctorate in management, a NET & JRF in commerce and management, an MBA, and a M.COM. Gaining a satisfaction career of more than 10 years in research and Teaching as an Associate professor. He published more than 20 textbooks and 15 research papers.

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MANAGEMENT ACCOUNTING

Mastering accounting for business combinations

Mergers and acquisitions present challenges that finance can overcome by staying involved with the deal and preparing in advance of the closing..

Management Accounting
Accounting & Reporting
FASB Financial Accounting & Reporting
Managerial Financial Accounting & Reporting

When accountants face the prospect of a business combination, there will be many challenges to prepare for in the deal and the accounting for it.

One of the first challenges is the strategic decision - making about whether the deal is right from a business perspective.

"Statistically, acquisitions aren't successful a high percentage of the time," said Aaron Saito, CPA, CGMA, Capital Accounting controller at Intel Corp. "It's like a baseball batting average, where .300 to .400 is outstanding. If you're at this percentage for M&A, you're beating the average," he said.

There are deal activities usually led by those outside of finance, such as finding the right target, performing due diligence, setting the price, drafting a purchase agreement, and working with professionals to close the transaction.

"Much of the complexity in acquisitions results from stresses around negotiating the deal structure, like funding arrangements, tax considerations, and continuation or dismissal of the acquired entity's employees," said Susan Callahan, CPA, Ford Motor Co.'s director, Americas Accounting and Global Policy. "These are in addition to the technical complexity of financial reporting."

FASB' s RULES

FASB ASC Topic 805, Business Combinations , is a specialized accounting area that has evolved over the years and continues to be the subject of simplification initiatives by FASB. It is complex and may require CPAs to face new issues and apply certain accounting principles for the first time (see the sidebar, "Accounting Quick Tips," below).

"Unless you work for a company that is a serial acquirer, you are not applying acquisition accounting day to day, like you are other GAAP areas like revenue recognition and inventory accounting," said Greg McGahan, CPA, a partner at PwC. "Most companies only do one acquisition every couple of years, as it is only one path of a company's growth agenda. You may have to crack the books open and deal with a new accounting model, to refresh what you remember but also to keep up with the changes," he said.

To help accountants better anticipate and prepare for the challenges in business combinations, here are some things to consider.

INVOLVEMENT WITH THE DEAL

Since finance may not be leading the acquisition process, it is critical that it has a seat at the table and a strong partnership with the business development team throughout the transaction life cycle. In that way, finance will understand the deal's rationale, critical contract terms, and where the value drivers are.

"In a typical case, the business development group has done their due diligence, analyzed the target, developed the price, and determined the value drivers. Then the deal is closed, and the torch is passed to finance to do the acquisition accounting," McGahan said.

He said that if there is a lack of communication with the deal team, and finance doesn't understand the value drivers — such as a business that was acquired for a customer list or a platform that was too difficult to build internally — it will be much harder to apply acquisition accounting and properly value assets acquired and liabilities assumed.

Saito agreed that it is very important to understand the accounting ramifications upfront. "Once the ink is dry on the contract, you don't have options," he said. "And it's not easy to read purchase contracts. They can be 400 to 500 pages long, so it's easy for even the best accountants to miss something."

Finance needs to ensure that it does not get left out of the due - diligence process, because it can add value to the negotiations and help determine the best accounting and tax outcomes.

"Being part of due diligence can help finance understand the business being acquired and uncover areas where things can go wrong. Otherwise, you may not know what you don't know," said Linnae Latessa, CPA, corporate controller and chief accounting officer of USI Insurance Services.

Finance can reduce risks and avoid surprises by advising the due - diligence team against doing things in the transaction based on the potential financial impacts post - close , Saito said.

UNDERSTANDING GAAP

Accounting for business combinations is complex and requires considering a number of areas, including the following:

Identifying business combination transactions.
Identifying the acquirer.
Determining the acquisition date.
Measuring the consideration transferred.
Recognizing and measuring the identifiable assets acquired and liabilities assumed, and any noncontrolling interests in the acquiree.
Recognizing and measuring goodwill for a gain from a bargain purchase.

Topic 805 provides guidance on the accounting and reporting for business combinations to be accounted for under the transition method.

One of the biggest challenges in applying acquisition accounting is the requirement to estimate the fair value of assets acquired and liabilities assumed. Valuation is challenging and requires a lot of judgment, which needs to be supported. Irrespective of whether the valuation is performed internally within a company or by an outside third party, finance needs to be aware of fair value accounting requirements and involved in the valuation process.

"Fair value using the concept of what 'market participants' do in arm's - length transactions may be a foreign concept," said Saito. Also, things may need to go on the balance sheet that were never valued before, like internally developed intangibles, intellectual property, know - how , and brands.

Valuation is frequently based on cash flow models. "Does the company have cash flow models? If so, how do you adjust them to reflect market participant assumptions? Where are the cash flows associated with the valuation? How do you translate deal price of '10X EBITDA' into cash flows?" asked Saito.

Some companies may perform the valuation themselves internally. If they do, it is important for finance to have the necessary expertise and to work with the external auditors to make sure the documentation and support that finance develops for the acquisition accounting is adequate for the auditors' needs.

Many companies use third - party valuation firms for their fair value estimates. Latessa recommended that transactions over a determined dollar value have an outside valuation. If a third - party valuation firm is used, management must be comfortable with the outcome of its activities.

"The valuation firm works from the assumptions the company provides, such as revenues used to value trademarks, and specific customer revenues and attrition rates to value customer intangibles," said McGahan. "At the end of the day, the financial statements are the company's responsibility. Mistakes in valuation in the financial statements are on your watch."

McGahan also advised that successful companies have an integrated approach to the valuation process, which includes the business development team and finance. The valuation experts should be given the deal's model assumptions (discount rates, internal rate of return, hurdle rates, and cost of capital) and the final version of the deal model to use, and everyone on the team should review the valuation output for reasonableness.

"Work with a good quality valuation firm, ask a lot of questions, and understand how they come up with the values," Latessa said. "They know how to run models, but conceptually does the answer make sense? Should 50% of the deal value have gone to the customer list? They should be able to explain why it makes sense."

The amount attributed to goodwill should also be reasonable in relation to the purchase price.

"It's the residual, but accountants should be able to validate it," McGahan said. "If 40% of the purchase price is allocated to goodwill, does that make sense based on the deal or value drivers? Things like future customers, platform, and company - specific synergies all go to goodwill."

This approach will pay dividends in the end, especially since valuation is an area of high audit concern. Because of the prevalence of merger activity in recent years and the many subjective judgments and estimates involved in the business combination process, the PCAOB highlighted its concern about valuation risk in its August 2017 Staff Inspection Brief. The PCAOB also recently issued two new standards that affect auditing of valuations: Amendments to Auditing Standards for Auditor's Use of the Work of Specialists and Auditing Accounting Estimates, Including Fair Value Measurements, and Amendments to PCAOB Auditing Standards .

CHANGES TO GAAP

The fair value challenges aren't the only things that make business combination accounting complex. FASB is continuing to work on initiatives to simplify this area and improve comparability. In 2017, FASB issued guidance that clarified the definition of a business. FASB also has several projects on its agenda that may impact business combinations, including subsequent accounting for goodwill and accounting for certain identifiable intangible assets, as well as improving the accounting for business and asset acquisitions. The experts interviewed for this article all agreed that these efforts have been helpful and made things better operationally.

FASB has also developed private company alternatives related to accounting for business combinations (see " Private Company GAAP Alternatives: It's Not Too Late ," page 32). However, the practical expedients for private companies should be used only if the company's financial statements stay in the private domain and the banks will accept this format. McGahan advised: "Most companies doing acquisitions will need to access capital markets to raise money, so financial statements may need to be SEC - compliant ."

Financial statement disclosures for business combinations can be extensive, especially for larger transactions.

"The critical assumptions regarding opening day balance sheet values are important for financial statement users," said McGahan. "They need transparent disclosure of significant acquisition accounting assumptions and estimates that are not [derived based on] observable inputs, including how they were developed."

For SEC registrants, operating segments may change based on how the new business will be managed going forward. In addition to the financial statements, there are also management's discussion and analysis (MD&A) and description of business sections to develop and prepare within filing deadlines.

Latessa recommended that accountants look at disclosures of other companies that have done acquisitions, along with networking with peers and others in their network or industry to ask if they have had the same issues that may need to be disclosed. She also recommended getting the auditors comfortable with disclosures in advance, getting their guidance on the requirements, and asking them what their other clients have disclosed in specific situations.

AFTER THE TRANSACTION CLOSES

After the business combination closes, accountants must contend with financial reporting challenges. "You can't just mush the results of the target in with the existing business," said Saito. " Post - close , it's disruptive."

Hopefully, there have been operational discussions in advance about how the new business will be managed, whether as a stand - alone or integrated business. "There may also be challenges with 'operationalizing' the acquisition accounting after day one," McGahan said, "like whether to track acquisition accounting at the parent or push down to a subsidiary, and how to deal with international transactions' foreign currency and deferred tax issues."

The closing process may become very challenging. Accounting policies and practices may be different and may have to be conformed. This may be an opportunity to evaluate existing accounting methods and make changes. There can also be timing issues if the acquired company takes longer to close its books.

If there are different ledgers and enterprise resource planning systems, automatic consolidation may not be possible and manual processes may have to be used. There will likely be system integration issues, especially if the acquired company is smaller and uses QuickBooks. System conversions will require additional reconciliations and verification of data. McGahan recommended that companies' due diligence include IT due diligence upfront to understand the target's IT and financial reporting and plan for it. "The best companies have dedicated teams to integrate IT post - closing to get the target on the same systems," he said.

"The two companies' accounting and finance departments need to form a partnership," said Saito. "Workflows may need to change, and change doesn't happen overnight."

Latessa agreed. "You may need to retrain the acquired company's people," she said. "This results in operational risks that can manifest themselves in the financial statements, so you need to be diligent in reviewing the financial statements when there are new employees involved." She has also experienced situations where the finance staff did not transfer to the acquiring company, so legacy knowledge and experience were lost. She said that in cases where a company buys a portion of another company, the acquired company's accounting may have been done at the corporate level, and it can take six months to a year for the acquirer to understand the business it bought.

Since post - close accounting is difficult, GAAP allows up to a year post - acquisition to finalize acquisition accounting and measurement period adjustments. But in some cases, there may only be 30 to 60 days to do a working capital true - up .

"The further away from the close date it is, the harder it is to remember, and people get busy with other things," Saito said.

Material adjustments to the acquisition accounting made too late can be considered errors as well as deficiencies of internal controls that could require financial reporting disclosure. Saito suggested that acquisition accounting be run like a project, with finance as the project manager, providing all involved departments a calendar of key dates and activities up to the earnings release so that everyone is aware of what has to be done and who has to review it.

Beyond the book close, reporting needs to be in place, including metrics and dashboards for management about the acquired business. A cash flow process should be developed to support the business after the close.

This requires planning in advance. "CFOs and boards of directors do not like surprises," Saito said. "Management needs to be aligned with finance upfront about what to expect."

INTERNAL CONTROLS

To address the issues related to business combinations, it is critical that companies implement internal controls over the integration process. "From my experience, the post - combination accounting is less an issue than is the integration of the acquired entity. Challenges associated with integrating a new company are often dependent on size and scale, but the acquirer may need to consider new systems, processes, and, most importantly, controls," Callahan said.

Another big challenge relates to the controls over the business combination process itself, especially in a company where this may not happen often.

"How robust your process is depends on the frequency of acquisitions. The harder part is that if they are infrequent, you may not know what you should be looking for," Saito said.

McGahan agreed: "Companies have spent their time and effort to develop controls around ongoing daily processes but may not have robust controls for business combinations and struggle with what these are. There is a set of specific controls and procedures that should be in place ... But companies don't spend sufficient time developing these if they are only doing a few transactions."

Post - acquisition , until there is one integrated process with combined controls, companies may struggle to comply with internal control frameworks and Sarbanes - Oxley (SOX) requirements.

"You will have to do more to get your auditors through their test work," Latessa said. "There may be extra work and cost for them to look at both companies' processes, sample sizes will likely be higher, and they will have to do more substantive work."

Under SOX Section 404, public companies must include an internal control report with management's assertions about the effectiveness of the company's internal control over financial reporting, and their auditors must attest to its effectiveness. There are SOX implications relating to the acquirer's internal controls over the acquisition accounting and financial statement consolidation processes, along with the acquired company's own internal controls over financial reporting. If it is not possible for the acquiring company to complete its assessment of internal control over financial reporting of the acquired entity between the acquisition date and the acquirer's year end, in order to assess and report on its own internal controls over financial reporting on a consolidated basis under SOX Section 404(b), there is a relief period of one year from the date of the acquisition during which it may exclude the acquisition from its assessment. Despite this relief, necessary controls should be designed and implemented as quickly as possible.

Another internal control issue is documentation. "If I think about controls that need to be in place, in my experience, substantively companies are doing the work that they need to do. They are not doing big transactions blindly, they have talked to their boards, and management time has been spent," McGahan said. "They do have support for what they've done, but they don't have the documentation all in one place. One of the biggest challenges auditors have is that companies have to go back and pull together documentation around what they've done so that auditors are able to reperform the control."

A company that is doing a material acquisition may wish to talk to its auditors in advance about what controls might be needed, Saito suggested. "This helps with the audit and also gets management comfortable that they have the right controls in place," he said. "No one wants to have an internal control issue down the line."

Accounting quick tips

These simple ideas can aid in M&A reporting. The following general advice can help organizations skillfully handle business combination accounting:

“Plan, plan, plan,” and communicate upfront and throughout.
Be proactive rather than reactive. You will have more time to think about, prioritize, and address the issues.
Finance should be involved in the deal from the beginning and play a key role throughout the process to reduce surprises.
Timelines and deadlines should be set for the integration of processes and people.
Experience helps. As you go through more of these transactions, everyone on the team will be better educated about what finance needs to do.
Reach out to your auditors as a resource, even if you are only thinking about doing a transaction, and be transparent with them if you do.
Early in the process involve valuation specialists (whether internal or external) who will value assets acquired and liabilities assumed.

About the author

Maria L. Murphy, CPA , is a freelance writer based in North Carolina.

To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA 's editorial director, at [email protected] or 919-402-2112.

AICPA resources

" After the Merger: Creating a Culture of Success ," JofA , Dec. 2018
" Not-for-Profits Teaming Up to Fulfill Missions ," JofA , Nov. 2018
" Tax Compliance After M&As ," JofA , Dec. 2017

Publication

Editor's note: The AICPA is developing a Business Combinations accounting and valuation guide that is expected to be released for feedback in 2020.

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CEIV for Finance Professionals: CEIV Education and CEIV Exam (#158530-CEIVLQN, education bundle; #16-XAM-CEIVLQN, CEIV exam). The Certified in Entity and Intangible Valuations (CEIV) credential program is designed to enhance credential holders' commitment to enhancing audit quality, consistency, and transparency in fair value measurements for financial reporting purposes.

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Accountancy
Business Studies
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CBSE Class 11 Accountancy Notes

Chapter 1: Introduction to Accounting

Introduction to Accounting
Types and Users of Accounting Information
Difference between Bookkeeping and Accounting
Accounting: Objectives, Characteristics, Advantages, Disadvantages and Role of Accounting
Basic Accounting Terms
Difference between Accounting and Accountancy

Chapter 2: Theory Base of Accounting

Accounting Standards : Need, Benefits, Limitations and Applicability
IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles)
Difference between Cash Basis and Accrual Basis of Accounting
Accounting Concepts
Systems and Basis of Accounting | Single and Double Entry System

Chapter 3: Recording of Business Transactions

Accounting Voucher: Format & Types of Vouchers
Accounting Equation: Meaning, Format, Effect and Rule of Posting
Accounting Equation | Increase in Assets and Capitals both and Increase in Assets and Liability both
Accounting Equation | Decrease in Assets and Capital both and Decrease in Asset and Liability both
Accounting Equation|Decrease in Capital and Increase in the Liability, Decrease in Liability and Increase in the Capital and Increase and Decrease in Assets
Accounting Equation|Sale of Goods and Calculation of Net Worth (Owner's Equity) Or Capital
Journal Entries
Journal Entry Questions and Solutions
Rules of Journal Entry
Cash Book: Meaning, Types, and Example
Purchase Book : Meaning, Format, and Example
Sales Book: Meaning, Format and Example
Purchase Return Book : Meaning, Format, and Example
Sales Return Book: Meaning, Format, and Example
Journal Proper: Meaning, Format and Examples

Chapter 4: Bank Reconciliation Statement

Bank Reconciliation Statement (BRS) | Full Form of BRS and Need of BRS
Difference between Bank Statement and Bank Reconciliation Statement
Preparation of BRS without correcting Cash Book
Preparation of Bank Reconciliation Statement with Amended Cash Book

Chapter 5: Depreciation, Provisions, and Reserves

Depreciation: Features, Causes, Factors and Need
Methods of charging Depreciation
Straight Line Method of Charging Depreciation
Written Down Value (WDV) Method of Depreciation
Difference between Straight Line and Written Down Value Method of calculating Depreciation
Provisions in Accounting - Meaning, Accounting Treatment, and Example
Reserves in Accounting: Meaning, Accounting Treatment, Importance, and Example
Difference between Provisions and Reserves
Reserves and its Types
Difference between Capital Reserve and Revenue Reserve

Chapter 6: Trial Balance and Rectification of Errors

Trial Balance: Meaning, Objectives, Preparation, Format, and Example
Types of Errors in Trial Balance
Detection and Rectification of Errors in Trial Balance
Suspense Account : Meaning, Journal Entry & Format

Chapter 7: Bills of Exchange

Bills of Exchange: Meaning, Features, Parties, and Advantages
Promissory Note: Features and Parties
Difference between Bills of Exchange and Promissory Note
Important Terms in Bills of Exchange
Accounting Treatment of Bills of Exchange

Chapter 1: Financial Statements

Financial Statements : Meaning, Objectives, Types and Format
Financial Statement with Adjustments
Financial Statement with Adjustments ( Journal Entries )
Financial Statement with Adjustment with Examples-I
Financial Statement with Adjustment with Examples-II
Financial Statement with Adjustment with Examples-III
Financial Statement with Adjustment with Examples-V
Financial Statement with Adjustment-Loss of Insured Goods & Assets (All three cases)
Stakeholders and their Information Requirements
Capital Expenditure | Meaning, Example and Accounting Treatment
Trading and Profit and Loss Account: Opening Journal Entries
Operating Profit (EBIT): Meaning, Formula and Example
Balance Sheet: Meaning, Format, Need and Objectives
How to prepare a Balance Sheet?

A Journal is a book in which all the transactions of a business are recorded for the first time. The process of recording transactions in the journal is called Journalising and recorded transactions are called Journal Entries.

Every transaction affects two accounts, one is debited and the other one is credited. ‘Debit’ (Dr.) and ‘Credit’ (Cr,) are the two terms or signs used to denote the financial effect of any transaction. The word ‘journal’ has been derived from the French word ‘JOUR’ meaning daily records. Journal Book is maintained to have prime records for small firms. After preparing the journal book, the transactions are then posted to Ledger.

Steps to be followed to record business transactions in a journal are:

Ascertain the accounts related to a particular transaction.
Find the nature of the related account.
Ascertain the rule of debit and credit, applicable to the related account.
Record the date of the transaction in the ‘Date Column’.
Write the name of the account to be debited in the particulars column along with the abbreviation ‘Dr.’ and the amount to be debited in the debit amount column.
Write the name of the account to be credited in the next line starting with ‘To’ and the amount to be credited in the credit amount column.
Write a brief explanation of the transaction as narration.
Draw a line across the entire particulars column to separate one journal entry from the other.

Table of Content

Capital Account
Drawings Account
Expenses Paid
Income Received
Transactions
Depreciation
Amount Paid or Received in Full/Final Settlement
Compound or Composite Journal Entry
Opening Journal Entry
Banking Transactions
Bad Debts Recovered
Loss of Insured Goods/Assets
Outstanding Expenses
Prepaid or Unexpired or Advance Expenses
Income Due or Accrued Income
Income Received in Advance or Unearned Income
Life Insurance Premium
Employee’s Life Insurance Premium
Interest on Capital
Interest on Drawings
Use of Goods in Business
Expenditure on Assets (Erection or Installation)
Expenses on Purchase of Goods
Outstanding Salary
Prepaid Insurance
Commission Received
Salaries Paid
Deferred Revenue

1. Capital Account

The amount invested in the business whether in the means of cash or kind by the proprietor or owner of the business is called capital. The capital account will be credited, and the cash or assets brought in will be debited.

Journal Entry:

Capital Account Journal Entry with Examples

2. Drawings Account :

Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as Drawings. The Drawings account will be debited, and the cash or goods withdrawn will be debited.

Journal Entry:

Drawings Account Journal Entry with Examples

3. Expenses Paid :

Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. The Cash Account will be decreased with the amount paid as expenses, so it will be credited and Expenses will be debited.

Expenses Paid Journal Entry with Examples

4. Income Received :

Any monetary benefit arising from the business can be termed as income. The Cash Account will be increased with the amount received as income, so it will be debited and Income Account will be credited.

Income Received Journal Entry with Examples

5. Goods :

Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as ‘Purchases A/c’ when goods are purchased, and ‘Sales A/c’ when they are sold.

Goods Account is classified into five different accounts for the purpose of passing journal entries:

A. Purchases Account: When goods are purchased in cash or credit, donated, lost, or withdrawn for personal use, in all these cases, goods are denoted as Purchases A/c.

Goods purchased for cash
Goods Donated
Goods are withdrawn for personal use
Goods lost by fire

B. Sales Account: When goods are sold, then it is represented as Sales A/c.

C. Purchase Return or Return Outwards Account: When purchased goods are returned to the supplier, it is denoted as Purchase Return A/c or Return Outwards A/c.

D. Sales Return or Return Inwards Account: When goods sold are returned by the customers, it is termed as Sales Return or Return Inwards A/c.

E. Stock: The left over unsold goods at the end of a financial year is represented through stock. Closing Stock is the valuation of goods leftover at the end of a financial year, and Opening Stock is the valuation of goods an enterprise has at the beginning of a financial year.

Goods Journal Entry with Examples

6. Transactions :

Transactions related to the purchase and sale of goods can be of two types, Cash or Credit.

A. Cash Transactions: Cash transactions are those transactions in which payment is made or received in cash at the time of purchase or sale of goods. Cash transactions can be identified by-

When the Name of the Party and Cash both are given in the transaction;
When only Cash is given in the transaction;
When the Name of the Party and Cash both are not given.

B. Credit Transactions: Credit transactions are those transactions in which payment is not made or received at the time of purchase or sale of goods. Credit transactions can be identified by:

When only the Name of the Party is given in the transaction.

Cash & Credit Transactions Journal Entry with Examples

7. Assets :

Assets (Machinery, Building, Land, etc.) can also be purchased or sold in cash or on credit. It is not represented through Purchases, but with the name of the Asset.

Journal Entry: (When Assets are Purchased)

Journal Entry: (When Assets are Sold)

Assets Journal Entry with Examples

8. Depreciation :

Depreciation is the decrease in the value of assets due to use or normal wear and tear.

Depreciation Account Journal Entry with Examples

9. Discount :

A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount:

A. Discount Allowed

B. Discount Received

A. Discount Allowed: When at the time of sales or receiving cash, any concession is given to the customers, it is called discount allowed.

B. Discount Received: When at the time of purchase or paying cash, any concession is received from the seller, it is called discount received.

According to the business point of view, there are two types of Discount:

A. Trade Discount

B. Cash Discount

A. Trade Discount: The discount provided by the seller to its customers at a fixed percentage on the listed price mostly on bulk purchases is called a trade discount. Trade discount is not shown separately in the journal entry.

B. Cash Discount: A Cash discount is offered to those customers who make quick payments or payment is made by them within a fixed period.

Discount Journal Entry with Examples

10. Amount Paid or Received in Full/Final Settlement :

A business may allow or receive a discount at the time of full and final settlement of the accounts of debtors or creditors.

Amount Paid or Received in Full/Final Settlement Journal Entry with Examples

11. Compound or Composite Journal Entry :

When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry instead of passing two or more entries.

Compound or Composite Journal Entry with Examples

12. Opening Journal Entry :

After closing all the books at the end of a financial year, every business starts its new books at the beginning of each year. Closing balances of all the accounts are carried forward to the new year as opening balances. As it is the first entry in the new financial year, it is called Opening Journal Entry.

Opening Journal Entry with Examples

13. Bad Debts :

When the goods are sold to customers on credit, there can be a situation where a few of them fail to pay the amount due to them because of insolvency or any other reason, the amount that remains unrecovered is called Bad Debts.

Bad Debts Journal Entry with Examples

14. Banking Transactions :

All businesses make many transactions with the bank in their day-to-day activity. Journal Entries related to banking transactions are as follows:

1. When cash is deposited in the bank:

2. When cash is withdrawn from the bank:

3. When cash is withdrawn from the bank for personal use:

4. When the cheque, drafts, etc. received from the customers are not sent to the bank for collection on the same date and deposited at the bank on any other day or endorsed to any other party.

A. When any cheque is received and not sent to the bank for collection:

B. When the above cheque was sent to the bank for collection:

C. If the above cheque was endorsed in favour of any other party:

5. When the cheque, drafts, etc., received from the customers are sent to the bank for collection on the same date:

6. When a customer directly deposits any amount in the firm’s bank account:

7. When a cheque previously deposited into the bank gets dishonoured:

Banking Transactions Journal Entry with Examples

8. Payment is received through cheque and a discount is allowed.

A. When a cheque is received from a customer and a discount is allowed to him (Cheque is deposited into the bank on the same day):

B. If the above cheque gets dishonoured:

Journal Entry:

9. When payment is made through cheque:

10. When expenses are paid through cheque:

11. When interest is charged by the bank:

12. When interest is allowed by the bank:

13. When a bank charges any amount for the services rendered:

15. Bad Debts Recovered :

When the amount that is earlier written as bad debts is now recovered, it is called bad debts recovered.

Bad Debts Recovered Journal Entry with Examples

16. Loss of Insured Goods/Assets :

Sometimes insured goods are lost by fire, theft, or any other reason. There can be three cases related to the loss of insured goods or assets.

A. Claim does not get accepted by the Insurance Company:

B. Insurance Company partly accepted the claim:

C. Insurance Company fully accepted the claim:

For receiving the claim money:

Loss of Insured Goods/Assets Journal Entry with Examples

17. Loan Taken :

A business can take an amount of money as a loan from a bank or any outsider. In return, the business has to pay interest.

A. Loan is taken from a bank or person:

B. Interest charged by the bank or person and then paid:

There can be a situation where the interest is charged first and then paid. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

ii. Journal Entry: (On payment of interest)

C. Interest paid to bank/person on the loan:

In this case, only a single entry is passed because interest is directly paid.

Loan Taken Journal Entry with Examples

18. Loan Given :

Businesses can also provide loans to any person or entity.

A. Loan is given to a person:

B. Interest charged and then received on loan given:

There can be a situation where the interest is charged first and then received. There will be two Journal Entries in this case.

ii. Journal Entry: (On receiving of interest)

C. Interest received on loan given:

In this case, only a single entry is passed because interest is directly received.

Loan Given Journal Entry with Examples

19. Outstanding Expenses :

Outstanding expenses are those expenses that are related to the same accounting period in which accounts are being made but are not yet paid.

Outstanding Expenses Journal Entry with Examples

20. Prepaid or Unexpired or Advance Expenses :

Such expenses which are concerned with the next financial year, but have been paid in the current year are called prepaid expenses.

Prepaid Expenses Journal Entry with Examples

21. Income Due or Accrued Income :

An income that has been earned, but not yet received in the current financial year is called Accrued Income.

Accrued Income Journal Entry with Examples

22. Income Received in Advance or Unearned Income :

An income that has not been earned yet, but has been received in advance is called Unearned Income.

Next year, unearned commission will be adjusted as:

Income Received in Advance Journal Entry with Examples

23. Income Tax :

Income Tax is paid by the business on the profit earned during the year. Income Tax is a personal liability of the proprietor. The journal entry will be:

A. Payment of Income Tax:

B. Refund of Income Tax:

Income Tax Journal Entry with Examples

24. Life Insurance Premium :

Sometimes, Life Insurance Premium is paid by the business on the behalf of the proprietor.

Life Insurance Premium Journal Entry with Examples

25. Employee’s Life Insurance Premium :

Businesses purchase life insurance for their employees too.

Employee’s Life Insurance Premium Journal Entry with Examples

26. Interest on Capital :

The proprietor can charge interest on the amount invested by him/her in the business as capital, which is shown as Interest on Capital.

Interest on Capital Journal Entry with Examples

27. Interest on Drawings :

The amount withdrawn from the capital by the proprietor for personal use is called drawings. Businesses can charge interest on the amount of drawings.

Interest on Drawings Journal Entry with Examples

28. Use of Goods in Business :

Sometimes goods of a business are used in the business itself. If this happens, those goods are considered assets by the business.

Use of Goods in Business Journal Entry with Examples

29. Expenditure on Assets (Erection or Installation) :

Any expenditure incurred in the erection or installation of any building or machinery or any type of asset is considered to be capital expenditure and debited under the name of the particular asset.

Expenditure on Assets Journal Entry with Examples

30. Expenses on Purchase of Goods :

Purchasing process involves a number of steps starting from placing an order and ending with the delivery of goods. Apart from the cost incurred in purchasing the goods, any additional expenses like Carriage, Import Duty, etc is also paid. Any expenses incurred during the purchase of goods will be shown separately unlike an expenditure on assets.

Expenses on Purchase of Goods Journal Entry with Examples

31. Outstanding Salary :

Outstanding Salary is a liability for the firm. Outstanding salary journal entry is passed to record the salary that is due concerning the employees but not yet paid. When salary is not paid on time, it is shown under the Liabilities side of the balance as an ‘Outstanding Salary’ which means it has now become the liability of the firm to pay salaries.

Outstanding Salary Journal Entry with Examples

32. Prepaid Insurance :

Prepaid Insurance is the amount of insurance premium that the company pays in one financial year, and avails its benefit in some other financial year, generally in the upcoming financial year. Prepaid Insurance journal entry is passed to record the amount paid as advance for the insurance. Prepaid insurance is treated as the asset of the firm and is recorded under the Asset side of the balance sheet. Insurance premium is generally paid by the company on behalf of its employees.

Prepaid Insurance Journal Entry with Examples

33. Commission Received :

Commission received is the amount that an individual receives in exchange for the services offered by him/her. It is a kind of monetary remuneration that is said to be the asset of the individual/company. Commission received journal entry is passed in order to show the amount that an individual/a company received in exchange for their services as commission.

Commission Received Journal Entry with Examples

34. Cash Sales :

When goods/services are sold for cash, the transactions are known as Cash Sales, i.e., when the customer pays in terms of cash in exchange for goods and services, cash sales occur. Cash sales journal entry is passed to show the sales transactions that have been settled in cash. There are mainly two types of cash sales:

Sale of goods in cash
Sale of an asset for cash

1. For the Sale of Goods in Cash: Sale of goods (in cash) is an income, so the balance of the cash account (debit balance) increases, and the balance of the sales account (credit balance) decreases.

2. For the Sale of an Asset for Cash – For the sale of an asset in cash, the balance of the cash account (debit balance) increases due to the inflow of cash, and the balance of the asset account will decrease due to the outflow of the asset.

Cash Sales Journal Entry with Examples

35. Provisions :

A Provision in accounting is generally some set aside profits to be used under specific contingencies. They are the reserves that are being made for specific situations and are to be compulsorily used in those conditions only. A provision is seen as an upcoming liability and should not be treated as savings. Provisions journal entry is passed to show the amount set aside by the firm to meet contingencies.

Provision Journal Entry with Examples

36. Rent Paid :

Sometimes a business does not own any specific type of property, plant, and/or machinery. They take the required asset on rent and pay the pre-specified installment for the asset in terms of cash or cheques. Rent paid journal entry is passed in order to record the necessary rent payments against rented assets. Rent is an expense for business and thus has a debit balance.

Rent is generally:

Paid every month
Has fixed installment
Recurring in nature
Shown under the head of ‘Office Rent’ or ‘Factory Rent’

Rent Paid Journal Entry with Examples

37. Salaries Paid :

Salaries are the monetary remunerations the business gives to its employees in exchange for their services. Salaries Paid journal entry is passed to record the salary payments to employees by the business. Salaries are treated as an expense in the books of business, so when the salary is paid, the Salary account gets debited and the cash/bank A/c gets credited.

1. When Salary is Due:

2. When Salary is Paid:

Salaries Paid Journal Entry with Examples

38. Deferred Revenue :

Deferred Revenue is the income received in exchange for goods that are yet to be delivered. Deferred Revenue is also known as Unearned Income or Unearned Revenue. Deferred revenue journal entry is passed to record the advance payments received for goods and services. In this case, the balance for cash/bank (debit balance) increases due to the inflow of income, and the balance for deferred revenue (credit balance) i.e. liability increases.

Deferred Revenue Journal Entry with Examples

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Ledger is known as the book of final entry. It is the book where the transactions related to a specific account are posted. This posting of transactions is done from journal entries.

The posting of journal entries into the ledger is performed in the following way:

The journal entry of cash sales is :

Here, Cash A/c is debited to Sales A/c. So, in the Cash A/c ledger, posting will be made on the debit side as “To Sales A/c”

In the Sales A/c ledger, the posting will be made on the credit as “By Cash A/c” because Sales A/c is credited to Cash A/c

For creating ledgers, journal entries are a prerequisite.

Now, the ledgers to be created as per the journal entries made above are as follows:

Capital A/c
Furniture A/c
Machinery A/c
Purchase a/c
Matt A/c (Debtor)
Uday A/c (Creditor)
Purchase Return A/c
Stationery A/c
Carriage Inward A/c
Refreshment A/c
Shyam A/c (Debtor)
Ram A/c (Creditor)
Suri A/c (Debtor)
Discount Received A/c

The account ledgers are as follows:

Trial Balance

A trial balance is a statement that is prepared to check the arithmetical accuracy of books of accounts.

In this statement, the total of all accounts having debit balance and the total of all accounts having credit balance is computed. If the total of debit and credit matches, then it can be said that the books of accounts are arithmetically accurate.

Here also we have prepared the trial balance by computing the total of accounts having debit balances and the total of accounts having credit balances

The debit column total and credit column total are matching. Hence, we can say that the books of accounts we have prepared are arithmetically accurate.

Note: Matt A/c and Uday A/c have not appeared in the trial balance because they do not have any carrying balance.

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Preparation of Journal, Ledger, Trial balance and Financial Statements of a partnership firm on the basis of a case study- 15 Transactions

Table of Contents

Preparation of Journal, Ledger, Trial balance, and Financial Statements of a partnership firm on the basis of a case study:

Partnership Deed
15 transactions
Journal Entries
Trial Balance
Trading and Profit and Loss Account
Profit and Loss Appropriation
Partner’s Capital Account
Balance Sheet

Partnership Deed:

A partnership Deed is a written agreement among the partners for managing the affairs of a partnership firm Business.

Definition of partnership Deed

‘ Partnership Deed’ is a written statement (Document) that contains the terms and conditions governing the partnership firm’s business.

Every firm can frame its own partnership deed in which the objective of the partnership business, the contribution of capital by each partner, the ratio in which the profits and the losses will be shared by the partners, rights, duties, and liabilities of the partners are stated in detail. It helps in settling up the disputes arising among the partners during the general conduct of partnership business.

Read in Hindi : साझेदारी विलेख/ संलेख

Financial Statements of a partnership firm on the basis of a case study

Key points of Definition of partnership Deed

Partnership Deed is an agreement.
It contains terms and Conditions of the agreement.
Partnership Deed contains the objective of partnership business.
It includes agreement on profit sharing ratio.
It contains the rights, duties, and liabilities of the partners.
A written form is called ‘partnership deed’
Partnership Deed is also called ‘ Articles of Partnership’
It can be oral or written but, writing is considered good.

Also Read: 20 transactions with their Journal Entries, Ledger and Trial balance

Main Contents of Partnership Deed

(i) Name and address of the partnership firm.

(ii) Nature and objectives of the business.

(iii) Name and address of each partner.

(iv) Ratio in which profits and Losses is to be shared.

(v) Capital contribution by each partner.

(vi) Rate of Interest on capital if allowed.

(vii) Salary, bonus, commission or any other remuneration to partners, if allowed.

(viii) Rate of interest on loans and advances by a partner to the firm.

(ix) Drawings of partners and rate of interest charged on drawing.

(x) Method of valuation of goodwill

(xi) Settlement of disputes by arbitration (Mediation);

(xii) Settlement of accounts at the time of retirement or death of a partner.

(xiii) Circumstances (situation or condition) in which the firm can be dissolved.

(xiv) Settlement of accounts at the time of dissolution of a firm.

(xv) Admission of a new partner.

(xvi) revaluation of assets and liabilities on the reconstitution of the partnership i.e. on the admission, retirement or death of a partner;

(xvii) Rights, duties and liabilities of the partners

(xviii) Bank Account Operation.

(xix) Accounting period.

(xx)Period of Partnership (If any)

(xxi) Retirement of a Partner.

(xxii) Any other matter relating to the conduct of business.

Normally, the partnership deed covers all matters affecting the relationship of partners amongst themselves. However, if there is no express agreement on certain matters, the provisions of the Indian Partnership Act, 1932 section (13b) shall apply.

Also Read : Meaning and advantages of Double Entry System

Accounting rules applicable in the absence of Partnership deed

Provisions of the indian partnership act, 1932 are applied ( section 13 b).

Profit sharing Ratio: Profits and losses would be shared equally among partners.
Interest on capital : No interest on capital would be allowed to partners. If there is an agreement to allow interest on capital it is to be allowed only in case of profits.
Interest on drawings: No interest on drawings would be charged from partners drawing.
Salary, Bonus, Commission: No salary or commission and bonus and any other remuneration are to be allowed to partners.
Interest on Loan: If a partner has provided any Loan to the firm, he would be paid Interest at the rate of 6% p.a. This interest on the loan is a charge against profits i.e. it is to be allowed even if there are losses to the firm.
Admission of a new partner: A new Partner can be admitted only with the consent of all the existing (old) partners.
Right to participate in the business: Each partner has a right to participate in the proceedings of the business.
Inspection of the accounts of the firm: Each partner has the right to inspect the accounts of the firm and can have a copy of the same.

Note: Any of the above provisions can be changed by the partners after an agreement.

Mr. Mohit and Mr. Mayank entered into a partnership business and decided to sell computers. Their Partnership Deed is as follows.

Name of the Firm: Mohit & Brothers
Name of the partners: Mohit and Mayank
Capital Contribution: Mohit will contribute ₹10,00,000. Mayank will contribute ₹10,00,000.
Profit sharing Ratio: They decided to share profits and losses equally.
Interest on Capital: Interest is to be allowed on capital @ 5% p.a.
Interest on Drawing: Interest on drawing is to be charged @ 10% p.a.
Salary to Partner: No salary allowed.
Commission/Bonus: Mohit is entitled to a commission of ₹20,000 p.m.
Each partner can take part in the management and conduct of business.

15 Transactions:

Admission of a partner-Important Questions-2

Journal Entries:

Trial Balance :

Trading and Profit&Loss Account:

Profit and loss Appropriation Account

Profit and Loss Appropriation Account:

Journal Entries (For Appropriation)

Note: From 1st March to 31st March, One Month of Interest will be calculated on the Capital Of Mohit and Rachit:

Mohit’s Interest on Capital= 10,00,000X5/100X1/12 = 4,166.66 Or 4,167 Rachit’s Interest on Capital= 10,00,000X5/100X1/12 = 4,166.66 Or 4,167

Format of Profit and loss Appropriation Account

Partner’s Capital Account:

Balance Sheet:

Admission of a partner-Important Questions-1

Important questions of fundamentals of partnership-3

Hidden Goodwill at the time of Admission of A New Partner

Important questions of fundamentals of partnership

Important questions of fundamentals of partnership-2

Goodwill questions for practice Class 12 ISC & CBSE

Important questions of fundamentals of partnership-5

ACCOUNTING TREATMENT OF GOODWILL AT THE TIME OF ADMISSION OF A NEW PARTNER

Admission of a partner-Important Questions-3

Admission of a partner-Important Questions-5

Admission of a partner-Important Questions-4

22 thoughts on “Preparation of Journal, Ledger, Trial balance and Financial Statements of a partnership firm on the basis of a case study- 15 Transactions”

Thank you Sir

Thank you so much…you’re a true life saver! This helped me incredibly whilst doing my ISC Accounts Projects… God Bless!;-)

Your article helped me a lot, is there any more related content? Thanks!

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Hello mera ek doubt ha balance sheet pe yeh cash in hand and cash at bank kaha se aya question pe nhi ha

cash in hand represent the (Balance of cash Account) and cash at bank represent the (Balance of Bank Account)

Hello ye IOC 4167 kese aya Or Ye Capital a/c toh balance hi nhi hua hai

Sir ye closing stock kese aya firr

See the working note below the trial balance

And sir yeh capital account to balance hi nhi ha

Partner capital account kese balance huaa sir

Sir closing stock kese aya

Sir closing stock kese nikala hai coz kitne computer purchase kiya aur kitna sell vo toh mention hi nahi hai

Go through the Question carefully and Analyze

How you got closing stock

Thank you sir for this wonderful project

Thank You Sir ❤️, Article is easy to understand and helped us too.

Cendant Corporation

Analysis and commentary, investment principles, additional reading.

Cendant Corporation was created by merging an ethical company with an unethical company. The unethical company was CUC International (CUC) and the ethical company was Hospitality Franchise Services (HFS). Although both companies were highly acquisitive before their 1997 merger, CUC used deceptive accounting practices to inflate its reported earnings. After the merger, CUC management (led by Walter Forbes) took over and continued these practices in the new Cendant Corporation. An investigation revealed that CUC had practiced unethical accounting since at least 1988, continuing until these deceptive practices came to light in 1998. Further investigation suggested that CUC management’s fraudulent practices went back even further, starting as early as 1983. CUC came to depend on an ongoing stream of falsified financial statements, hiding their fraud and projecting an image of growth and health.

Cendant Corporation was a consumer services conglomerate formed in December 1997 by a $14 billion merger between two companies — HFS Inc. and CUC International. The merger combined the travel and hotel holdings of HFS with CUC’s direct marketing business. Subsidiaries included name brands such as Avis Car Rental, Howard Johnson’s, Days Inn, and Ramada. Upon completion of the merger, CUC’s founder and CEO, Walter Forbes, was slated to be Chairman of the Board of the combined operation; the founder of HFS, Henry Silverman, was slated serve as President and CEO.

After the merger in late 1997, Cendant’s stock price initially surged. The company used the pooling-of-interests method to consolidate the combined company’s financial statements (which was then allowed by generally accepted accounting principles [GAAP]). Before the merger was officially transacted, CUC recorded merger-related charges of $556.4 million for 1997, which broke down as follows:

In the spring of 1998, however, company officials went public with the discovery of potential accounting discrepancies. According to Arthur Andersen’s forensic auditor report, the following were the problems:

A topside adjustment had been made to the quarterly financial statements.
Merger reserves were overstated.
Membership cancellation reserves were overstated.
Aggressive revenue recognition was used.

In topside journal entries, the corporate parent makes journal entries on the subsidiaries’ journals. Topside transactions are typically entered by an individual manually, rather than through accounting software that might automatically assign transaction data to specific accounting categories. Although such entries can be a legitimate business activity, they can also easily be used for fraud.

Upon the announcement of the accounting irregularities, Cendant’s stock price immediately dropped (from $36 to $19) — reducing the company’s market capitalization by $14 billion in a single day. The company’s internal investigations revealed that CUC managers, many of whom had taken leadership roles in the newly formed Cendant, had been booking false earnings for the three years leading up to the merger with HFS in order to meet analysts’ estimates.

Consequently, mergers create opportunities for bad actors to act on their selfish urges.

The overstatement of quarterly revenues increased with the passage of time, rising from $100 million in 1995 to $150 million in 1996 to $250 million in 1997. These amounts closely matched the difference between CUC’s actual results and Wall Street estimates for the corresponding periods. The growing amounts also suggest that CUC needed to continue ramping up growth through mergers to continue the fraud. CUC’s accounting staff at headquarters made entries to increase accounts receivable and revenues or reduce accounts payable or expenses. CUC also overstated the cash balance on its books.

The consistency of reported cash with actual cash levels is the simplest possible thing for an auditor to verify, yet it wasn’t until the merger between CUC and HFS that Cendant’s auditor first detected something awry (more on this later). In fact, the company’s earnings before interest, taxes, depreciation, and amortization did not reconcile with its reported cash balances, which suggests that the auditors failed to verify the cash balances at CUC’s banks (a rudimentary function of auditing).

In January 1998, CUC inappropriately released $115 million of Merger Reserve account into Income; that is, $108 million was released into revenues and only $7 million was a credit against expenses. This action has (at least) three problems from an accounting standpoint. First, releasing merger reserves into revenue is not consistent with the expressed purpose of the reserves. Second, the company did not have adequate documentation supporting such a decision. Third, releasing merger reserves into revenue is not consistent with GAAP.

Regarding the Membership Cancellation Reserve account, in the normal course of business, CUC recorded revenues from members who joined its system. At the time they recorded that revenue from memberships to the general ledger, they also had to estimate, based on past experience, the number of memberships that would be cancelled. These estimated cancellations were debited to the Membership Cancellation Reserve account (which decreased reported revenue). After a trial period, members’ credit cards would be charged. Any charge that was rejected was immediately charged against the Membership Cancellation Reserve. Meanwhile, new revenues and new reserves would be established for new memberships sold. Consequently, the Membership Cancellation Reserve account fluctuated on the basis of the number of new members and the number of memberships rejected and canceled. At some point prior to 1995, CUC adopted a policy of not recording the membership reserves for the fourth quarter of each fiscal year — thereby understating this reserve account. The understatement of the Membership Cancellation Reserve account affected income by $48 million in 1995, by $19 million in 1996, and by $12 million in 1997.

In light of the merger between CUC and HFS, auditor Ernst and Young (E&Y) tested cash three months earlier than usual (Briloff 1999). This unexpected change presented a crisis to CUC’s controller, Steven Speaks. The company had been misreporting rejected memberships in the fourth quarter, and hence understating reserves, but the accounting entries necessary to hide these omissions had not yet been entered. As Briloff noted,

The Rejects/Cancellations for the months of July through September aggregating $112 million had already been booked because the end-of-year manipulations were not then anticipated; the booking of that $112 million produced a negative balance in the reserve of $70–$80 million. And now we return to the CIFA report (i.e., forensic audit): Before the E&Y testing took place, Speaks decided that Comp-U-Card would “un-book” the rejects that had been booked in the normal course in July, August and September of 1997. He directed a series of entries to be recorded that had the following effect:

The reversing of these reserve charges increased reported cash and the reported Membership Reserve as of 30 September 1997. Speaks then directed accounting staff to change the bank reconciliations for these months as “rejects will post.” Speaks later testified that he decided to adopt the new policy regarding the recording of rejections and cancellations at that time. From that point on, CUC would record rejects and cancellations with a three month lag. In effect, this new policy arbitrarily extended the old deceitful policy.

The SEC formally joined the previous internal investigation in May 1998 and revealed the full depth of CUC’s accounting fraud. According to later testimony by the company and the SEC, CUC managers would analyze the difference between actual financial results and the estimates put out by Wall Street analysts at the end of each quarter. They would then target specific aspects of the business to adjust in order to inflate earnings. After determining the best areas to change, the managers would then instruct others in the company hierarchy to adjust the various accounts — thus creating a false income statement and balance sheet. Their methods included underfunding reserves, accelerating recognition of revenues, deferring expenses, and drawing money from a merger account to boost income (DeVries and Kiger 2004). After lower-level managers made the accounting changes to the financials, the cycle would be completed by adjusting the top line of quarterly changes and, subsequently, making back-dated journal entries at the division level to get the general ledger to balance. CUC’s leadership was able to hide the irregularities through misrepresented accounting entries, often moving certain transactions off the books. For a company of this size to maintain two sets of books, however, requires a widespread internal effort to produce the second set of books so the company can present a blend of truth and fiction to the auditor without getting caught.

“It was a culture that had been developed over a period of years. It was ingrained . . . ingrained in us by our superiors” (CNN Money, 2000).

Further investigation by the SEC revealed that CUC had been committing various types of accounting fraud since at least 1988. Several senior leaders were forced to resign, and the SEC brought charges against Cendant leadership. After restating their financial statements in the fall of 1998, the company revealed it had overstated income from continuing operations before income taxes by around 24% and overstated earnings per share by 130% (around $500 billion). In June 2000, three senior financial executives in the company, Cosmo Corigliano (former chief financial officer of CUC), Casper Sabatino (former accountant at CUC), and Anne Pember (former corporate controller of CUC), pleaded guilty to fraud in US District Court in Newark, NJ. According to testimony by Corigliano, “It was a culture that had been developed over a period of years. It was ingrained . . . ingrained in us by our superiors” (CNN Money, 2000).

According to a terrific piece of journalism in Fortune magazine (Elkind 1998), the merger had created a “feeding frenzy” for compensation among the new team of senior executives. E. Kirk Shelton, the number two man at CUC, negotiated a clause in the merger contract whereby he would personally receive $25 million if he was not made chief operating officer of the combined enterprise within two years. Across the board, the newly formed management team received material salary hikes, accelerated vesting of options, and generous severance provisions. (Silverman, for instance, received an option grant that would make him a billionaire.) In essence, these executives were extracting wealth from shareholders and giving it to themselves.

From a financial perspective, mergers create a lot of moving parts, with reallocations of business units, revaluations of assets and liabilities, and restructuring of numerous contracts. Consequently, mergers create opportunities for bad actors to act on their selfish urges. Analysts need to use mergers as an opportunity to examine changes in business structure, revaluation of assets and liabilities, and to uncover any sins in specific contracts.

As the merger was being completed, moreover, former CUC head Walter Forbes asked Silverman to maintain the former CUC’s financial reporting processes. So, rather than have the controller in each unit from the former CUC report to the new division heads from HFS, those controllers continued to report to CFO Corigliano and Corporate Controller Pember — two executives who later pleaded guilty to fraud charges in federal court.

In a word, the motive was greed — and maybe pride.

Changes in financial reporting structures can also create opportunities for analysts to discover bad actors. When the bad actors are in senior management (i.e., holding positions of power), they have the power to stifle dissent. When the bad actors report to managers, previously honest managers may become afraid to disclose the fraud out of concern for their jobs, for instance, or the performance of the company, as was revealed in the Daiwa Bank fraud). The Cendant fraud appears to be a case of an honest company blending with a dishonest company in a merger.

When asked in court about their roles in the fraud, Cendant’s accountants and controllers all essentially said “We were just doing our jobs.” For instance, when the federal judge asked accountant Sabatino if he would call what he did “cooking the books,” he simply said, “Honestly, your honor, I thought I was just doing my job.” In essence, their bosses asked them to lie, cheat, and steal; so they did. Such actions appear to be explainable by the social psychology concept known as the “authority-misinfluence tendency.” In the famous Milgram experiments, subjects were asked to give electronic shocks to actors who answered certain questions incorrectly. [1] The experiments were overseen by “doctors” holding clipboards and wearing long white lab coats (in other words, the doctors looked “official”). In many cases, the test subjects were ordered to administer “shocks” to actors to the point of severe pain and even to the apparently loss of consciousness. The subjects weren’t really giving the actors shocks, of course, but thought they were. The subjects did so because they had assigned the responsibility for the outcome to the doctors running the experiment. In the business world, many people commit acts that they know are wrong because they are able to assign blame to their superiors. This refrain is so common in corporate fraud cases that it is simply astounding.

On 14 May 2004, Corigliano, the former CFO of CUC, reached a settlement with the SEC whereby he pleaded guilty to securities fraud and agreed to pay back to the company $14 million in exchange for a light sentence (three years of probation). This settlement cleared him to testify against Walter Forbes, among others. Corigliano testified that he helped manipulate the company’s reported earnings for years at Forbes’ direction. He also testified that he met Walter Forbes regularly to discuss how much money would be taken from inflated reserves and used to increase reported profits to meet targets.

In 2005, E. Kirk Shelton, the former vice chairman of Cendant, was convicted of conspiracy, securities fraud, mail fraud, wire fraud, and making false filings with the SEC. He was sentenced to 10 years in prison and ordered to pay criminal restitution of $3.275 billion.

In October 2006, Walter Forbes was found guilty of conspiracy and of two counts of submitting false reports to the SEC in overstating his company’s earnings by more than $250 million. He was acquitted on a fourth count of securities fraud.

Some have argued that Walter Forbes might have been unaware of the fraud (as he claimed) because he engaged in the merger and was, therefore, “bound to get caught.” The viability of the fraud itself, however, probably required ever more merger and acquisition deals so that the company could continue to “manufacture” higher and higher earnings to please Wall Street. Thus, thanks to the opaqueness of merger accounting and the fact that Forbes was to become the CEO of the combined company, it seems likely that he intended to retain control over the combined company and perpetuate the scheme. Whatever the case, this particular fraud was perpetrated by a company that was profitable (without the fraud) and had well-known brands and successful product lines. These senior managers were clearly committing the fraud to inflate earnings and extract ongoing rewards from the company. In a word, the motive was greed — and maybe pride.

[1] Stanley Milgram began conducting the authority experiments in 1961. For more, see “ About Education .”

CFA Institute members : This is eligible for 0.5 CE credit. Click here to record your credit.

1989 : The stock price of CUC International, one of the merger partners that later form Cendant Corporation, plummets amid questions about the company’s accounting methods, which appear to inflate earnings and cash flow. CUC executives acknowledge the error and adjust methods.
1990s : HFS (Hospitality Franchise Services) acquires a great deal of debt by engaging in multiple hotel franchise purchases. The financing strategy is criticized for benefiting executives but hurting the long-term health of the company.
1993 – 1998 : CUC managers engage in various aggressive financial accounting techniques, including adjusting financial statements to inflate earnings and better match analyst predictions. These practices are hidden from auditors.
1996 : CUC and HFS begin merger talks “to support the rapid growth of both companies.”
28 May 1997 : The merger between CUC and HFS is formally announced.
September 1997: The CUC company auditor, Ernst & Young, attempts to verify the company’s cash balances three months early because of the pending merger.
December 1997 : The $14 billion merger between HFS and CUC is completed. Cendant Corporation, the name of the merged organizations, is led by HFS founder Henry Silverman. The new company combines HFS travel and hotel holdings with CUC’s direct marketing business. Holdings include Avis Car Rental, Howard Johnson, Days Inn, and Ramada. Silverman is named CEO, and CUC founder and CEO, Walter Forbes, assumes leadership as Chairman of the Board of the combined company. The terms of the merger include retaining separate accounting operations for the two companies for a period of time.
January 1998 : Cendant stock reaches $33 a share and then peaks in early April 1998 at $41 a share.

Central Events

March 1998 : When CUC stalls on completing requested financial reports, the HFS accounting team is sent to help. Unexplained and suspect merger reserve and merger savings funds listed in the CUC books raise additional concerns.
April 1998 : Accounting “discrepancies” at CUC are revealed. Cendant launches an internal investigation of the company’s accounting.
16 April 1998 : Cendant releases a report admitting that 1997 earnings were overstated by $100 million. The stock price falls from $36 to $19 that day, eventually falling to $11 by August 1998.
June 1998 : The US SEC officially launches an investigation of Cendant’s accounting.
June 1998 : The shareholders sue Cendant for accounting fraud related to accounting discrepancies at CUC.
28 July 1998 : Silverman and the Cendant board of directors force Walter Forbes to resign. Silverman becomes Chairman of the Board.
27 August 1998 : Arthur Andersen delivers the results of its forensic audit to the Cendant board of directors. The audit reveals that CUC has overstated revenues and pretax income by more than $500 million over three years.
25 January 1999 : Cendant sues the CUC accounting firm Ernst & Young, which blames CUC executives.
December 1999 : Cendant settles a class action shareholder lawsuit for $2.83 billion. Ernst & Young settles a lawsuit with shareholders for $335 million.
14 June 2000 : The SEC brings fraud charges against seven former CUC officials/executives. Three CUC executives plead guilty to accounting fraud. Silverman claims HFS had no knowledge of CUC’s accounting practices prior to the merger.
2001: Forbes and E. Kirk Shelton, former CUC vice chairman, are indicted for fraud.
10 May 2004 : Forbes and Shelton are finally brought to trial.
14 May 2004: Cosmo Corigliano, the former chief financial officer of CUC, reaches a settlement with the SEC whereby he pleads guilty to securities fraud and agrees to pay back to the company $14 million in exchange for a light sentence (three years of probation). This move clears him to testify against Forbes, among others.
2005 : Shelton is convicted of conspiracy, securities fraud, mail fraud, wire fraud, and making false filings with the SEC.
October 2006 : Forbes is found guilty of conspiracy and of two counts of submitting false reports to the SEC in overstating his company’s earnings by more than $250 million. He is acquitted on a fourth count, securities fraud.

The market’s endorsement of a particular company or management team is not pertinent to a due diligence process.

A company’s auditors may be unaware of the fraud because the company is maintaining two sets of books.

Orchestrating plausibility in the false set of books requires widespread illicit cooperation among many people.

Mergers and acquisitions give bad actors opportunities to enrich themselves by overstating earnings to help hit earnings targets, by overstating reserves that are subsequently released into earnings (by reallocating business units and revaluing assets and liabilities), and by the structuring of compensation contracts.

Changes of financial reporting structures create opportunities to identify bad actors.

Many participants in corporate fraud willingly do things they know are wrong because they can assign blame to their superiors.

What do you think about these principles? See what others are saying.

“ 2 Former Cendant Execs Avoid Prison in Scandal. ” 2007. NBC News (31 January).

Barrett, Amy. 1998. “ Cendant: Who’s to Blame? ” Business Week (16 August).

Briloff, Abraham J. “ A Pathological Probe of a Pool of Pervasive Perversion. ” Baruch College.

“ Cendant Closes Fraud Case. ” 1998. CNN Money (27 August).

Cendant Corporation — Company Profile, Information, Business Description, History, Background Information on Cendant Corporation . Reference for Business. 2016.

“ Ex-executives Admit Guilt. ” CNN Money , 2000. 14 June, 2000.

DeVries, Delwyn, and Jack E Kiger. 2004. “Journal Entries and Adjustments — Your Biggest Fraud Danger.” Journal of Corporate Accounting and Finance , vol. 15, no. 4 (May/June): 57–62.

Elkind, Peter. 2000. “ Cendant Case Scorecard: Government 3; Book-Cookers 0. ” Fortune , CNN Money archive article.

Elkind, Peter. 1998. “ A Merger Made in Hell. ” Fortune (9 November).

Fink, Ronald. 1998. “ Hear No Fraud, See No Fraud, Speak No Fraud. ” CFO Magazine (1 October).

Lipton, Joshua. 2007. “ No Leniency for Walter Forbes. ” Forbes.com.

Morgenson, Gretchen. 2004. “ Sunday Money; Before Enron, There Was Cendant. ” New York Times (9 May).

SEC. 2000. “ SEC Enforcement Actions against Former Top Financial Officers and Managers at CUC International ” (14 June).

Marshall, Jordan Ray. 2004. “ Using Topside Journal Entries to Conceal Fraud. ” University of Tennessee Honors Thesis Project.

Securities and Exchange Commission vs. Walter Forbes and E. Kirk Shelton . 2001. SEC Litigation Release (28 February).

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US measles cases are up in 2024. What’s driving the increase?

FILE - In this March 27, 2019, file photo, a woman receives a measles, mumps and rubella vaccine at the Rockland County Health Department in Pomona, N.Y. Measles outbreaks in the U.S. and abroad are raising health experts’ concern about the preventable, once-common childhood virus. The CDC on Thursday, April 11, 2024 released a report on recent measles case trends, noting that cases in the first three months of this year were 17 times higher than the average number seen in the first three months of the previous three years. (AP Photo/Seth Wenig, File)

This undated image made available by the Centers for Disease Control and Prevention on Feb. 4, 2015 shows an electron microscope image of a measles virus particle, center. Measles outbreaks in the U.S. and abroad are raising health experts’ concern about the preventable, once-common childhood virus. The CDC on Thursday, April 11, 2024 released a report on recent measles case trends, noting that cases in the first three months of this year were 17 times higher than the average number seen in the first three months of the previous three years. (Cynthia Goldsmith/Centers for Disease Control and Prevention via AP)

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Measles outbreaks in the U.S. and abroad are raising health experts’ concern about the preventable, once-common childhood virus.

One of the world’s most contagious diseases, measles can lead to potentially serious complications. The best defense, according to experts? Get vaccinated.

Here’s what to know about the year — so far — in measles.

How many measles cases has the U.S. seen this year?

Nationwide, measles cases already are nearly double the total for all of last year.

The U.S. Centers of Disease Control and Prevention documented 113 cases as of April 5. There have been seven outbreaks and most of U.S. cases — 73% — are linked to those flare-ups.

Still, the count is lower than some recent years: 2014 saw 667 cases and 2019 had 1,274.

Why is this a big deal?

The 2019 measles epidemic was the worst in almost three decades, and threatened the United States’ status as a country that has eliminated measles by stopping the continual spread of the measles virus.

The CDC on Thursday released a report on recent measles case trends, noting that cases in the first three months of this year were 17 times higher than the average number seen in the first three months of the previous three years.

People hang around outside of a migrant shelter Wednesday, March 13, 2024, in the Pilsen neighborhood of Chicago. Multiple people living at the shelter for migrants have tested positive for measles since last week. A team from the Centers for Disease Control and Prevention is supporting local officials' response. (AP Photo/Erin Hooley)

While health officials seem to be doing a good job detecting and responding to outbreaks, “the rapid increase in the number of reported measles cases during the first quarter of 2024 represents a renewed threat to elimination,” the report’s authors said.

Where is measles coming from?

The disease is still common in many parts of the world, and measles reaches the U.S. through unvaccinated travelers.

According to Thursday’s report, most of the recent importations involved unvaccinated Americans who got infected in the Middle East and Africa and brought measles back to the U.S.

Where were this year’s U.S. measles outbreaks?

Health officials confirmed measles cases in 17 states so far this year, including cases in New York City, Philadelphia and Chicago.

More than half of this year’s cases come from the Chicago outbreak, where 61 people have contracted the virus as of Thursday, largely among people who lived in a migrant shelter .

The city health department said Thursday that cases are on the decline after health officials administered 14,000 vaccines in just over a month.

How does measles spread?

Measles is highly contagious. It spreads when people who have it breathe, cough or sneeze and through contaminated surfaces. It also can linger in the air for two hours.

Up to 9 out of 10 people who are susceptible will get the virus if exposed, according to the CDC.

Measles used to be common among kids. How bad was it?

Before a vaccine became available in 1963, there were some 3 million to 4 million cases per year, which meant nearly all American kids had it sometime during childhood, according to the CDC. Most recovered.

But measles can be much more than an uncomfortable rash, said Susan Hassig, an infectious disease researcher at Tulane University.

“I think that people need to remember that this is a preventable disease,” Hassig said. “It is a potentially dangerous disease for their children.”

In the decade before the vaccine was available, 48,000 people were hospitalized per year. About 1,000 people developed dangerous brain inflammation from measles each year, and 400 to 500 died, according to the CDC.

Is the measles vaccine safe? Where do vaccination rates stand?

The measles, mumps and rubella (MMR) vaccine is safe and effective . It is a routine and recommended childhood vaccine that is split into two doses.

Research shows it takes a very high vaccination rate to prevent measles from spreading: 95% of the population should have immunity against the virus.

During the COVID-19 pandemic, national vaccination rates for kindergartners fell to 93% and remain there. Many pockets of the country have far lower rates than that . The drop is driven in part by record numbers of kids getting waivers .

The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group and the Robert Wood Johnson Foundation. The AP is solely responsible for all content.

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Accounting Journal Entries
(DOC) Case Study on Journal Entries Requirements
Preparation of Journal, Ledger, Trial balance and Financial Statements
Journal entries
Outstanding 30 Journal Entries With Ledger Trial Balance And Final
Journal entries for lease accounting

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Journal entries in case of calls in advance+Arrears+interest #icse #companyaccountsclass12
Journal entries for case 19,20,21,22,23,24,25#by lalan sir(9807118316)
2.7 Tutorial
Accounting Basics 2.2b: Journal Entries- Example -Ctd
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Case Study on Journal Entries Requirements
Journal entries to for the correct transaction details Debit credit Work in process inventory Raw materials account [to record for inventory taken for use in production] 25000 25000 Bonus expense account Bank account [to record bonus paid to sales people] 12000 12000 Factory wages expense Accrued factory wage expense Accrued tax expense [to ...
A Collection of Case Studies on Financial Accounting Concepts
For this case, we are analyzing two separate companies and their accounting processes. To do this, I first recreated the journal entries corresponding with the transactions listed in the case. I then used these journal entries to create a chart of accounts, a trial balance, and, using the information from Part B, financial statements
Journal Entry Example
Top 10 Examples of Journal Entry. Example #1 - Revenue. Journal Entry Examples Video Explanation. Example #2 - Expense. Example #3 - Asset. Example #4 - Liability Accounting. Example #5 - Equity Accounting. Example #6 - Transaction with Journal Entries. Example #7 - Practical.
Journal Entries
Pay makes his first payroll payment. Entry #11 — PGS's first vendor inventory payment is due of $1,000. Entry #12 — Paul starts giving guitar lessons and receives $2,000 in lesson income. Entry #13 — PGS's first bank loan payment is due. Entry #14 — PGS has more cash sales of $25,000 with cost of goods of $10,000.
Journal Entries Guide
When doing journal entries, we must always consider four factors: Which accounts are affected by the transaction. For each account, determine if it is increased or decreased. For each account, determine how much it is changed. Make sure that the accounting equation stays in balance.
Accounting Case Study
We had started our case study for explaining accounting concepts. You can view the case study introduction at the following link: Accounting Skills - Case Study. In this part, we present the journal entries for the transactions at Web Design Inc. We have prepared a PDF document containing the transactions and their respective journal entries.
Accounting journal entries
An accounting journal entry is the method used to enter an accounting transaction into the accounting records of a business. The accounting records are aggregated into the general ledger, or the journal entries may be recorded in a variety of sub-ledgers, which are later rolled up into the general ledger.
Journal Entries Examples (with PDF)
Capital is an internal liability for the business hence credit the increase in liabilities. Example - Max started a business with 10,000 in cash. Cash A/c. 10,000. To Capital A/C. 10,000. (Capital introduced by Max in cash for 10,000) Related Topic - All Journal Entries on one Page. 2.
Accounting Journal Entries
Thanks for watching this video. If you wish to learn more on this topic, check this comprehensive course Accounting Basics A Complete Study https://bit.ly/3v...
Using Benford's Law to reveal journal entry irregularities
The fictitious journal entries inflated the actual proportions from 20 to 49 ($2,000 to $4,999).In Part 1 of the figure "Authentic Journal Entries With Added Fictitious Amounts," a ridge has formed from 20 to 50, a ridge being a range in the graph where the actual proportions are (mostly) above the Benford's Law line. The fictitious entries inflated the 20 to 49 proportions which together with ...
The Complete Accounting Cycle: Journal Entries, General Ledger
6. 2022 Department of the Treasury. Accounting document from Western Governors University, 20 pages, CASE STUDY - THE COMPLETE ACCOUNTING CYCLE Name: This Case Study is worth 100 points, or 10% of your final course grade. This Case Study relates to TCOs E and F, and Chapters 3 and 4. MAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW.
Manual journal entry testing: Data analytics and the risk of fraud
For the entire case, you will play the role of an external auditor who has been asked to analyze journal entries for a heightened risk of fraud. You will utilize IDEA, one of the most common GAS packages (a form of CAAT), to perform your analysis. The case will be completed in two phases.
Case study journal entries 2
Legacy Realty needs journal entries to track accounting events and determine specific changes to their accounts. Journal entries allow the business to be able to tell their story. Therefore, journal entries are very important for a company in order to perform their accounting functions. 2. Case Study: Journal Entries
Journal, Ledger & Trial Balance (Financial Accounting)
Topic: Journal, ledger, and Trial balance - Financial Accounting (CONTINUE…) 2. LEDGER Ledger Definition: Ledger implies the principal books of accounts, wherein all accounts, i.e. personal, real and nominal are maintained.After recording the transactions in the journal, the transactions are classified and grouped as per their title, and so all the transactions of similar type into are put ...
Using Topside Journal Entries to Conceal Fraud
For instance, topside journal entries can be used to allocate income or expenses from a. parent company to its subsidiaries. Such practice falls within the scope ofGAAP. Due to their. relative ease of concealment, however, topside journal entries have often been used to perpetrate fraud.
Mastering accounting for business combinations
Accounting for business combinations is complex and requires considering a number of areas, including the following: Identifying business combination transactions. Identifying the acquirer. Determining the acquisition date. Measuring the consideration transferred. Recognizing and measuring the identifiable assets acquired and liabilities ...
Journal Entries in Accounting with Examples
Income Received Journal Entry with Examples. 5. Goods: Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as 'Purchases A/c' when goods are purchased, and 'Sales A/c' when they are sold.
30 transactions with their Journal Entries, Ledger, Trial balance and
Want to make 20 transaction project check out this link: 20 transactions with their Journal Entries, Ledger and Trial balance. On March 1, 2024, Mr. Mohit started a Furniture business in GANDHI NAGAR Mr. Mohit invested Rs 50,00,000. March 2: Cash deposited into the bank: Rs. 30,00,000. March 3: Goods purchased (3,000 chairs) for cash: Rs 8,00 ...
CASE STUDY
This Case Study is worth 100 points, or 10% of your final course grade. This Case Study relates to TCOs E and F, and Chapters 3 and 4. MAKE SURE TO COMPLETE ALL REQUIREMENTS WHICH ARE LISTED BELOW. There are 10 sheets in the Workbook, including this one. All of the information that you need for the project is located in this Workbook. Hint for ...
I need 20 journal entries with ledger and trial balance?
20 Journal Entries. Journal is the book of initial entry, hence the transactions are at first recorded in the journal by the way of journal entries. Journal entries are made as per the double entry system of accounting, where for each transaction one account is debited and another account is credited. In the case of compound journal entries, one set of accounts is debited and one set of ...
Fund Accounting: Mastering in Journal Entries
Module 3: Expenses: Accruals and Prepaid Journal Entries (45 minutes) Accrual accounting for fund expenses. Prepaid expenses in the context of fund accounting. Practical examples and case studies on managing expenses. Module 4: Incomes - Dividends/Interest Journal Entries (30 minutes) Recording dividend and interest incomes.
Preparation of Journal, Ledger, Trial balance and Financial Statements
Financial Statements of a partnership firm on the basis of a case study. Preparation of Journal, Ledger, Trial balance and Financial Statements of a partnership firm on the basis of a case study- 15 Transactions Mr. Mohit and Mr. Mayank entered into a partnership business and decided to sell computers. Their Partnership Deed is as follows.
Cendant Corporation
Whatever the case, this particular fraud was perpetrated by a company that was profitable (without the fraud) and had well-known brands and successful product lines. ... "Journal Entries and Adjustments — Your Biggest Fraud Danger." Journal of Corporate Accounting and Finance, vol. 15, no. 4 (May/June): 57-62. Elkind, Peter. 2000.
Two Hunters from the Same Lodge Afflicted with Sporadic CJD: Is Chronic
The diagnosis was confirmed postmortem as sporadic CJD with homozygous methionine at codon 129 (sCJDMM1). The patient's history, including a similar case in his social group, suggests a possible novel animal-to-human transmission of CWD. Based on non-human primate and mouse models, cross-species transmission of CJD is plausible.
Missed opportunities and implementational spaces for developing
This manuscript draws upon data from my doctoral dissertation. I sincerely thank all the teachers who participated, dedicating their time and support to this study. I am also grateful for the constructive feedback and valuable insights provided by the anonymous reviewers and editors of the Bilingual Research Journal throughout the revision process.
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Case Study on Journal Entries Requirements

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Journal, Ledger & Trial Balance (Financial Accounting) – Practical Problems and Solutions

Journal, Ledger and Trial Balance (Financial Accounting)

Types of Journal

Journalizing Process

Format of Journal

Topic: Journal, ledger, and Trial balance (CONTINUE…)

Golden rules of accounting

Topic: Journal, ledger, and Trial balance – Financial Accounting (CONTINUE…)

Subdivision of Ledger

3. TRIAL BALANCE

Characteristics of Trial Balance

Objects of Trial Balance

Why do both Sides of Trial Balance Agree

Preparing Trial Balance From Journal and Ledger (How To)

How to Prepare a Trial Balance

The format for Preparing Trial Balance

Ledger Account Balance and Trial Balance

PRACTICAL PROBLEM AND SOLUTIONS

Topic: Journal, ledger, and Trial balance – Financial Accounting (CONTINUE…)

Problem – 2

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Chapter 1: Introduction to Accounting

Chapter 2: Theory Base of Accounting

Chapter 3: Recording of Business Transactions

Chapter 4: Bank Reconciliation Statement

Chapter 5: Depreciation, Provisions, and Reserves

Chapter 6: Trial Balance and Rectification of Errors

Chapter 7: Bills of Exchange

Chapter 1: Financial Statements

1. Capital Account

Journal Entry:

2. Drawings Account :

3. Expenses Paid :

4. Income Received :

5. Goods :

6. Transactions :

7. Assets :

8. Depreciation :

9. Discount :

10. Amount Paid or Received in Full/Final Settlement :

11. Compound or Composite Journal Entry :

12. Opening Journal Entry :

13. Bad Debts :

14. Banking Transactions :

15. Bad Debts Recovered :

16. Loss of Insured Goods/Assets :

17. Loan Taken :

18. Loan Given :

19. Outstanding Expenses :

20. Prepaid or Unexpired or Advance Expenses :

21. Income Due or Accrued Income :

22. Income Received in Advance or Unearned Income :

23. Income Tax :

24. Life Insurance Premium :

25. Employee’s Life Insurance Premium :

26. Interest on Capital :