Table Of Contents

Table Of Contents.................................................................................................................................................................1
Scenario 1..............................................................................................................................................................................2
Accuracy In Financial Records.........................................................................................................................................2
Journal Entries............................................................................................................................................................4
Books Of Prime Entry................................................................................................................................................5
General Ledger...........................................................................................................................................................7
Trial Balance.............................................................................................................................................................13
Bank Reconciliation Statement.......................................................................................................................................14
Scenario 2............................................................................................................................................................................16
Control Mechanisms.......................................................................................................................................................16
Sales Ledger Control Account (Debtors)..................................................................................................................18
Purchase Ledger Control Account (Creditors).........................................................................................................19
Errors In Financial Records............................................................................................................................................19
Identifying Errors......................................................................................................................................................22
Suspense Account.....................................................................................................................................................22
Statement of Profit or Loss................................................................................................................................................23
Statement of Financial Position.........................................................................................................................................25
References............................................................................................................................................................................27
 Scenario 1

Accuracy In Financial Records

Accuracy in the double entry process is crucial for any business. It ensures that financial records truly reflect the
company's activities, helping in making informed decisions, complying with laws, strategic planning and attracting
investors and financing in general. The double entry bookkeeping system is a basic rule in accounting that means every
transaction is recorded in two places, one account is debited and another is credited. This helps keep the accounting
equation (Assets = Liabilities + Equity) balanced and gives a clear and organised way to keep track of all the money
coming in and going out of a business.

This report discusses how vital it is to have complete accuracy in maintaining financial records and how bank
reconciliations can help avoid / correct any inaccuracies that may have occurred. Accurate accounting prevents errors,
detects fraud, and supports the overall health of the business. Bookkeeping and reconciliation statements are among the
activities businesses use to enforce accuracy in their day to day dealings and transactions.

Informed Decision Making: Accurate financial records provide a clear picture of a company's performance. Having
accurate financial reports is really important for any business because they help you make smarter decisions. When your
financial information is correct, you can understand what’s really happening in your business. This helps you plan for the
future and avoid mistakes (Finimize, 2024).

For example, reports like balance sheets and profit loss statements show how much money the business owns, owes,
earns, and spends. These documents give you a clear picture of your financial health. With this information, you can see
whether your profits are going up or down. You can also use it to set realistic budgets, decide where to cut costs, and
choose where to invest more money. This helps you run your business in a smarter way. In the long run, it can make
your business grow and be more successful.

If your financial reports are not accurate, you will make bad decisions. For instance, you might think the business is
doing better than it really is and spend too much money. Making bad financial choices like these can cause problems in
the long run, such as losing money and falling behind competitors

It is crucial to have trustworthy and accurate financial information. you need to know exactly what’s going on with
your money to make the right decisions. It helps you understand your business properly, avoid risks, and make
decisions that will help you grow and succeed.
Legal Compliance: Businesses are required by law to keep accurate and up-to-date financial records. When financial
information is recorded properly and consistently, it helps to maintain transparency, which is essential for building trust.
This level of consistency is especially important for investors, stakeholders, and other interested parties who depend on
these financial reports to make informed and responsible decisions. By presenting a clear and truthful picture of the
company’s financial situation, accurate records allow others to assess the organisation’s performance and stability. This
openness fosters confidence not just among investors, but also among customers who value ethical and responsible
businesses (Aurora Training Advantage, 2024). Furthermore, when companies adhere to well-established accounting
standards, they show their dedication to doing business in a fair and honest manner, which highlights their commitment
to ethical values and financial integrity.

Failing to maintain accurate accounting records can lead to serious consequences for a company. Companies can face the
following legal consequences incase of non compliance (Virtually A Practice, 2023).

1. Financial Penalties: Government agencies can give fines or punishments, which can hurt the
company’s finances.
2. Legal Repercussions: Not following the laws can cause legal trouble, lawsuits, and harm the
company’s reputation.
3. Increased Audit and Regulatory Scrutiny: Not following the laws can lead to stricter checks and reviews
by auditors and government agencies.
4. Potential Delisting: In serious cases, not following the laws can cause a company to be removed from the
stock market.

Accountants use many tools and methods / processes to ensure accuracy in financial records.

1. Journal entries
2. Books of prime entry
3. General Ledger
4. Trial Balance

Journal Entries

Journal entries are written records of business transactions that show how each one affects different accounts. They use
the double-entry system, which means every transaction has at least one debit and one credit entry, and the total debits
must always equal the total credits. Each journal entry clearly shows which accounts are involved, how much money is
being recorded, and whether the accounts are being debited or credited. These entries are made in a book called the
journal before being transferred to the general ledger, where all account information is organised. Journal entries give a
full and accurate record of every transaction a business makes. This helps stop mistakes and makes it easier to see where
the money is coming from and where it’s going.
 Date Details Dr Cr

1st May Bank A/C 12,000

Capital A/C 12,000

1st May Fixtures and Fittings 3000

Cash 3000

2nd May Purchases 1,550

Acc / pay (Staple) 1,550

4th May Acc / Rec (Clip) 1,265

Sales 1,265

9th May Purchases 4,652

Acc / Pay (Green) 4,652

11th May Acc / Rec (Hill) 6,880

Sales 6,880

16th May Bank 1,265

Acc / Rec (Clip) 1,265

17th May Purchases 3,800

Acc / Pay (Kaye) 3,800

18th May Acc / Rec (Nailor) 5,660

Sales 5,660

19th May Acc / Pay (Staple) 1,550

Bank 1,550
20th May Rent Expense 1,200

Bank 1,200

21st May Delivery Expense 650

Bank 650

24th May Bank 5,200

Acc / Rec (Hill) 5,200

30th May Drawings 800

Bank 800

30th May Wages & Salaries A/C 2,320

Bank 2,320

31st May Acc / Pay (Green) 4,652

Bank 4,652
 Books Of Prime Entry
Books of prime entry help sort transactions into different groups, which makes accounting easier to manage. Each book
is used for a specific type of transaction. For example, the Sales Day Book is used to record all credit sales, while the
Purchases Day Book is for all credit purchases. The Cash / Bank book keeps track of money coming in and going out
through cash or bank.

They help keep records organised by categorizing transactions. This makes it easier to find information when needed.
They lower the chances of forgetting or repeating a transaction, since every sale, purchase, and payment is written in the
right place. Totals from these books can be added to the general ledger in one go instead of entering each transaction one
by one, which saves time. They help improve accuracy which is really important when creating financial statements.

Purchase Daybook

Date Details Amount

2nd May 2020 Staple 1,550

9th May 2020 Green 4,652

17th May 2020 Kaye 3,800

Total: 10,002

Balance b/d: 10,002

Sale Daybook

Date Details Amount

4rth May 2020 Clip 1,265

11th May 2020 Hill 6,880

18th May 2020 Nailor 5,660

Total: 13,805

Balance b/d 13,805

Bank / Cash Daybook

 Date Details Dr Date Details Cr

1st May Capital 12,000

16th May 2020 Clip (Bank) 1,265 1st May 2020 Fixtures and Fittings (Cash) 3,000

24th May 2020 Hill (Bank) 5,200 19th May 2020 Staple (Bank) 1,550

20th May 2020 Rent (Bank) 1,200

21st May 2020 Delivery Expense (Bank) 650

30th May 2020 Drawings (Bank) 800

30th May 2020 Assistant Wages (Bank) 2,320

31st May 2020 Green (Bank) 4,652

Balance c/d: 4,293

Total: 18,465 Total: 18,465

Balance b/d: 4,293

 General Ledger
The general ledger is the main accounting record where all financial transactions are collected, sorted, and stored. It
contains individual accounts for everything the business owns, owes, earns, or spends — such as cash, sales, purchases,
wages, and equipment. Each account in the general ledger shows the full history of changes, including both debit and
credit entries. The information in the general ledger comes from the books of prime entry and from journal entries.

The general ledger is important because it brings all the business’s financial information together in one place. This
makes it easier to see the financial position of the business at any time. It also helps with accuracy, because it shows
both sides of every transaction. It also enables the business to create a trial balance. This is an important task before
preparing financial statements.

Capital

Date Details Dr Date Details Cr

C/d 12000 1st May 2020 Bank A/C 12,000

Total 12,000 Total 12,000

Fixtures and Fittings

Date Details Dr Date Details Cr

1st May 2020 Bank A/C 3,000

C/d 3,000

Total: 3000 Total: 3000

Bank

Date Details Dr Date Details Cr

1st May 2020 Capital 12,000 1st May 2020 Fixture & Fitting 3,000

16th May 2020 Clip 1,265 19th May 2020 Staple 1,550

24th May 2020 Hill 5,200 20th May 2020 Rent 1,200

21st May 2020 Delivery Expenses 650

30th May 2020 Personal Expenses 800

30th May 2020 Assistant Wages 2,320

 31st May 2020 Green 4,652

C/d 4,293

Total: 18465 Total: 18,465

B/d 4,293

Purchases

Date Details Dr Date Details Cr

2nd May 2020 Staple 1,550

9th May 2020 Green 4,652

17th May 2020 Kaye 3,800

C/d 10,002

Total: 10,002 Total: 10,002

 Sales

Date Details Dr Date Details Cr

4th May 2020 Clip 1,265

11th May 2020 Hill 6,880

C/d 13,805 18th May 2020 Nailor 5,660

Total: 13,805 Total: 13,805

Accounts Receivable

Date Details Dr Date Details Cr

4th May 2020 Clip 1,265 16th May 2020 Clip 1,265

11th May 2020 Hill 6,880 24th May 2020 Hill 5,200

18th May 2020 Nailor 5,660

C/d 7,340

Total: 13805 Total: 13,805

B/d 7,340

Accounts Payable

Date Details Dr Date Details Cr

19th May 2020 Staple 1,550 2nd May 2020 Staple 1,550

31st May 2020 Green 4,652 9th May 2020 Green 4,652

17th May 2020 Kaye 3,800

C/d 3,800

Total: 10,002 Total: 10,002

B/d 3,800
 Staple

Date Details Dr Date Details Cr

19th May 2020 Bank 1,550 2nd May 2020 Purchases 1,550

Total: 1,550 Total: 1,550

Green

Date Details Dr Date Details Cr

31st May 2020 Bank 4,652 9th May 2020 Purchases 4,652

Total: 4,652 Total: 4652

Kaye

Date Details Dr Date Details Cr

17th May 2020 Purchases 3,800

C/D 3,800

Total: 3,800 Total: 3,800

Clip

Date Details Dr Date Details Cr

4th May 2020 Sales 1,265 16th May 2020 Bank 1,265

Total: 1,265 Total: 1,265

 Hill

Date Details Dr Date Details Cr

11th May 2020 Sales 6,880 24th May 2020 Bank 5,200

C/D 1,680

Total: 6,880 Total: 6,880

B/D 1,680

Nailor

Date Details Dr Date Details Cr

18th May 2020 Sales 5,660

C/d 5,660

Total: 5,660 Total: 5,660

Rent Expense

Date Details Dr Date Details Cr

20th May 2020 Bank 1,200 Income Statement 1,200

Total: 1,200 Total: 1200

Delivery Expense

Date Details Dr Date Details Cr

21st May 2020 Bank 650 Income Statement 650

Total: 650 Total: 650

 Wages

Date Details Dr Date Details Cr

30th May 2020 Bank 2,320 Income Statement 2320

Total: 2,320 Total: 2,320

Withdrawals

Date Details Dr Date Details Cr

30th May 2020 Bank 800 C/d 800

Total: 800 Total: 800

 Trial Balance
The trial balance lists all the balances from the accounts in the general ledger. It checks if the total debits are equal to the
total credits. The trial balance is used to check the accuracy of financial records before preparing financial reports.

The trial balance helps identify errors. If the total debits don’t equal the total credits, it means that mistakes were made
when the transactions were being recorded. It also provides a clear and organised summary of all accounts and their
balances, making it easier to prepare accurate financial statements like the income statement.

Details Dr Cr

Capital 12,000

Fixtures and Fittings 3,000

Bank 4,293

Purchases 10,002

Sales 13,805

Hill (A/R) 1,680

Nailor (A/R) 5,660

Staple (A/p) 3,800

Rent Expense 1200

Delivery Expense 650

Wages 2,320

Withdrawals 800

Total 29,605 29,605

 Bank Reconciliation Statement

If any errors or inaccuracies have occurred in the financial records, Bank reconciliation statements can help fix them.

A bank reconciliation statement is a useful tool that helps a company make sure its financial records match the records
shown by the bank. Bank reconciliation is the process of checking a company’s financial records against its bank
statements to make sure all transactions are recorded correctly (Perfect Accounting, 2023). This is important because
sometimes there are differences between what the company has written in its cash book and what the bank shows in its
statement. Doing regular bank reconciliations helps businesses avoid problems.

1. Finding Mistakes: Sometimes the bank makes a mistake or the company records a transaction incorrectly. For
example, a payment might be entered twice, or the wrong amount may be written down. Bank reconciliation helps
find these mistakes early so they can be fixed before they cause bigger issues.

2. Preventing Fraud: By checking bank transactions often, companies can spot any unusual or suspicious activity,
like unauthorized payments or fake entries. This helps protect the business from fraud.

3. Keeping Records Accurate: Bank reconciliation ensures that every transaction, such as cheques written, cash
deposited, or payments received, is correctly recorded in the company’s books. This gives a clear and complete view
of the company’s financial situation.

If a company doesn’t regularly check its bank statements against its own records, it might not notice errors or fraud in
time. This could lead to money being lost, wrong financial reports, or even legal trouble if serious mistakes are made.
Bank reconciliation is like double-checking your bank account to make sure everything adds up correctly (Sapp, 2024).
It helps a business catch problems early, stay safe from fraud, and keep its financial records accurate. Doing this
regularly is a crucial habit for any business that wants to stay organized and avoid financial trouble.
 Cash Book
Date Details Dr Date Details Cr

31 December 5750 Dishonor Cheque 150

Direct Credit 1500 Bank Charges 15

Interest On OD 85

Balance 7,000

Bank Reconciliation Statement

Particulars Rs

Balance as per passbook / Bank Statement (3,500)

Unpresented Cheque
(5000)
Un- Credited Lodgments
15500
Balance as Per Cash Book ( Updated) 7,000
In conclusion, Accurate financial records are absolutely crucial for a business. A company cannot grow if their financial
records are not accurate. Financial transparency and accuracy allow a business to truly understand how well they are
performing while also attracting investors and other financiers. Accurate records enable businesses to make sound
decisions and address any problems or areas of improvements. Only using accurate records can businesses predict market
trends and develop strategies. Maintaining accurate records is also a legal obligation on companies, failing to comply can
drag a company down in all sorts of trouble that may risk the very existence of the business. To avoid legal trouble and
benefit from the perks that come with accurate financial records, businesses use helpful tools such as bank reconciliation
statements.
 Scenario 2

Control Mechanisms
Control mechanisms are rules, systems, and processes that businesses use to make sure all financial transactions are
recorded in the correct way and reflect the true situation of the company (Bevin, 2024). These controls help businesses
check that all money coming in and going out is properly tracked and recorded. They make it harder for people to make
mistakes or commit fraud, such as stealing money or lying about how much the business has earned or spent.

Control mechanisms also make sure that the business follows legal and accounting rules, such as tax laws and financial
reporting standards. By using these systems, businesses can stay organised, avoid financial problems, and make better
decisions based on accurate and trustworthy information. Control accounts are among the many control mechanisms
businesses use.

According to Harold Averkamp, Control accounts are summary accounts in the general ledger that show the total value
of many smaller transactions that are recorded in detail elsewhere (AccountingCoach, n.d.). They are used to keep
track of money owed by customers or to suppliers, without showing each individual transaction.

There are two main types of control accounts:

- Sales Ledger Control Account (SLCA) : Shows the total amount customers owe the business. This is
also known as trade receivables or debtors.
- Purchases Ledger Control Account (PLCA) : Shows the total amount the business owes to suppliers. This
is also called trade payables or creditors.

Spot Mistakes: Control accounts are useful because they make it easier to check if the financial records are correct.
For example you have a Sales Ledger Control Account, which is a summary of all the money customers owe you. You
also have a general ledger, which is a list of all the individual customers and how much each one owes. At the end of the
time period you compare the total amount in the control account with the total from all the individual accounts in the
general ledger. If both totals are the same, then the records are correct. If the totals are different, it means there is a
mistake. Summarising transactions makes it easier to spot mistakes and helps make sure that the financial statements are
correct (Accountancy, 2025).
Prevent Fraud: Regularly checking and comparing the control accounts with the general ledgers helps a business spot
any unusual records. This process is important because it can reveal signs of fraud. For example, if someone tries to
change a customer's account to hide missing money, this change might only appear in the detailed customer records. But
the control account, which shows the overall total for all customers, will still have the original amount. When both
records are compared, the totals won’t match, showing that something is wrong.

This kind of checking helps the business find problems like:

- Payments that have been deleted or not recorded
- Fake transactions that were made up to cover up theft
- Balances that have been changed without permission

By finding these problems early, the business can investigate and fix them quickly. This protects the company’s
money and makes sure its financial records are accurate and trustworthy. Using Control accounts is crucial in
preventing fraud (Smith, 2025).

Save Time: Control accounts are important in accounting because they help businesses save time and work more
efficiently. In large companies, there can be hundreds of transactions each month. For example, a business might have
many customers, each with their own account in the sales ledger. If accountants had to check every individual account
every time they needed a total, it would take too long and make their job more difficult and tedious. Instead, the control
account gives a summary of all the individual accounts, showing the total amount owed by customers. Accountants can
use the summarized information from control accounts to provide a clear overview of the company’s financial status
(AccountancyIndex, n.d.). It also helps the business stay organized and reduces the chance of mistakes. Because of this,
control accounts are seen as a helpful tool that saves time in financial record-keeping.

In conclusion, control accounts are really important for keeping the accounting system accurate. They simplify the
accounting process by summarizing detailed transactions, making it easier for accountants to track financial information.
Control accounts also serve as a tool for internal control, helping to prevent mistakes and fraud. By comparing the totals
in control accounts with the detailed records, businesses can quickly find any errors or problems. This allows them to fix
issues quickly and keep financial records reliable and accurate.
 Sales Ledger Control Account (Debtors)

Date Details Dr Date Details Credit

30th June 2020 Balance b/d 20,200 Bank 26,175

Sales 30,500 Discount Allowed 16,840

Debit note to debtor 119 Return Inwards 414

Bad Debt 730

Contra - PLCA 180

Balance c/d: 6,480

Total: 50,819 Total: 50,819

1st July 2020 Balance b/d: 6,480

Purchase Ledger Control Account (Creditors)

Date Details Dr Date Details Cr

Bank 36,840 30th June 2020 Balance b/d 1,530

Discount 2550 Purchases 36,480

Received

Return Outwards 815

Contra - SLCA 180

Balance c/d 2,375

Total: 4,0385 Total: 4,0385

1st July 2020 Balance b/d 2,375

 Errors In Financial Records
An accounting error happens when a mistake is made in recording financial information, but it is not done on purpose.
These mistakes usually happen by accident, like typing the wrong number or putting something in the wrong place.
When someone notices the error, it is usually corrected straight away. However, if the mistake can’t be fixed right away,
the company might look into it further to understand what went wrong.

It is important to know that an accounting error is different from fraud. Fraud is when someone purposely changes or
hides financial records to benefit themselves or the company. In other words, fraud is done on purpose, while an
accounting error is just a simple mistake (Will Kenton, 2024).

There are many kinds of accounting errors, but the most common ones are either small, simple mistakes called clerical
errors or mistakes that happen because someone didn’t follow the proper accounting rules, these are called errors of
principle.

1. Error of Original Entry: An error of original entry happens when the wrong amount of money is written
down at the start of a transaction. For example, if something should cost $250 but is written as $520, that
incorrect amount is used throughout the whole process. This means that every account involved in the
transaction shows the same wrong amount. Even though the numbers are incorrect, all the accounts still
“balance” with each other, because the mistake is copied into all parts of the transaction. So, the accounts seem
correct at first glance, but they actually show the wrong values (Will Kenton, 2024).
2. Error of Duplication: An error of duplication happens when the same accounting entry is recorded more than
once by mistake. This means that the same amount of money is either debited or credited two times for the
same transaction (Will Kenton, 2024).
 3. Error of Omission: An error of omission happens when a business forgets to record a transaction that actually
took place during a certain time period. This means that no entry is made at all, even though money was spent or
received. For example, if a company buys goods on credit but forgets to record it in the accounts payable
section, that would be an error of omission. This kind of mistake often happens when there are lots of invoices
from suppliers, and one of them gets lost or isn’t recorded properly (Will Kenton, 2024).
4. Errors of Principle: An error of accounting principle happens when someone breaks or misunderstands the
basic rules of accounting. For example, if a business buys a piece of equipment like a computer, it should be
recorded as a fixed asset. But if the person doing the accounts accidentally records it as an operating expense,
that’s an error of accounting principle (Will Kenton, 2024).
5. Error of Commission: An error of commission happens when a transaction is recorded in the correct main
account, but to the wrong individual account. This means the overall type of account is right, but the details
inside it are wrong. For example, a business receives money from a customer. The accountant correctly records it
under accounts receivable, However, instead of recording it under the correct customer’s name, they accidentally
put it under a different customer. So, even though the transaction is in the right place, it’s connected to the wrong
person, which can lead to errors in the company’s records (Will Kenton, 2024).

hese are but a few of the errors that can occur while recording financial transactions. Identifying and categorizing these
errors helps catch them easily while simultaneously enabling the accountant to be more cautious as not to make any
mistakes.

isstated Income and Profitability: When errors happen in the income statement, they can lead to the wrong profit being
shown. For example, if a business accidentally records a capital expense as a normal expense, it reduces the profit more
than it should. This is because the business is showing a cost that is not supposed to affect profit in that way. When
profits are too low or too high, managers might make poor decisions based on this false information
ccountingInsights Team, 2024).
Inaccurate Balance Sheet Figures: The balance sheet shows what a business owns and owes as well as its net worth. If
there is an error it can make the business appear stronger or weaker than it really is. This gives a false impression to
investors who look at the balance sheet to decide whether the business is doing good financially. Overstating assets or
understating debts can lead to wrong decisions, like approving a loan the business can’t afford to repay
(AccountingInsights Team, 2024).

Legal and Financial Risks: Serious errors can bring legal consequences. If a business shows wrong financial figures on
purpose, or even by accident, it might be fined or sued. For example, when Macy’s had a $151 million accounting error,
it created major concern among investors and regulators. This can also lead to increased costs in the future because the
business must pay lawyers or fines (Anne D’Innocenzio, 2024).

Loss of Stakeholder Trust: When a business keeps making mistakes in its financial reports, it starts to lose the trust of
important people. Investors may stop investing their money because they feel the company is not reliable. Banks might
also decide not to lend money, as they worry the business could be risky. Even customers might stop buying from the
business if they think it’s not being honest or well-managed. Fixing these mistakes later doesn’t always solve the
problem. The business’s reputation can be badly damaged. Once trust is lost, it can take a very long time to earn it back,
and it may cost a lot of money to do so, such as hiring experts or offering discounts to win customers back. In short,
frequent accounting mistakes can cause serious harm to a business, even if those mistakes are corrected later
(AccountingInsights Team, 2024).

Bad Operational Decisions: Managers rely on financial information to make important everyday decisions. These
decisions can include things like hiring new staff, investing in equipment, or setting the right prices for products and
services. If the financial numbers are wrong, managers might make choices that harm the business without realising it.
For example, if the company’s expenses are recorded as lower than they really are, the financial reports will show more
profit than the company actually has. This can mislead managers into thinking the business has extra money to spend.
As a result, they might start new projects or make big purchases the company can’t actually afford. Over time, these
poor decisions can lead to serious money problems. The business might start losing money, and if the situation
continues, it could even lead to the business closing down (AccountingInsights Team, 2024).

In conclusion, errors in financial records can be detrimental for a business. Even the smallest errors can completely
distort the financial health a company portrays it has. It is then with no great surprise that we see businesses hire experts
and spend significant amounts of money to make sure their financial records are in order, for spending money to prevent
errors will always be cheaper than spending in order to fix them or deal with the potential catastrophic consequences
they may result in.
 Identifying Errors

Details Dr Cr

Admin 340

Bank 340

Purchases 360

Suspense Accounts 360

Suspense Account 690

Discount Received 690

Suspense Account
A suspense account is a temporary account used when there is a mistake or something is unclear in the accounting
records. It holds money until the exact details of the transaction can be confirmed

Details Dr Details Cr

Discount Received 690 Balance b/d 330

Purchases 360

Total: 690 Total: 690

 Statement of Profit or Loss
The statement of profit and loss shows how much money a business has earned and spent over a certain period of time.
It tells us whether the business has made a profit or a loss. The statement starts with sales revenue. Then, it takes away
costs such as the cost of goods sold, wages, rent, and other expenses. The amount left at the end is the profit if income is
more than expenses, or a loss if expenses are more than income.
The profit and loss statement is useful because it shows how well a business is performing. It helps the owner or manager
see if they are making enough money or spending too much. It also helps with planning, budgeting, and decision-
making. Overall, this statement gives a clear picture of the business’s financial performance over time.
 Statement of Profit or Loss as at 30th June 2020

Description Amount ($)

Revenue

Sales 186,070

Cost Of Sales

Purchases: 105,040

Add: Error Being recorded Cash Purchases on Wrong side 360

Adjusted Purchases: 105,400

Gross Profit: 80,670

Expenses

Wages: 33,910

Administration Expenses (Corrected): 7,590

Delivery Expenses: 1,210

Discount Allowed: 16,840

Total Expenses: 59,550

Other Income

Discount Received (Corrected): 2,550

Net Loss: 23,670

 Statement of Financial Position
The statement of financial position shows the financial position of a business at a specific point in time. It lists what the
business owns (called assets), what it owes (called liabilities), and the owner’s equity (how much the owner has invested
in the business). The formula for this is: Assets = Liabilities + Owner’s Equity

Assets include things like cash, inventory, equipment, and buildings. Liabilities include things the business needs to pay,
like loans and unpaid bills. The owner’s equity shows the value of the business that belongs to the owner after all debts
are paid.

The statement of financial position is important because it shows how strong and stable a business is. It helps owners
and investors understand if the business is financially healthy. It also helps with long-term planning by showing the
business's overall value. Overall, this statement gives a clear picture of the business’s financial health.
 Statement of Financial Position as at 30th June 2020

Description Amount ($)

Assets

Non-Current Assets

Machinery: 35,040

Vehicles: 12,420

Total Non-Current Assets: 47,460

Current Assets

Cash at Bank:(3280-340) 2940

Receivables 20200

Total Current Assets: 23,140

Total Assets: 70,600

Equity

Capital: 60,000

Less: Drawings (14,600)

Add: Profit 23,670

Closing Capital: 69,070

Liabilities

Payables 1530

Total Equity and Liabilities 70,600

References
1. AccountingCoach (n.d.) What is the purpose of control accounts? Available at:
https://www.accountingcoach.com/blog/accounts-receivable-control-account-subsidiary-ledger (Accessed: 11
May 2025).

2. AAT (Association of Accounting Technicians) (n.d.) Double entry bookkeeping. Available at:
https://www.aat.org.uk/knowledge-hub/accounting/bookkeeping/double-entry-bookkeeping (Accessed: 11
May 2025).

3. AccountingCoach (n.d.) Debits and credits: In-depth explanation with examples. Available
at: https://www.accountingcoach.com/debits-and-credits/explanation (Accessed: 11 May
2025).

4. Accounting for Everyone (2025) Comprehensive strategies for fraud prevention: Essential accounting
controls and policies to protect your assets. Available at:
https://accountingforeveryone.com/comprehensive-strategies-fraud-prevention-essential-accounting-controls-poli
cies-protect-your-assets (Accessed: 11 May 2025).

5. AccountingInsights Team (2024a) Correcting accounting errors: Understanding materiality and the
error correction process. Available at:
https://accountinginsights.org/correcting-accounting-errors-understanding-materiality-and-the-error-correction-pr
ocess/ (Accessed: 11 May 2025).

6. AccountingInsights Team (2024b) Correcting financial statement errors: Methods and stakeholder
impact. Available at:
https://accountinginsights.org/correcting-financial-statement-errors-methods-and-stakeholder-impact/ (Accessed:
11 May 2025).

7. AccountingInsights Team (2024c) Preventing and correcting errors in financial accounting. Available at:
https://accountinginsights.org/preventing-and-correcting-errors-in-financial-accounting/ (Accessed: 11
May 2025).

8. AccountancyIndex (n.d.) What is a control account in accounting? Available at:

https://accountancyindex.com/what-is-a-control-account-in-accounting (Accessed: 11 May
2025).

9. AP News (2024) Macy's says employee hid up to $154 million in expenses, delaying Q3 earnings. Available
at: https://apnews.com/article/macys-third-quarter-earnings-profit-holiday-60800dd9f1c194510ee9cacbfbba4725
(Accessed: 11 May 2025).
10. Aurora Training Advantage (n.d.) Why is regulatory compliance important in accounting? Available at:
https://auroratrainingadvantage.com/accounting/faqs/importance-of-regulatory-compliance (Accessed: 11 May 2025).

11. Bevin, L. (2024) 5 most common types of internal accounting controls. ZenGRC. Available at:
https://www.zengrc.com/blog/5-most-common-types-of-internal-accounting-controls (Accessed: 11 May 2025).

12. Finimize (2024) The importance of accuracy in your financial reporting. Available at:
https://finimize.com/content/the-importance-of-accuracy-in-your-financial-reporting (Accessed: 11 May
2025).

13. Investopedia (n.d.) Accounting error. Available at: https://www.investopedia.com/terms/a/accounting-

error.asp (Accessed: 11 May 2025).
14. Investopedia (n.d.) Double entry: What it means in accounting and how it’s used. Available
at: https://www.investopedia.com/terms/d/double-entry.asp (Accessed: 11 May 2025).

15. Numeric (2024) What is bank reconciliation? Step-by-step guide + examples. Available
at: https://www.numeric.io/blog/bank-reconciliation (Accessed: 11 May 2025).

16. Perfect Accounting (2023) The importance of bank reconciliations in financial accuracy. Available at:
https://perfectaccounting.in/the-importance-of-bank-reconciliations-in-financial-accuracy (Accessed: 11
May 2025).

17. Virtually A Practice (n.d.) Financial reporting to regulatory authorities. Available at:
https://virtuallyapractice.com/financial-reporting-to-regulatory-authorities (Accessed: 11 May 2025).