The errors chandra made in his income statement/ Project Management
ChandraBebby sets up Bendigo Fencing Company tomanufacture, sell and install fencing material. He was an engineer by profession but he understood the importance of accounting information and kept his accounting records meticulously throughout the year. At the end of the year he prepared the following income statement for the year:
Bendigo Fencing Company
Income Statement
for the year ended 30 June, 2015
Sales | 45,450 | |
Less Operating expenses: | ||
Purchase of Raw Material | $20,000 | |
Purchase of factory supplies | 1,000 | |
Wages of the factory employees (who worked directly on the factory) | 1,000 | |
Wages for other factory employees | 1,000 | |
Painting department supervisor’s salary | 7,500 | |
Painter | 500 | |
Managers’ salary | 4,000 | |
Office staff salaries | 1,000 | |
Sales Staff salaries | 2,200 | |
Advertising | 1,000 | |
Administrative Expenses | 800 | |
Marketing and distribution costs |
500 |
|
Sales commission | 500 | |
Rent | 2,500 | |
Electricity | 450 | |
Purchase of factory equipment | 14,000 | |
Purchase of Office Equipment | 1,000 | |
Purchase of Sales vehicles | 1,500 | |
Total Operating expenses | 60450 | |
Net Loss | $(15000) |
Although disappointed, Chandra was not surprised. He knew that expenses were higher than sales because, throughout the year, he had been unable to generate a cash surplus. His bank overdraft had blown out and his bank manager has asked him to present his financial statements for 2015 to the bank.
Required:
You are asked to:
1. Review the performance of Bendigo Fencing Company in 2014 and make a recommendation as to whether Chandra’s overdraft facility should be cancelled.
2. Prepare a report for Chandra explaining the errors he made in his income statement.
To perform this analysis you will need to recast Chandra’s income statement. The following information may be useful:
At 30 June 2015, the following inventories existed:
Raw Material $2,000
Work in Process $4,000
Finished Goods $5,150
Bendigo Fencing Company is a propriety company which is set up by Chandra Bebby. The Bendigo Fencing Company is a manufacturing company and its sells and installs fencing material. The company being a sole propriety concern is in the need of funds and the funds have been arranged by Mr. Chandra Bebby through overdraft facility of a financial institution.
Mr. Chandra is an engineer by profession but still he has maintained a good accounting record. He has prepared the records at the end of the year which is not a good sign for the measure of the books of accounts and other financial transactions. As, it is important that the books of accounts and other transactions related to finance are to be delt with on accrual or mercantile basis.
But here Mr. Chandra Bebby has prepared the accounts at the end of the year which is prone to a lot of errors of omission, commission and compensation