Types of Accounts

PALER – it is the acronym for representing various items of the financial statements. P is used for representing Proprietorship, A is used for representing assets, L is used for representing liability, E is used for representing expenses, R is used for representing the revenues (Needles, Powers & Crosson, 2013).  

Types of the accounts –

Journal entries for those transactions that are not recorded

Trial balance

Permanent accounts – permanent account that is also known as the real accounts are the accounts, the balances of which are carried forward from one period of accounting to another period of accounting. Permanent accounts are recorded under the balance sheet and it signifies the company’s actual worth at particular point of the time. Irrespective of the fact that the balances under these accounts are altered in due to daily transactions they are not closed or transferred to capital account (Weil, Schipper & Francis, 2013). Generally the owner’s equity, liability and assets are known as permanent account. However, drawing account of owner will not be considered as permanent account. Examples of permanent accounts are – account receivable, cash, accounts payable and equipments.

Temporary accounts – temporary account that is also known as the nominal accounts are the accounts, the balances of which are not carried forward from one period of accounting to another period of accounting. Rather, the accounts are transferred or closed. Mai objective of temporary account is to reveal the way in which withdrawals, expenses or revenues impact the owner’s equity (Vermoesen, Deloof & Laveren, 2013). Generally the drawing accounts, revenues and expenses are considered as temporary account. Examples of temporary accounts are – advertising expenses, rent expenses, insurance expenses and service revenue.

2 accounts with normal credit balances are capital accounts and accounts payable. 2 accounts with normal debit balances are salary expenses and equipments.

Adjusting entries – these are the entries that convert the accounting records of the company under the accrual system of accounting (Macve, 2015). Adjusting journal entry is made typically before issuance of the financial statement of the company.

Examples of adjusting entries

T – Accounts

Handwritten solution

Ten column spreadsheet –

Normal view

Formula view

Financial reports

Normal view

Formula view

Current ratio – it is commonly used liquidity ratio that is used to measure the ability of the company to meet its short term obligation with the current assets. It is computed through dividing the current assets by current liabilities. Current ratio of the company is 0.71 that is less than 1 (Delen, Kuzey & Uyar, 2013). It reveals that the current assets of the company are not sufficient to pay off its current liabilities.

Debt ratio – company’s debt ratio of 0.85 reveals that 85% of the company’s assets are financed through debt. It indicates that higher proportion of the company’s asset is financed through borrowing that expose the the company to financial risk (Cascino et al., 2014).

The main objective of the report is to state the case presented in the provided video link. Further, the report will depict 5 fundamental principle of accounting ethics and its requirements. Moreover, the report will state the ethics code violated in the case provided in the video link (Ethicsboard.org, 2018).

After watching the video it is identified that the case is regarding the Toshiba Company which was the oldest and most established companies from Japan. It has been confirmed by the company that it overstated its profit significantly by an amount of 155 billion yen. The accounting probe probe found was that the company suffered from governance dysfunctions. Further, the employees were discouraged for challenging unrealistic high target that was set by the superiors. The employees were pressurised to maintain their job position and continue to receive the bonus and the employees were not able to go against their superiors. Targets kept on increasing with each passing year and the employees were motivated to hide the truth. CEO Hisao Tanaka and various other directors stepped down when the scandal came into flash. As a result the market share of the company lost and it lost considerable number of customers. However, the company promised that it will try its best to improve the governance through hiring more directors from outside.  

Fundamental principles of the accounting ethics

During June 2005, IESBA released revised code of ethics for the professional accountants. The revised code established conceptual framework for all professional accountants for assuring compliance with 5 fundamental ethical principles. These are –

• Objectivity – the professional accountant shall not allow any conflict of the interest, bias or undue influence of any person.
• Integrity – the professional accountant shall be straightforward and maintain his honesty regarding all business and professional association (org, 2018).
• Confidentiality – the professional accountant must have respect regarding any information that is acquired by him in business and professional association. Further, he must not disclose this information to any third party without proper permission or authorisation from the client. Moreover, the information shall not be disclosed even when the relationship among the client and accountant does not subsist. The account is also not allowed to use the client’s business information for his personal advantage or for any other’s personal advantage (org, 2018).
• Due care and professional competence – the professional accountant is liable to acquire professional knowledge and professional skill at the required level for assuring that the client always receives the professional services that is competent and based on the latest developments in technique, practice and legislation. The professional account is also liable to act consciously as per the applicable technical as well as professional standards while offering and providing the professional services.
• Professional services – the professional accountant must follow the relevant regulations as well as the laws (Andon, Baxter & Chua, 2015). Further, the professional accountant shall not involve in any activity that may disgrace his profession.

Conclusion

From the above analysis and discussion it can be concluded that the integrity and objective code of the ethics have been violated by Toshiba. It has been identified that they were not honest and did not remain straightforward while publishing its financial result. Further, their action involved biasness and interest conflict. They were further failed to maintain the professional behaviour code as relevant laws and regulations were not followed.

Reference 

Andon, P., Baxter, J., & Chua, W. F. (2015). Accounting for stakeholders and making accounting useful. Journal of Management Studies, 52(7), 986-1002.

Cascino, S., Clatworthy, M., Garcia Osma, B., Gassen, J., Imam, S., & Jeanjean, T. (2014). Who uses financial reports and for what purpose? Evidence from capital providers. Accounting in Europe, 11(2), 185-209.

Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983.

Ethicsboard.org. (2018).  Ethicsboard.org. Retrieved 18 August 2018, from https://www.ethicsboard.org/projects/revised-code-ethics-completed

Macve, R. H. (2015). Fair value vs conservatism? Aspects of the history of accounting, auditing, business and finance from ancient Mesopotamia to modern China. The British Accounting Review, 47(2), 124-141.

Needles, B. E., Powers, M., & Crosson, S. V. (2013). Principles of accounting. Cengage Learning.

Vermoesen, V., Deloof, M., & Laveren, E. (2013). Long-term debt maturity and financing constraints of SMEs during the global financial crisis. Small Business Economics, 41(2), 433-448.

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.