business case - whitegloves janitorial service

WHITEGLOVES JANITORIAL SERVICE

A business case

Presented to the

Accountancy Department

In partial fulfillment of the

Course requirements in ACTBAS1

Gutierrez, Patricia Lorenza D.

Mallari, Kimberly Rose J.

Ramos, Shiela Marie I.

V24

10 December 2012

INTRODUCTION

The Financial Recording Standards Council said that “Accountancy is a service activity.

Its function is to provide quantitative information, primarily financial in nature, about economic

entities, that is intended to be useful in making economic decision.” Providing quantitative

financial information about economic entities will not be possible without accounting.

Mainly, accounting is the language of the business industry. Everything in the business

world works with the aid of this body of knowledge that is surely inevitable in such field of work.

It enables a company to properly record and report its operational activities to its stakeholders in

compliance with the set of rules, guidelines and standards called Generally Accepted

Accounting Principles or GAAP which are established by the authorities. At the end of a certain

period, the company declares and informs its stakeholders – investors, creditors, regulators,

customers, etc. – on their net income or net loss, and their current financial position, made

possible by the presentation of properly-organized, reliable and accurate financial statements.

One thing that is required by GAAP is the construction of adjusting journal entries at the

end of every period. Adjusting journal entries are non-standard entries that are made to correct

an error in journalizing, ensuring that the book of accounts are in accordance to the GAAP.

Some possible errors committed in original journal entries are mathematical inaccuracies, such

as transposition and transplacement errors, and poor application of accounting principles.

These are and should be corrected with the use of adjusting journal entries. Adjusting journal

entries cover the following accounts: accrued expense, accrued revenue, prepaid expense,

unearned revenue, depreciation and allowance for doubtful accounts. Adjusting journal entries

is important to the modern-day accounting because it helps companies prepare financial

statements that are accurate, reliable and complete, that will, in turn, help them, too, in their

operations.

Whitegloves Janitorial Service started two (2) years ago by Nancy Kohl. Since it

performed exceptionally, Ms. Kohl decided to expand their operations on July 1, 2012. To fund

the expansion, Ms. Kohl acquired a bank loan on that same day for P25 000 at 10% per annum,

payable in the following terms: P10 000 on July 1, 2013, and the balance on July 1, 2014.

Agreements were made between the two (2) parties. The bank, then, requires Whitegloves

Janitorial Service to have P10 000 more current assets than its current liabilities at December

31, 2012. If this is not met, the interest rate will rise up to 15% instead of 10%. On December

31, 2012, Ms. Kohl presented the business’ Statement of Financial Position, confident that the

business was able to meet the terms required. On the contrary, they were not able to meet

them. Ms. Kohl presented an erroneous Statement of Financial Position which was prepared

and based on a trial balance, not on an adjusted trial balance. With this they have to make

adjusting journal entries to be able to present an accurate, reliable and complete Statement of

Financial Position to the authorities for their bank loan.

REPORT

The following are the adjusted journal entries as of December 31, 2012:

1 Accounts Receivable 3 700

Service Income 3 700

Adjusting Journal Entry

2 Supplies Expense 2 700

Janitorial Expense 2 700


3 Insurance Expense 1 600

Prepaid Insurance 1 600


4 Miscellaneous Expense 500

Accounts Payable 500


5 Interest Expense 1 250

Interest Payable 1 250


6 Depreciation Expense – Cleaning Equipment 2000

Accumulated Depreciation – Cleaning Equipment 2 000


Depreciation Expense – Transportation Equipment 5000

Accumulated Depreciation – Transportation Equipment 5000


Here are the following explanations for each adjusting entry made:

1. 2. 3. 4. 5. 6.

Below is the adjusted report-form Balance Sheet for Whitegloves Janitorial Service as of December 31, 2012:

WHITEGLOVES JANITORIAL SERVICEStatement of Financial Position

31-Dec-12

ASSETS NoteCurrent Assets

Cash P 6 500Accounts Receivable 12 700Prepaid Expenses 1 5 700Total Current Assets P 24 900

Non-current AssetsProperty, Plant and Equipment 2 49 000

TOTAL ASSETS P 73 900

LIABILITIES AND OWNER'S EQUITYCurrent Liabilities

Trade and Other Payables 3 P 14 250

Non-Current LiabilitiesNote Payable 15 000

Total Liabilites P 29 250

Owner's EquityNancy Kohl, Capital 44 650

TOTAL LIABILITIES AND OWNER'S EQUITY P 73 900

Notes to Financial StatementsNote 1 - Prepaid Expenses

Janitorial Supplies P 2 500Prepaid Insurance 3 200

Total P 5 700

Note 2 - Property, Plant and EquipmentCleaning Equipment P 26 000Less: Accumulated Depreciation - Cleaning Equipment 6 000 P 20 000Transportation Equipment P 39 000Less: Accumulated Depreciation - Transportation Equipment 10 000 29 000

Total P 49 000

Note 3 - Trade and Other PayablesNotes Payable P 10 000Accounts Payable 3 000Interest Payable 1 250

Total P 14 250

The terms of the bank loan of Whitegloves Janitorial service was met supported by the Balance Sheet above. The current assets exceed the current liabilities by P 10,650 (P 24,900 – P 14,250)

business case - whitegloves janitorial service

Documents