Mr. A started his own business. As it is a very small business with little investment and very less transactions, he does not want to hire any employees to record the transactions happening in the business. As he is not from an Accounting background, he finds it very difficult to understand how to classify the transactions and record. Some transactions are given to you to help him classify transactions category under A) Current Assets B) Current Liabilities C) Long term liabilities D) Long term Assets E) Contingent Liability. You are also required to guide him how you have classified a particular transaction by giving suitable reasons in the books of both the parties. Suppose Mr. A has purchased goods for using it in manufacturing from Mr. B on credit for RO 5000. A’s company borrowed money from Bank Muscat promising to repay it after 2 years. A Promised to deliver the goods to Mr. Z on June 1st Mr. Z paid the cash of RO. 2,500 before the goods were delivered to him. A is working part time in XYZ ltd. He did not receive the salary for the month of March. A’s company sold goods to Mr. Ali on credit basis of RO 1,750 and later the same has been changed from credit into Note.

Name: Mr. A started his own business. As it is a very small business with
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Description: Mr. A started his own business. As it is a very small business with little investment and very less transactions, he does not want to hire any employees to record the transactions happening in the business. As he is not from an Accounting backgroun

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter2: The Auditor’s Responsibilities Regarding Fraud And Mechanisms To Address Fraud: Regulation And Corporate Governance

Section: Chapter Questions

Problem 8CYBK

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Mr. A started his own business. As it is a very small business with little investment and very less transactions, he does not want to hire any employees to record the transactions happening in the business. As he is not from an Accounting background, he finds it very difficult to understand how to classify the transactions and record. Some transactions are given to you to help him classify transactions category under A) Current Assets B) Current Liabilities C) Long term liabilities D) Long term Assets E) Contingent Liability.

You are also required to guide him how you have classified a particular transaction by giving suitable reasons in the books of both the parties.

Suppose Mr. A has purchased goods for using it in manufacturing from Mr. B on credit

for RO 5000.

A’s company borrowed money from Bank Muscat promising to repay it after 2 years.

A Promised to deliver the goods to Mr. Z on June 1^st Mr. Z paid the cash of RO.

2,500 before the goods were delivered to him.

A is working part time in XYZ ltd. He did not receive the salary for the month of

March.

A’s company sold goods to Mr. Ali on credit basis of RO 1,750 and later the same

has been changed from credit into Note.

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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