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Question (a)

Entity: Accounts are kept for entities and not the people who own or run the company. Even in
proprietorships and partnerships, the accounts for the business must be kept separate from those
of the owner(s).
Money-Measurement: For an accounting record to be made it must be able to be expressed in
monetary terms. For this reason, financial statements show only a limited picture of the
business. Consider a situation where there is a labor strike pending or the business owners
health is failing; these situations have a huge impact on the operations and financial security of
the company but this information is not reflected in the financial statements.
Cost: An asset (something that is owned by the company) is entered into the accounting records
at the price paid to acquire it. Because the worth of an asset changes over time it would be
impossible to accurately record the market value for the assets of a company.
Conservatism: This requires understating rather than overstating revenue (income) and expense
amounts that have a degree of uncertainty. The rule is to recognize revenue when it is reasonably
certain and recognize expenses as soon as they are reasonably possible. The reasons for
accounting in this manner are so that financial statements do not overstate the companys
financial position.
Realization: Revenues are recognized when they are earned or realized. Realization is assumed
to occur when the seller receives cash or a claim to cash (receivable) in exchange for goods or
services. This concept is related to conservatism in that revenue (income) is only recorded when
it actually occurs and not at the point in time when a contract is awarded.
Consistency: Once an entity decides on one method of reporting (i.e. method of accounting for
inventory) it must use that same method for all subsequent events. This ensures that differences
in financial position between reporting periods are a result of changed in the operations and not
to changes in the way items are accounted for.

Question b)
Different steps used in tracing imbalances in the trial balance
It is much better to conduct the search in a systematic manner. You must locate the cause of the
imbalance in trial balances if you do the following in a systematic way:
1. Check the listing of the balances within the trial balance.
2. Check the addition of the trial balance.
3. Check the listing of the opening balances. These are either the balances brought down or
the balances at the time that the last trial balance was agreed.
4. Check the addition of each individual account within the trial balance. Check from the
brought forward balances or the balances making up the last trial balance.
5. Tick each individual posting during the period under review. Every debit should have a
matching credit and there should be no unticked entries at the end.
If done properly, this must find the difference.
If, which is of course likely, you have a computerized bookkeeping system, all of this may sound
archaic. This is because the system will automatically ensure that the books balance and, in
effect, maintain an up-to-date trial balance from day to day.
Nevertheless, it is vital if manual records are kept and, in any case, it is as well to know the
theory, especially the types of errors that will not be disclosed by a trial balance. As mentioned in
the last chapter, some computer systems may accept unbalanced input and put the difference to a
suspense account. If this happens, you have a balanced trial balance and also a problem, or at
least a job to do.

Question c)

Usefulness of using a trial balance to businesses

Trial balance has several advantages. Such of them are as follows:
a) To check the debits equal the credits
b) To find the uncover errors in journalizing
c) To find the uncover errors in posting
d) To locate the errors in ledger accounts
e) To make financial statements
f) To list the accounts at a single place

Limitations of trial balance

A trial balance only enters the totals of credits against the total of debits. The fact that a trial
balance tallies is only a basic assurance that there are no mathematical errors in the preparation
of accounts. There are limitations to a trial balance. Errors which cannot be detected through a
trial balance are:
Errors of Omission: An error of omission occurs when a transaction is not recorded in the
books of entry. In such a case the credits and debits for the transaction would balance and
omitting to record it would have no impact on the trial balance.
Errors of Commission: These are errors made by the accounting staff while recording the
transactions. These errors generally involve cases where the amount entered and the side (debit
or credit) are correct but the head is wrong. For example, putting postage expenses under the
head of fuel expenses would be termed as an error of commission.
Compensating Errors: Errors of this type have a tendency to nullify the effect of errors
committed earlier. This is a case of multiple errors, where the errors put together tend to cancel
out each other.

Errors of Principle: This category refers to instances where an income or an expenditure is not
allocated correctly between the capital and revenue heads.

Question d)
There are a number of differences between financial and managerial accounting, which fall into
the following categories:
Aggregation. Financial accounting reports on the results of an entire business. Managerial
accounting almost always reports at a more detailed level, such as profits by product, product
line, customer, and geographic region.
Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a
business, whereas managerial accounting reports on specifically what is causing problems and
how to fix them.
Proven information. Financial accounting requires that records be kept with considerable
precision, which is needed to prove that the financial statements are correct. Managerial
accounting frequently deals with estimates, rather than proven and verifiable facts.
Reporting focus. Financial accounting is oriented toward the creation of financial statements,
which are distributed both within and outside of a company. Managerial accounting is more
concerned with operational reports, which are only distributed within a company.
Standards. Financial accounting must comply with various accounting standards, whereas
managerial accounting does not have to comply with any standards when it compiles information
for internal consumption.
Systems. Financial accounting pays no attention to the overall system that a company has for
generating a profit, only its outcome. Conversely, managerial accounting is interested in the
location of bottleneck operations, and the various ways to enhance profits by resolving
bottleneck issues.

Time period. Financial accounting is concerned with the financial results that a business has
already achieved, so it has a historical orientation. Managerial accounting may address budgets
and forecasts, and so can have a future orientation.
Timing. Financial accounting requires that financial statements be issued following the end of an
accounting period. Managerial accounting may issue reports much more frequently, since the
information it provides is of most relevance if managers can see it right away.
Valuation. Financial accounting addresses the proper valuation of assets and liabilities, and so is
involved with impairments, revaluations, and so forth. Managerial accounting is not concerned
with the value of these items, only their productivity.

Question e)
Globalization is a leading concept which has become the main factor in business life during the
last few decades. This phenomenon affects the economy, business life, society and environment
in different ways, and almost all corporations have been affected by these changes. These
changes are mostly related to increasing competition and the rapid changes of technology and
information transfer. To challenge these changes, companies need to keep in mind various
aspects of the main effects of globalization.
The topic of globalization has become a hotly contested debate over the past two decades.
Indeed, the increased integration of international economies have led to costs to some and
benefits to others. These costs and benefits are a result of three effects of globalization, that is,
expanded markets, cheaper resources or a combination of the two.
Globalization may be defined as the integration of the world's people, firms and government. In
the modern context, globalization is usually the result of closer ties in international trade, known
as bilateral trade agreements.
Globalization leads to increased competition. This competition can be related to product and
service cost and price, target market, technological adaptation, quick response, quick production

by companies etc. When a company produces with less cost and sells cheaper, it is able to
increase its market share.
Customers have a large multitude of choices in the market and this affects their behaviors: they
want to acquire goods and services quickly and in a more efficient way than before. They also
expect high quality and low prices. All these expectations need a response from the company,
otherwise sales of company will decrease and they will lose profit and market share. A company
must always be ready for price, product and service and customer preferences because all of
these are global market requirements.
Exchange of Technology
One of the most striking manifestations of globalization is the use of new technologies by
entrepreneurial and internationally oriented firms to exploit new business opportunities. Internet
and e-commerce procedures hold particular potential for SMEs seeking to broaden their
involvement into new international markets.
Technology is also one of the main tools of competition and the quality of goods and services.
On the other hand it necessitates quite a lot of cost for the company. The company has to use the
latest technology for increasing their sales and product quality. Globalization has increased the
speed of technology transfer and technological improvement. Customer expectations are
directing markets. Mostly companies in capital intensive markets are at risk and that is why they
need quick/rapid adapting concerning the customer/market expectations. These companies have
to have efficient technology management and efficient R&D management.
Knowledge/Information transfer
Information is a most expensive and valuable production factor in the current environment.
Information can be easily transferred and exchanged from one country to another. If a company
have a chance to use knowledge and information then it means that it can adapt to this global


What are the trial balance limitations? - 2009






How to Fix an Incorrect Trial Balance | Business & Entrepreneurship -
Kathrin Tschiesche - How globalization affects business; Thursday October 6th, 2011