Abstract

Arun Kumar (Arun) started a business consultancy firm WinTec Business Solutions Private Limited (WinTec). Three months after starting the venture, he asked his office clerk to prepare a financial statement to know more about the financial performance of the company. The clerk presented a financial statement showing a loss for the three-month period of the business. Arun sent the financial details to an audit firm for validation. The accountant at the audit firm prepared revised financial statements showing a profit. Arun then asked the clerk in his office to identify the reason for the difference in the profit margins of the company. The present case study provides scope to discuss the accounting principles of the business entity concept, the duality principle, and the importance of presenting a true view of the financial position of a company. It can also be used to discuss the application of double entry system of accounting.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• The importance of accounting principles in recording business transactions.
• Application, usage, and importance of the ‘Business entity concept’.
• The importance of presenting a true and fair view of the financial position of a company.
• The mechanics of the double entry system of accounting.
• The importance of an auditor in validating the financial statements of a company.

Keywords

Accounting; Accounting principles; Accounting Concepts; Double Entry System of accounting; Duality principle; Going concern concept; Profit and loss account; balance sheet