problem solving accounting examples

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Example Accounting Problems

These sample problems are intended as a supplement to my book Accounting Made Simple: Accounting Explained in 100 Pages or Less .

Chapter 1: The Accounting Equation

Question 1: Define the three components of the Accounting Equation.

Question 2: If a business owns a piece of real estate worth $250,000, and they owe $180,000 on a loan for that real estate, what is owners’ equity in the property?

Answer to Question 1:

• Assets: All the property owned by a business.
• Liabilities: A company’s outstanding debts.
• Owners’ Equity: The company’s ownership interests in its property after all debts have been repaid.

Answer to Question 2: $70,000

Chapter 2: The Balance Sheet

Question 1: Categorize the following accounts as to whether they’re Asset, Liability, of Owners’ Equity accounts.

• Common Stock
• Accounts Receivable
• Retained Earnings
• Notes Payable

Question 2: For each of the following assets or liabilities, state whether it is current or non-current:

• Accounts Payable
• Property, Plant, and Equipment
• Note Payable
• Common Stock: Owners’ Equity
• Accounts Receivable: Asset
• Retained Earnings: Owners’ Equity
• Cash: Asset
• Notes Payable: Liability

Answer to Question 2:

• Accounts Payable: current liability
• Cash: current asset
• Property, Plant, and Equipment: non-current asset
• Note Payable: non-current liability (Though if a portion of the note is due within the next twelve months, that portion should be shown as a current liability.)
• Inventory: current asset

Chapter 3: The Income Statement

Question 1: Given the following information, calculate ABC Corp’s Net Income:

• Sales: $260,000
• Cost of Goods Sold: $100,000
• Salaries and Wages: $20,000
• Rent Expense: $15,000
• Advertising Expense: $35,000
• Cost of repairs resulting from fire: $50,000

Question 2: Using the above information, calculate ABC Corp’s Operating Income.

Question 3: Using the above information, calculate ABC Corp’s Gross Profit.

Answer to Question 1: $40,000 (Sales of $260,000 minus $220,000 of total expenses.)

Answer to Question 2: $90,000 (Operating Income is intended to represent income from typical business operations.  As a result, expenses resulting from a fire would certainly not be included when calculating Operating Income.)

Answer to Question 3: $160,000 (Sales minus Cost of Goods Sold)

Chapter 4: The Statement of Retained Earnings

Question 1: Using the following information, calculate the ending balance in Retained Earnings:

• Beginning Retained Earnings: $10,000
• Net Income: $5,000
• Dividends Paid: $4,000

Question 2: Calculate Net Income given the following information:

• Consulting Revenue: $50,000
• Rent Expense: $5,000
• Software Licensing Fees: $3,000
• Dividends Paid: $6,000
• Advertising Expense:$20,000

Question 3: Using the following information, calculate how much was paid out in dividends during the year:

• Beginning Retained Earnings: $40,000
• Net Income: $15,000
• Ending Retained Earnings: $30,000

Answer to Question 1: $11,000

Answer to Question 2: $22,000 (Remember, dividends are not an expense! They are a distribution of net income rather than a reduction of net income.)

Answer to Question 3: $25,000

Chapter 5: The Cash Flow Statement

Question 1: Calculate cash flow from operating activities using the following information:

• Cash sales: $10,000
• Credit sales: $15,000
• Cash received from prior credit sales: $8,000
• Rent paid: $3,000
• Inventory purchased: $6,000
• Wages paid:$5,000

Question 2: Categorize the following cash flows as to whether they are operating, investing, or financing activities:

• Dividends paid to shareholders
• Interest paid on loans
• Dividends received on investments
• Purchase of new office furniture

Answer to Question 1: Net cash inflow of $4,000. (Remember not to include the $15,000 of credit sales when calculating cash flow.)

• Taxes paid: Operating Activities
• Dividends paid to shareholders: Financing Activities
• Interest paid on loans: Operating Activities (Note: Principal paid on loans is a financing activity.)
• Dividends received on investments: Operating Activities
• Cash sales: Operating Activities
• Purchase of new office furniture: Investing Activities

Chapter 6: Financial Ratios

Questions 1-3: Use the following income statement and balance sheet to answer the following questions.

Question 1: Calculate the company’s current ratio and quick ratio.

Question 2: Calculate the company’s return on assets and return on equity.

Question 3: Calculate the company’s debt ratio and debt to equity ratio.

Answer to Question 1: Current ratio = 1.5 (30,000 current assets ÷ 20,000 current liabilities). Quick ratio = 0.75 (15,000 non-inventory current assets ÷ 20,000 current liabilities).

Answer to Question 2: Return on assets = 21.4% (60,000 net income ÷ 280,000 total assets). Return on equity = 27.3% (60,000 net income ÷ 220,000 shareholders’ equity)

Answer to Question 3: Debt ratio = 21.4% (60,000 liabilities ÷ 280,000 assets). Debt to equity ratio = 27.3% (60,000 liabilities ÷ 220,000 shareholders’ equity).

Chapter 7: What is GAAP?

Question 1: Who is required to follow GAAP?

Question 2: Who creates the rules for GAAP?

Question 3: What is the purpose of Generally Accepted Accounting Principles (GAAP)?

Answer to Question 1: Publicly-traded companies. (Governmental entities are required to follow GAAP as well, but the rules that make up GAAP for governmental entities are significantly different from the rules for publicly-traded companies.)

Answer to Question 2: The Financial Accounting Standards Board (FASB)

Answer to Question 3: To purpose of GAAP is to ensure that companies’ financial statements are prepared using a similar set of rules and assumptions. This helps to enable meaningful comparisons between the financial statements of multiple companies.

Chapter 8: Debits and Credits

Questions 1-3: Show how the following transactions would affect the Accounting Equation

Question 1: James purchases a $5,000 piece of equipment.

Question 2: James writes his monthly check for rent: $3,000.

Question 3: James takes out a $25,000 loan with his bank.

Questions 4-6: Create journal entries to record the following transactions

Question 4: James purchases a $5,000 piece of equipment.

Question 5: James writes his monthly check for rent: $3,000.

Question 6: James takes out a $25,000 loan with his bank.

Answer to Question 3:

Answer to Question 4:

Answer to Question 5:

Answer to Question 6:

Chapter 9: Cash vs. Accrual

Questions 1-5: Prepare journal entries to record each of the following events.

Question 1: Tom’s Tax Prep’s monthly rent is $3,500. At the end of February, they had not yet received their monthly rent invoice.

Question 2: In early March, Tom’s Tax Prep receives and pays their rent bill for February.

Question 3: Marla, a marketing consultant, performs services for a client. The agree-upon price was $10,000, due 30 days from the date the services were completed.

Question 4: ABC Hardware makes a sale (on credit) for $2,500 worth of lumber. The lumber originally cost them $1,300.

Question 5: Julie takes out a $10,000 loan for her business. Repayment is due in one year along with $1,200 interest.

When the loan is taken out:

At the end of each month during the year:

When the loan is repaid:

Chapter 10: The Accounting Close Process

Prepare closing journal entries for Mario’s Mobile Products, which has the following end-of-year trial balance:

Alternatively, the above can be combined into one journal entry:

In either case, the following closing journal entry is also required in order to close out the Income Summary account and transfer the balance — representing the business’s net income for the period — into Retained Earnings:

Chapter 11: Other GAAP Concepts and Assumptions

Question 1: Andy runs a real estate development firm. Five years ago, he purchased a piece of land for $250,000. This year, an appraiser tells Andy that the land is worth $300,000. At what value should Andy report the land on his balance sheet? Why?

Question 2: Andy is the sole owner of his firm. In June, he moves $30,000 from his business checking account to his personal checking account. If Andy wants his financial records to be in accordance with GAAP, should he record the transaction or not? Why?

Answer to Question 1: Andy should report the land at its original cost: $250,000. Under GAAP’s “Historical Cost” assumption, assets are reported at their historical cost rather than at their current market value. This is done in order to remove subjective asset valuations from the reporting process.

Answer to Question 2: Yes, in order to be in compliance with GAAP, Andy must record the transaction. GAAP’s “Entity Assumption” considers businesses to be separate entities from their owners. As such, transactions between a business and its owners must be recorded as if they were between the business and an entirely separate party.

Chapter 12: Depreciation of Fixed Assets

Questions 1-6: Prepare journal entries to record each of the following events:

Question 1: Liliana spends $20,000 (cash) on a piece of equipment for use in her restaurant. She plans to use the straight-line method to depreciate the equipment over 5 years. She expects it to have no value at the end of the 5 years.

Question 2: After 4 years,  Liliana sells the equipment for $4,000.

Question 3: Same as question 2, except she sells the equipment for $6,000.

Question 4: Same as question 2, except she sells the equipment for $2,000.

Question 5: Oscar is a self-employed electrician. He purchases a piece of equipment for $30,000 cash. He plans to use it for 10 years, at which point he plans to sell it for approximately $4,000.He elects to use the straight-line method of depreciation.

Question 6: Sandra runs a business making embroidered linens for wedding receptions. She purchases a new piece of equipment for $15,000 in credit. She plans to use the units of production method of depreciation. The equipment is expected to produce approximately 5,000 linens, at which point it will be valueless. During the first year after buying the equipment, Sandra uses it to produce 1,500 linens.

To record the purchase:

To record depreciation every year:

(Depreciable value is $26,000. If depreciated over 10 years, that’s $2,600 depreciation per year.)

When the purchase is eventually paid for:

To record depreciation for the first year:

($15,000 depreciable value ÷ 5,000 units = $3 of depreciation per unit. 1,500 units produce x $3 per unit = $4,500 depreciation expense.)

Chapter 13: Amortization of Intangible Assets

Questions 1-2: Prepare journal entries to record each of the following events.

Question 1: Trent runs a business as an engineering consultant. He invents a new system for preparing bridges to deal with extreme weather conditions. He spends $28,000 securing a 14-year patent for his invention. He expects the system to be used for the next few decades at least.

Question 2: Tina runs a business creating medical supplies for surgeries. Her team develops a new tool for assisting in heart surgery. She spends $42,000 on getting it patented. She receives a 14-year patent, but she only expects the technology to be used for about 7 years before a newer technology comes along to replace it.

To record receiving the patent:

To record amortization expense each year:

Chapter 14: Inventory and Cost of Goods Sold

Question 1: Using the following information, calculate Cost of Goods Sold:

• Beginning Inventory: $3,000
• Ending Inventory: $4,500
• Purchases: $6,000

Question 2-4: Use the following information to answer questions 2-4.

• Beginning Inventory: 1,000 units at $4/unit.
• Purchases: 600 units at $5/unit.
• Ending Inventory: 900 units.

Question 2: Calculate Cost of Goods Sold using First-In-First-Out (FIFO)

Question 3: Calculate Cost of Goods Sold using Last-In-First-Out (LIFO)

Question 4: Calculate Cost of Goods Sold using the Average Cost Method

Answer to Question 1: CoGS = $4,500

Answer to Question 2: CoGS = $2,800

Explanation:

The first thing to calculate is how many units were sold. In this case, 700 units must have been sold. Now we just have to figure out the cost for each unit of sold inventory.

Using FIFO, we assume that the first units purchased were the first units sold. Therefore, all 700 sold units must have been from the older ($4 per unit) inventory. 700 units x $4 per unit = $2,800

Answer to Question 3: CoGS =$3,400

Again, we know that 700 units were sold. Under LIFO, we assume that the most recently purchased units are sold first. Therefore, all 600 of the $5 units must have been sold. The remaining 100 sold units must have been from the older ($4/unit) inventory.

(600 units x $5 per unit) + (100 units x $4 per unit) = $3,400

Answer to Question 4: CoGS =$3,062.50

Using the Average Cost Method, we have to calculate the average cost per unit of inventory. We know that there were a total of 1,600 units available for sale and that–in total–they cost $7,000. That gives us an average cost per unit of $4.38 (or $4.375 to be precise).

To calculate CoGS, we multiply this average cost per unit by the number of units sold. 700 units x $4.375 per unit = $3,062.50

To Learn More, Check Out the Book:

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• Preparing journal entries with debits and credits
• Cash method vs. accrual method
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Accountants as Problem Solvers

August 01, 2020

By: Linda McCann , DBA, CMA, CPA ; David Horn , CPA ; Jennifer Dosch , CMA

Managers often complain that accounting graduates aren’t prepared for today’s business environment. The complexity of our global economy and the increasing influence of, and reliance on, technology leads to practitioners and instructors questioning if undergraduate accounting programs focus on the right curriculum to prepare students for careers.

One soft skill that can help prepare accounting students for their careers is problem solving. Management accountants need to be able to work cross-functionally to solve problems and provide meaningful analyses. Many colleges, universities, and accrediting bodies in academia incorporate strategic goals requiring curriculum that facilitates problem-solving skills.

As instructors, we teach technical accounting skills by demonstrating and providing practice with accounting concepts and structured problems, which we assess via homework and exams. Teaching soft skills, such as unstructured problem solving, poses greater challenges that are more difficult to incorporate into the curriculum. How can students learn and approach unstructured problem solving?

A SLOW-THINKING APPROACH

Recent scientific discoveries into the brain reveal that humans employ fast and slow thinking to solve problems. The brain especially prefers making decisions and solving problems quickly based on recognized patterns, visual and verbal cues, prior knowledge, routines, familiar preferences, prejudices, and emotions.

In contrast, decision making and problem solving often require slow thinking to digest new information, hypothesize alternatives, employ quantitative mathematical and statistical analysis, overtly recognize and break free from cognitive biases, challenge preconceived notions, synthesize ideas, and create new knowledge. To support this kind of slow, rational thinking, accountants can learn a methodical process for problem solving (see Table 1).

Many common business models—such as Six Sigma, A3 Lean, and Appreciative Inquiry—and the Association of American Colleges and Universities value problem solving, and critical-thinking grading rubrics describe specific steps for rational (i.e., slow thinking) problem solving. Business students, however, learn and apply these models in various courses, typically with no thread that ties them specifically to the accounting profession. Students learn bits and pieces of rational thinking throughout their undergraduate coursework, but instructors often don’t teach a common framework to apply these skills in a relevant and value-added way (see “Survey of Practitioners”).

To help address this issue, we developed a problem-solving rubric for accounting students (see Table 2). The three of us are faculty members from Metropolitan State University in Minneapolis/St. Paul, Minn., and represent three different parts of the curriculum (auditing, business taxation, and management accounting), so it was important that it could be used across the entire accounting program.

The rubric assesses learning in an organized way, providing a common framework (criteria) for students to consistently approach problem solving. The criteria include problem identification, analysis, and communication of results. It guides students through a series of problem-solving steps using terms and vocabulary specific to the accounting profession. The rubric also reminds us, as instructors, to create a learning environment where problem solving can occur (see “Setting the Tone”).

STEP 1: PROBLEM IDENTIFICATION

The iterative and looping nature of problem solving confounds inexperienced accountants. Where does one begin? Students tell us using a rubric provides a starting point.

To implement the rubric, we assign students projects with unclear goals, incomplete information, and more than one possible solution. Assignment topics vary. It could have students develop a cost-benefit analysis between adding employees or adopting Lean manufacturing techniques, analyze tax outcomes of business decisions, create a risk assessment and audit response for a fictitious client, or some other accounting-related issue.

Students begin by developing one or several hypotheses as to the nature of the problem. To generate ideas, we assist students in their brainstorming discussions. The rubric leads students to consider the environment, strategy, unexpected observations, overall importance, and risk assessment. At this stage, the identified problem may change, but the original hypothesized problem gives direction for next steps. Upon completing the assignment, we assess students on how they identified the problem.

Metropolitan State University’s business taxation course used the rubric in a case study that involves assessing the implication of the Wayfair v. South Dakota U.S. Supreme Court decision on a company’s sales tax collection. Prior to Wayfair , companies operated under a physical presence nexus established in Quill v. North Dakota . The Quill decision required companies to have a physical presence in a taxing jurisdiction in order to require collection and remittance of sales taxes on transactions.

In Wayfair , the U.S. Supreme Court overturned Quill in favor of an economic nexus standard, where companies only needed to have a certain level of economic activity. For example, in South Dakota, the threshold economic activity is 200 transactions or $100,000 in sales. The change from Quill to Wayfair was a major development in how companies operate and collect sales tax. It required companies to assess all jurisdictions in which they operate and evaluate how the change in the nexus standards impact its operations.

To apply this rubric to the change, students learn about a fictitious company that sells inventory to multiple states and collects and remits sales tax under the Quill physical presence nexus standard. We give students a subledger with all sales data for the given year. The rubric leads students to ask about implications of the Wayfair decision on the company, how the ruling impacts the company’s strategic objectives, and risks to the company because of the change in the law. Using the rubric, students are guided to discover the issue at hand, which is whether the company will have a significant number of new sales tax jurisdictions requiring collections and remittance from its customers.

Students tell us that without the rubric, they often feel like they have no road map at the beginning of a project or case study; identifying the problem seems too big and undefined to tackle. Many students initially resist engaging with unstructured problem-solving assignments because they differ from past assignments. Similar to what one might find in cross-functional teams opposed to change, students show their displeasure with crossed arms and distant body language.

Many college courses still rely on testing facts and use formulas and calculations, an approach that doesn’t put the student in the decision-making role but is familiar to them. With a rubric, students see smaller doable steps, where the assignment is heading, and how they can move forward and loop backward, when necessary. The rubric breaks down the initial intimidation students feel with unstructured problems.

STEP 2: ANALYSIS

Next, the rubric guides students through analyzing the problem using accounting-specific skills they’ve acquired in each course. For example, students consider tax laws, financial reporting and audit principles, or cost accounting techniques.

Continuing the sales and use tax example, at this stage, students apply the rubric to perform a complete analysis, enabling them to form a conclusion to communicate. What are the relevant facts to determine Wayfair ’s impact? What facts are irrelevant? What primary and secondary tax authority is needed to conduct research? Are there alternatives and exceptions to applying Wayfair ? Have all states adopted an economic nexus standard? Have all states adopted South Dakota’s transactional thresholds? What’s the quantitative impact to the company? Are there financial accounting implications to the Wayfair decision? What’s the scope of the necessary research, and are there limitations, constraints, and so on? Through the rubric, students formulate and answer questions and perform analysis to solve the problem at hand.

We assess students on their ability to gather and identify relevant facts, research any applicable rules and laws, assess alternatives, and perform any needed qualitative and quantitative analyses. At this stage, students apply theories and best practices learned in specific course fields, such as management accounting, taxation, and auditing.

To encourage elaboration, the rubric uses words such as curious, skeptical, model, assumption, authoritative, best practices, relevant, and sufficient sources. Like many accountants, students want to get their work done quickly, but problem solving takes time and slow thinking. Thanks to the rubric, more students turned in papers with greater depth, less “cut and paste,” and more relevant supporting details.

As in the real world, students often discover their original hypothesis or identified problem is incorrect, incomplete, or irrelevant. They confront the iterative nature of problem solving as they work through the analysis stage and build evidence to support their hypothesis. When evidence doesn’t support an identified problem, students go back and redefine their problem, gather new evidence, explore new alternative solutions, and build a case for their conclusion.

STEP 3: COMMUNICATION

Finally, students present their results in a memorandum to a hypothetical manager or audit partner. The memorandum mirrors common styles, such as IFRAC (issues, facts, rules, analysis, and conclusion) and BLUF (bottom line up front). Students state the problem and include the conclusion (i.e., solution) up front along with a summary of relevant facts and assumptions. Supporting documentation presents additional in-depth analysis.

This format familiarizes students with a presentation style that allows management to quickly understand conclusions while also providing more depth to support the up-front conclusion. We expect students to write and present findings in a clear and concise manner as if in a professional accounting setting. The rubric grading criteria helps students solve problems using rational thinking and delivering a memorandum that directly supports management decision making.

In the Wayfair case study, students draft a memorandum to management addressing the implications of the sales tax nexus precedence change. The facts section should discuss the company’s current sales and use tax policies. Students identify the issue as the change from physical presence nexus to economic nexus. The up-front conclusion should identify new jurisdictions from which the company needs to register and collect sales tax and quantify the volume of sales tax it expects to collect. Finally, the analysis provides an in-depth discussion of the change from Quill to Wayfair . Students should discuss how they determined new jurisdictions, limitations, and further required resources for the company.

PREPARING STUDENTS FOR THEIR CAREERS

We use the rubric format for projects or cases at different stages throughout the accounting curriculum. The problem-solving rubric measures student learning and reinforces rational thinking with each assignment. The projects that use the rubric vary in length, depth, and complexity as students move from management accounting to tax and then finally to audit. We find the rubric flexible enough to adapt to an instructor’s needs, yet it provides consistent core steps—identify the problem, analyze, and communicate—to solve problems.

The rubric helps students organize their communication through the memorandum. Setting up a memorandum so the problem and solution appear “up front” highlights mismatches between the problem, evidence, and conclusion. Further, it encourages students to decide—rather than ramble and include information that isn’t relevant. We find students often get to the communication stage and realize that their analysis doesn’t support their conclusion or identified problem. Fortunately, the rubric allows them to loop back and redefine and reanalyze.

By using the same grading criteria in multiple courses, we provide students with a familiar approach to problem solving that turns fast thinking to slow, rational thinking. The process and steps become routine and less daunting for the student. While each step still requires arduous thinking, the approach itself is a recognized pattern for students.

From our point of view as accounting instructors, the rubric helps provide consistent and fair grading. We provide separate points for milestones in problem identification, analysis, and communication, which further encourages students to go through each step of the process. Metropolitan State University plans to expand the use of this rubric in the accounting curriculum. This common framework provides students with a process to identify problems, research and investigate facts, conduct analyses, and communicate results across all accounting disciplines.

This process reinforces the problem-solving skills that students will need in their professional careers. These capabilities will help them perform their roles in today’s strategic, fast-paced business environment. Solving problems is critical for today’s management accountant. Through implementing the rubric, instructors can help students systematically apply a problem-solving process that they can take with them as they move from student to management accountant.

About the Authors

August 2020

• Strategy, Planning & Performance
• Decision Analysis
• Negotiation
• Metropolitan State University

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Accounting Problems (& Answers): How to Avoid Accounting Issues

Keeping up with technology and regulatory changes are significant concerns of 51% and 24%, respectively, of CPA and accounting firm survey participants, according to Accounting Today’s survey, The Year Ahead: 2022 in Numbers . 

Delays in advanced software technology adoption and failures in regulatory compliance can lead to accounting challenges and problems for businesses. These accounting issues include errors in financial statements, fraud and security risks, and the potential for massive fines and imprisonment for regulatory non-compliance.

Trained business finance teams using advanced software technology that also automates regulatory compliance can overcome typical (and new) accounting problems.

What are Accounting Problems?

Accounting problems are issues resulting in material financial statement errors, undetected fraud due to inadequate internal control, misapplication of generally accepted accounting principles (GAAP accounting standards), regulatory noncompliance, and cybersecurity risks. Accounting problems may have unfavorable cash flow impacts and misstate business profitability. 

What Causes Accounting Problems?

Some accounting problems are caused by using outdated software technology for accounting. Intentional fraud due to greed and poor internal control causes other financial issues. Low staffing levels can cause accounting problems. Not training the financial team causes accounting problems related to improperly applying GAAP.

The business must defend itself against cybersecurity attacks and stay up-to-date on changing regulatory compliance issues. 

How do Businesses Solve Accounting Problems?

Financial professionals in businesses should use software with advanced technology capable of handling current accounting standards, including revenue recognition and lease accounting, and regulatory requirements to avoid or solve significant accounting problems.

Requiring CPA employees and accountants to take relevant continuing education courses regularly can also help businesses solve accounting problems. Adequate staffing levels help accountants solve accounting issues.

Top management must communicate an ethical tone, corporate values, employee empowerment, and key expectations.

11 Common Accounting Problems

In its fiscal year 2021, the SEC received 1,913 whistleblower complaints relating to corporate disclosures and financials, signaling possible accounting problems in these publicly-held businesses. The SEC also received whistleblower complaints related to the Foreign Corrupt Practices Act. 

11 common accounting problems are:

• Revenue recognition
• Lease accounting 
• Missing impairment write-downs
• Payroll errors
• Cash flow statement
• Outdated accounting software technology
• Not enough financial analysis
• Inadequate internal control
• Regulatory non-compliance
• Inadequate security

1. Revenue Recognition 

Improperly applying GAAP revenue recognition standards, creating fraudulent revenue schemes, including improper accounting for consignments and third-party inventory shipments beyond the level of possible usage, and using unreasonable estimates, are revenue recognition problems. 

CFODive published an article on August 20, 2020 (based on an Accounting Today analysis) titled Improper revenue recognition tops SEC fraud cases . This article highlights the significance of revenue recognition as an accounting problem. 

Find an accounting software or ERP solution that helps your company achieve proper revenue recognition. Your accounting and finance teams need adequate training on FASB accounting standards to comply with GAAP revenue recognition. Excel spreadsheets are popular. But spreadsheets are error-prone and inefficient. If possible, seek a different software solution. 

2. Lease Accounting 

Changes to GAAP lease accounting standards require lessee companies to capitalize their operating leases with tenant right of use (ROU) and a term of over twelve months. Shorter operating leases (including office space leases) can still be recorded monthly as rent expenses. The leases are amortized over time. 

Accounting standards are codified by the Financial Accounting Standards Board (FASB). Accountants must also follow other changes to the Lease accounting standard.

Business accounting teams need adequate training to follow the latest GAAP standards on Lease accounting. And they will benefit greatly by using specialized lease accounting software.

3. Impairment Write-downs and Fair Market Valuation 

Accountants may miss making impairment write-downs or required adjustments for recording required assets or liabilities at a fair market valuation. 

Changing economic and business conditions require accountants to periodically assess whether asset valuations have been impaired (to recognize the loss of value). Accountants must also consider adjustments to the fair value of certain assets and liabilities. Accounting professionals make adjustments through journal entries and financial statement disclosures when GAAP requires.

Supply chain backlogs and economic conditions resulting from the COVID-19 pandemic triggered accounting issues to watch for, including impairment and fair value accounting, according to EY, a top-tier accounting firm. 

Examples of asset impairment include:

• Assessing goodwill from M&A transactions annually for impairment
• Considering capitalized lease asset impairment
• Recording inventory at the lower of cost or market (LCM), where market value is constrained by an upper range not exceeding net realizable value and a lower range of net realizable value less a normal profit margin. 

Examples of fair market valuation include:

• Trading securities (debt and equity) held as short-term investments; gains or losses on trading securities flow to Net Income on the income statement
• Available-for-sale securities (debt and equity) held as investments to be sold before maturity; net gains or losses are included in Shareholders’ Equity as Other Comprehensive Income (Loss), listed below Retained Earnings 
• Liabilities measured under ASC 820 Fair Value Measurements and Disclosures  

Accountants must have adequate training to properly record asset impairments and fair market valuation when required by GAAP and make necessary financial statement disclosures. Research financial statement areas subject to accounting issues with impairment. 

4. Payroll Errors

If a small business decides to calculate its own payroll, payroll taxes, and benefits, it’s possible that payment errors and accounting problems will occur. Payroll problems like miscalculating paychecks for salary expenses and hourly wages hurt employee morale and productivity.

Outsource payroll to a very experienced company providing those services, like ADP or Paychex. If the right number of hours and payroll information is provided, payments and taxes withheld should be correctly computed and compliant with tax laws. You can expect accurate reports to account for those items. Your business can make payroll tax remittances on time when due.

5. Cash Flow Statement

The cash flow statement may include errors in classification by activity type and may not include restricted cash, a newer GAAP requirement. 

Cash flow statement classification errors may include misclassifying the type of activity for interest and dividends received and paid. Interest received and paid is an operating activity in the cash flow statement. Dividends received are an operating activity, and dividends paid are a financing activity in the cash flow statement. 

The CPA firm, RSM, summarizes U.S. GAAP (vs IFRS) classification for certain items in the cash flow statement, including interest and dividends and restricted cash. 

Cash flow statement problem solving requires keeping up to date with FASB updates and training topics related to cash flow statement preparation to understand the basics. 

6. Outdated Accounting Software Technology

Outdated accounting software technology isn’t efficient, doesn’t provide real-time results for visibility in managing the company or its sales & marketing processes, relies on manual data entry and paper documents for business transaction processing and recording, and doesn’t automate regulatory compliance. 

Outdated ERP systems may not be cloud-based. On-premises software systems cause inefficiencies in accessing the software and require more IT department resources to update the system and address software and hardware problems at the company’s location. These ERP systems not deployed on the cloud aren’t ideal for the changed reality of remote or hybrid work situations. 

Upgrade outdated software technology in accounting software or ERP systems by changing to modern cloud-based software. If you don’t have the budget for an ERP system overhaul, consider integrating third-party add-on software to meet your needs for:

• AP automation and global mass payments software, also automating regulatory compliance 
• Subscription billing (applicable to a SaaS , publishing, or utilities business model)
• Forecasting, planning, and cash management software
• Customer relationship management (CRM) software to increase efficiency and better track the sales and marketing process 
• Lease accounting specialty software
• Revenue recognition software functionality, if not included in your ERP 
• Data visualization software for data analytics and business intelligence

7. Not Enough Financial Analysis

An accounting team without efficient accounting systems is spending too much time closing the books, leaving less time for value-added work. Financial analysis adds value by calculating ratios, spotting and managing business trends, and providing decision support for new opportunities.

Use enhanced cloud-based ERP systems and third-party add-on software with built-in artificial intelligence/machine learning that automates accounting processes and financial analysis to the extent possible. You need real-time dashboards with your company’s KPIs (key performance indicators), including trend analysis that all functional areas with authorization privileges can access. 

Supplement these systems with data visualization software like Tableau or Microsoft Power BI for data analytics with real-time capabilities and periodic automated report runs for data your company follows as timeline trends. Data visualization software embeds machine learning tools to deliver business intelligence. 

8. Inadequate Internal Control 

Small businesses may not have enough staffing to attain the separation of duties needed for adequate internal control. Their accounting systems may be inadequate to prevent fraud and duplicate payment errors. 

When segregation of duties isn’t being achieved, get the business owner involved in the approval process as a matched vendor invoice document reviewer and second signature. 

The finance and accounting department needs the human capital and software resources required to perform its duties and achieve results. Is the accounting department getting its fair share of company resources? 

Custody of Assets

Custody of assets includes recorded balance sheet assets and assets not yet recorded in the books like undeposited cash. 

Inventory needs controls for proper receiving, custody, secured storage with controlled access, and physical inventory in full annually and via periodic cycle counts. Office equipment should also be tagged upon receipt and subject to a physical inventory. As stated earlier, inventory should be tested for any loss in value requiring a write-down. 

Discrepancies in the balance of fixed assets may result from a physical fixed asset count. Set a proper cutoff for recording fixed asset purchases. 

If a fixed asset isn’t recorded, look for the purchase documents and invoice to record it. If another fixed asset isn’t counted, investigate where it may be or if it was sold. For accounting purposes, record the difference between the book value of fixed assets net of accumulated depreciation and sale proceeds, computing gain or loss on the sale of fixed assets. Write off missing fixed assets if necessary after your investigation. 

Fraud, including embezzlement, may result from inadequate internal control and employee collusion. 

Use modern cloud-based automation software that helps you find fraud and errors like duplicate payments. Use variance analysis and followup on significant differences for budget vs actual expenses. Review vendor master files, perform 3-way document matching for invoices, and validate vendors for authenticity before paying them. 

Strive to achieve adequate segregation of duties with employee task assignments. Control or custody of assets and recording transactions in the books need to be performed by different employees. 

10. Regulatory Non-Compliance

Regulatory compliance covers different areas, including taxation, data privacy and security, sanctions lists like OFAC, and the Foreign Corrupt Practices Act (FCPA). 

The Foreign Corrupt Practices Act covers not making bribes in foreign countries. And the FCPA’s scope goes far beyond preventing bribes. 

Violations of the Foreign Corrupt Practices Act and other regulations could result in:

• Massive fines for companies and convicted individuals
• Imprisonment
• Tarnishing a company’s and convicted individual’s business reputation and ethics

Familiarize your company, including the financial and accounting staff, with regulatory issues applying to your industry and company. Perform a project to document regulatory concerns and distribute the results widely. Hold a training session for company employees. Emphasize company values that include being ethical and empowering employees to act as the “conscience of the company.”

Find an automation software solution handling regulatory compliance. Tipalti AP automation software includes automated regulatory compliance features. 

11. Inadequate Security

Cybersecurity is a significant issue that can compromise business intellectual property and customer data and employee records in your system. 

Implement the most advanced cybersecurity software. Create and distribute an up-to-date company policy on required steps for achieving adequate cybersecurity. Train employees on how to avoid email and other scans that can result in hacks compromising company security. 

Using Automation to Solve Accounting Problems

You can solve some accounting problems and become more efficient by applying accounting automation software. AP automation will provide significant benefits for your business.

Accounting Automation Software Applications

Businesses can deploy accounting automation in several areas to improve accounting processes and results. Accounting systems automation includes efficient financial technology (FinTech) applied to vendor invoice processing and payments and customer billing and accounts receivable. 

Automate subscription billing, if applicable to your business model. Use automated customer credit decision solutions to decide which customers will be offered accounts receivable instead of requiring cash payments upfront. 

Integrate CRM and marketing automation software like Salesforce and Marketo to improve sales & marketing processes and convert more new customers. 

Automate forecasting, budgeting, business planning, and cash flow management. 

AP Automation Software Benefits

Gain time to perform financial analysis by closing the books sooner. You can accomplish this by automating routine accounting processes like accounts payable and global mass payments with add-on AP automation software accessed via ERP integration. 

Automated systems provide outsized benefits in the areas of payables automation and global mass payments to suppliers, vendors, and payouts to independent contractors, including freelancers and affiliates, and royalty recipients. Automated systems improve cash flow . They increase efficiency to let your company process vendor invoices and pay in time to take lucrative early payment discounts . 

The best add-on AP automation and global mass payments software:

• Automates supplier onboarding and tax compliance
• Scans with OCR technology or uploads invoices and supporting documents electronically 
• Improves your company’s expense management
• Makes efficient batch payments using a choice of payment methods
• Automates payments reconciliation and adds more accounts payable reports
• Lets your company close its books faster during the accounting cycle
• Reduces fraud and errors
• Automates regulatory compliance

Using electronic documents instead of paper-based documents:

• Ends paper-based data entry, invoice matching, and processing costs
• Creates a relevant document repository through the supplier portal
• Creates an audit trail
• Enables automatic approvals with notifications and follow-up
• Makes efficient batch payments (or single payments)
• Ends the inefficient, unsafe, and costly use of paper checks
• Automatically reconciles batch payments

The level of resources required in accounting and bookkeeping can be leveraged by efficiencies provided by AP automation software. Efficiency is improved by up to 80%. Books are closed much more quickly, letting the finance team spend more time on value-added financial analysis and decision support. 

Cloud-based AP automation software using AI/ML and RPA and tools for regulatory compliance work in combination with ERP systems. 

Real-time SaaS automation software and ERP systems with modern technology can prevent or solve several types of accounting problems and issues, including fraud, accounting errors related to vendor invoices and payments, GAAP compliance in financial reporting, and regulatory compliance.   

And adequate training of the finance and accounting team prevents or solves accounting problems.

About the Author

Barbara Cook

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Top 8 Accounting Problems And How To Resolve Them

Accounting is the backbone of any successful business, systematically tracking financial transactions, analyzing performance, and making informed decisions. However, even the most well-established accounting systems can encounter challenges. This article delves into the top eight accounting problems businesses commonly face and explores practical strategies to resolve them. From issues related to accuracy and compliance to technological hurdles, understanding and addressing these challenges is crucial for maintaining financial health and ensuring the success of any organization.

Data Accuracy and Entry Errors

One of the most common accounting challenges is the occurrence of data inaccuracies and entry errors. Manual data entry processes are susceptible to mistakes, leading to miscalculations, misclassifications, and financial discrepancies. Implementing automated accounting systems significantly reduces the risk of data entry errors. Utilizing accounting software streamlines the process and enhances accuracy by minimizing human intervention. Regular reconciliation and audit procedures should be in place to promptly identify and rectify any discrepancies. According to small business accounting service providers behind https://edmontonpadgett.ca , you can also acquire the services of accounting professionals to conduct periodic reviews and audits. These professionals bring a trained eye to your financial data, helping to catch errors or discrepancies that may be overlooked in routine checks. Their expertise can ensure that your financial records are accurate and comply with accounting standards.

Poor Cash Flow Management

Ineffective cash flow management is a pervasive issue that can hinder a business’s ability to meet its financial obligation and pay bills on time, as well as invest in growth opportunities. Inaccurate forecasting and delayed invoicing contribute to this problem. 

• Improve cash flow management by implementing robust invoicing processes.
• Send out invoices promptly, offer early incentives, and diligently follow up on overdue payments.
• Utilize cash flow forecasting tools to anticipate future financial needs and identify potential challenges before they arise.

Additionally, it’s crucial to establish clear payment terms with clients and suppliers to streamline cash inflows and outflows. Consider negotiating favorable terms, such as shorter payment cycles for customers and longer payment terms with vendors, to optimize your cash flow. Moreover, implementing a disciplined approach to inventory management helps prevent tying up valuable capital in excess stock, ensuring that resources are allocated efficiently and contributing to overall cash flow stability. By addressing these aspects comprehensively, businesses can create a proactive cash flow strategy that minimizes financial challenges and supports sustainable growth.

Compliance Concerns and Regulatory Changes

Staying compliant with ever-changing accounting regulations can be overwhelming for businesses. Failure to comply with local, state, or federal regulations can result in fines, legal issues, and damage to the organization’s reputation. Regularly update your knowledge of accounting regulations and seek professional advice if needed. Utilize accounting software that automatically incorporates regulatory changes. Investing in ongoing training for accounting staff ensures they stay informed about the latest compliance requirements, reducing the risk of inadvertent violations.

Inefficient Record Keeping

Inefficient record-keeping practices can lead to chaos in accounting processes. Lost or disorganized financial documents make retrieving necessary information for audits, financial reporting, or decision-making challenging. 

• Implement a systematic record-keeping system through cloud-based accounting software or organized physical filing.
• Utilize proper categorization and labeling for easy retrieval of documents.
• Regularly review and update your record-keeping procedures to adapt to the evolving needs of your business.

Lack of Internal Controls

Inadequate internal controls create opportunities for fraud, errors, and misappropriation of funds. Businesses without robust control mechanisms risk financial losses and damage to their reputation. Develop and implement internal controls to safeguard assets, ensure data integrity, and prevent fraudulent activities. This includes segregation of duties, regular internal audits, and a robust approval process for financial transactions. Encourage a culture of accountability and ethical behavior within the organization.

Technology Integration Challenges

While technology can enhance efficiency in accounting, many businesses struggle with integrating new accounting software or technologies into their existing systems. This can lead to disruptions, data migration issues, and a steep user learning curve. 

• Prioritize thorough research before selecting accounting software to ensure it aligns with your business needs.
• Plan for a smooth transition by providing comprehensive employee training and ongoing support during integration.
• Work closely with IT professionals or consultants to address any technical challenges.

Additionally, consider conducting a pilot implementation with a small team to identify potential challenges before rolling out the new technology company-wide. Software customization to fit specific business processes is also crucial for seamless integration. Regularly solicit user feedback during the transition, allowing for continuous improvement and promptly addressing any concerns. By taking a strategic and proactive approach to technology integration, businesses can harness the full potential of modern accounting software and technologies while minimizing disruptions to their daily operations.

Delayed Financial Reporting

Timely financial reporting is crucial for decision-making, compliance, and maintaining investor and stakeholder confidence. Delays in financial reporting can lead to missed opportunities and erode trust. 

• Establish a transparent and efficient financial reporting schedule.
• Implement accounting software that facilitates real-time reporting and automates routine tasks.
• Ensure that your accounting team is adequately staffed and well-trained to handle the demands of timely financial reporting.

Limited Financial Visibility and Analysis

Incomplete or inadequate financial analysis can hinder strategic decision-making. Many businesses struggle with accessing actionable insights from their financial data, limiting their ability to plan for the future effectively.

• Invest in financial analysis tools that provide comprehensive insights into your business’s performance.
• Review financial reports, key performance indicators (KPIs), and trend analyses regularly.
• Leverage the expertise of financial professionals or consultants to interpret complex financial data and extract meaningful insights.

Furthermore, consider implementing advanced analytics tools to uncover hidden patterns and correlations within your financial data, providing a deeper understanding of your business’s financial landscape. Regularly collaborate with your finance team to ensure alignment between strategic goals and financial analyses, fostering a data-driven decision-making culture within the organization. Harness the power of predictive analytics to anticipate future trends and challenges, enabling your business to adapt its financial strategies for sustained success proactively.

Effectively addressing accounting problems requires a proactive and strategic approach. Businesses must invest in modern accounting solutions, stay abreast of regulatory changes, and prioritize accurate and efficient financial management. By embracing technology, implementing robust internal controls, and fostering a culture of compliance, organizations can overcome common accounting challenges and pave the way for sustained financial success. Regular training, meticulous record-keeping, and a commitment to continuous improvement are essential elements in the quest for seamless and error-free accounting processes. By tackling these challenges head-on, businesses can ensure that their accounting practices meet the demands of the present and position them for a financially sound future.

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Problem Solving in Accounting

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Problem-solving in accounting is a critical skill that can always be improved upon. Master problem-solver and CFO at Musselman & Hall Contractors LLC, Adam Porter, shares his insight and experience with us in the latest episode of CFO Weekly.

What Makes a Great Problem-solver?

If you know, you know, right? Adam instinctively knew he was a problem-solver when he was younger. Something as simple as going from point A to point B became an opportunity to experiment with which route got him to his destination quicker. And his quest for discovery hasn't stopped.

“If we don’t understand the ‘why’ behind the actions we take, how do we know if we’re really doing the right thing,” Porter said.

To solve is to correct or optimize, and none of us can do that if we don’t first recognize an opportunity to get involved. Problem-solving goes hand in hand with the willingness to roll up your sleeves and get stuck in, take an active role in, and see through the potential outcome. Adam empowers each of his team members to become (and grow as) problem-solvers, by recognizing them and their contributions to identifying and solving issues.

Involving people in the problem-solving process and connecting the dots for them, showing them how they make the business a better organism, is how you create more great problem-solvers and amplify your ability to tackle problems as they appear.

Accounting Problem-solving in Action

Problem-solving is a term that gets thrown around in interviews and on resumes quite a bit. When the time comes, real problem-solvers like Adam approach things in a specific way.

System Upgrades

If you’ve navigated a system change and survived to tell the tale, some would say you have superpowers. Upgrading something like an ERP system is a mammoth task, even for a seasoned team of executives. During a project like this, you’re reviewing and possibly amending every single organizational process.

You’re also required to identify how everything you do during this project starts to affect other areas of the business: finance, accounting, HR, IT and so on.

Adam’s own experience with one such project led him through a GL restructure. At the end of a six-month series of efforts, with the support of a Controller whom he had brought it to, Adam succeeded and was able to present information back to the business, which could be used to inform business decisions.

The domino effect: once more information became available, and it was clear how it related to each portion of the business, the people in charge of those respective portions became more engaged and more curious and more willing to work with that information.

Problem-solving is just one of those skills where nobody needs to formally identify the need for it. It’s the problem-solvers who are constantly on the lookout for opportunities to apply themselves.

The result is that everybody benefits.

The Problem-solving Process in Accounting

Adam’s very first step in his problem-solving process is to absorb as much information from as many sources as he can. Whether it’s listening to the news every day or speaking with different people inside the business, there’s this ongoing effort to find out more, learn about topical challenges that others might be facing, and use that to drive questions internally about further opportunities to solve problems.

It doesn’t necessarily need to reach the state of being a ‘problem’ to receive attention for optimization. You just need to listen and pay attention to where things might be slower, costing more than usual or requiring manual input from too many people.

Once you have this information, you can gather the right people into the room to start looking at that information, gathering more of it from different sources.

One of the key components of fully resolving any issue is to understand the full scope and depth of its current and future impact: What happens if you leave it alone, or if it gets worse, or if it’s completely resolved? Who gets more time in a day when you resolve something? Whose budget gets some breathing room? Can you reduce the amount of manual input that everybody’s required to give?

Finding the Right People to Solve the Problem in Your Accounting Department

So, once you know what the problem is, you need to get the right people in to solve it.

How do you know who that is? The team behind your solution is critical. As a CFO, you have the responsibility of setting your team up for success when they’re working on solving problems. All execs have this responsibility.

In any organization, cross-functional training is the quickest way to widen perspectives when approaching any problems. If your execs are regularly making time to get down to the operational level, and understand how and why things work a certain way, it becomes so much easier to strategically recommend a resolution when one is needed.

Problem-solving isn’t a one-way road.

Solve the Problem, Not the Symptom

How do you know when you’re solving the right thing? So many times, we see something blatantly creating a bottleneck in an operation and we’ll head right toward that point to clear the blockage. Is that really solving the problem, though?

Most times, it isn’t. Once you clear the blockage, if you don’t look a little deeper or follow it upstream, it’s probably going to reappear not long after you put in all that effort.

Adam explains that sometimes, you already know what the real root cause is, of one or more bottlenecks in the business. Sometimes it’s trial and error. Always, though, it requires you to dig deeper, uncover more detail, more links and connections to other parts of the business operation or the stakeholder network.

Adam goes on to say that getting to the root of the issue can also be achieved by just getting the right people in the room with you. Musselman & Hall Contractors does a great job of this, getting executives together at least once weekly, to just help others on the team evaluate elements, ask more questions, different questions, and gain a different perspective on things that can be missed during the daily routine.

Dealing with Resistance

Resistance is natural. Inertia affects every company in the world to some degree. When problem-solving, it’s likely that this will occur too.

You need to follow the process and listen as much as you convey messages. Cultivate the mindset within your business that someone else learning about your job is a positive thing. Take the time to explain that it’s because a fresh pair of eyes and a fresh mind might ask a different question that can enable you to work faster, reduce manual input, take on more responsibility, and actually achieve a promotion.

The right mindset about problem-solving enables it to benefit everyone on the team. No matter who is working on which problem or when, another major benefit to your business is to thoroughly document your procedures and changes thereto. It enriches the context of every issue that gets identified and resolved now and in the future, creating even greater efficiency for you as time passes.

Overcoming resistance is made possible by including and involving the right people, and enabling regular two-way communication with them through the problem-solving process.

For more interviews from the CFO Weekly podcast, check us out on Apple or Spotify or your favorite podcast player.

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• The Biggest Accounting Problems and...

The Biggest Accounting Problems and How to Overcome Them

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Key Takeaways

• Accounting problems and challenges involve difficulties in managing financial transactions, records, and reporting due to factors like outdated systems, regulations, and human error.
• Streamline multi-currency management with advanced accounting software and international finance expertise to overcome complexities and ensure accurate financial processes.
• Modernize accounting operations by embracing technology and automation to eliminate inefficiencies caused by outdated systems and manual processes, ensuring accurate financial management and improved productivity.

Introduction 

In today’s dynamic business landscape, accounting professionals encounter a multitude of financial challenges and complexities. From outdated systems to regulatory compliance issues, these obstacles can impede financial progress and hinder business growth.

Navigating the intricacies of accounting is crucial for running a successful business, but overcoming these challenges can be daunting. That’s why we’ve compiled a list of the top 10 accounting problems and challenges, along with simple solutions to eliminate them. By addressing these issues head-on, your business can stay on track for success.

What Are Accounting Problems and Challenges?

Accounting problems and challenges refer to difficulties or obstacles encountered in the process of managing financial transactions, records, and reporting within an organization. These challenges can arise due to various factors, such as outdated systems, complex regulations, human error, or inadequate internal controls.

For example, a company may face challenges in accurately recording transactions, reconciling accounts, or complying with changing accounting standards and regulations. These problems can impact the reliability and accuracy of financial information, potentially leading to errors in financial statements and reports.

Addressing accounting problems and challenges requires proactive measures, including implementing efficient systems and processes, staying updated on regulatory changes, enhancing internal controls, and providing adequate training to accounting staff.

The Most Common Accounting Problems and Challenges

There’s a famous quote that you must have read somewhere, and it is relevant to this topic:

“Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.”

Mistakes are valuable lessons that we must cherish and learn from. However, it is even more important to identify the mistakes made by businesses or individuals like us, in order to gain insights on how to avoid them.

Keeping this in mind, we have compiled a comprehensive list of the top 7 accounting challenges that you are likely to encounter, along with effective solutions to overcome them.

Top 7 Accounting Problems and Solutions

1. difficulty in managing multiple currencies.

Accounting across borders presents a formidable challenge for businesses. Managing multiple currencies introduces complexities due to fluctuating exchange rates and intricate currency conversion calculations. These factors can complicate financial reporting and analysis, leading to potential errors and inefficiencies in accounting processes.

Solution:  To address this accounting challenge effectively, businesses can leverage advanced accounting software equipped to handle multi-currency transactions seamlessly. These tools automate currency conversions and provide real-time updates on exchange rates, ensuring accurate and efficient accounting processes. Additionally, seeking expertise in international finance and implementing hedging strategies can help mitigate currency risks and optimize financial management across borders.

2. Payroll errors

With the rapid evolution of the employment landscape, businesses are facing new challenges in managing payroll efficiently. The shift towards remote work and diverse geographical locations has introduced complexities in navigating tax laws and employment regulations, adding to the payroll management burden.

Research indicates that 54% of companies acknowledge the need for enhancements in their current payroll policies and practices, reflecting the widespread recognition of existing payroll challenges.

Payroll errors can have significant repercussions for businesses, ranging from financial losses to legal penalties, not to mention the adverse impact on employee morale and productivity. Despite the critical importance of accurate payroll processing, statistics show that 54% of Americans have encountered pay-related issues.

Solution:  To mitigate payroll errors, it’s essential to prioritize regular payroll reconciliation after each payroll cycle and promptly address any discrepancies with the assistance of an accountant. Moreover, leveraging automated payroll solutions can streamline processes, minimize errors, and ensure adherence to pertinent laws and regulations.

3. Cash flow management

Maintaining a healthy cash flow is crucial for the survival and growth of any business. Did you know that  82%  of all businesses fail due to poor cash flow management? Despite its importance, many businesses struggle with cash flow, leading to liquidity issues and potential insolvency.

Solution:  Investing in automation is the most effective way to manage cash flow and monitor your business’s financial performance. By leveraging automated  cash flow management tools , you can streamline treasury operations and reduce the need for manual tasks. This enables financial professionals to focus on liquidity and risk management, ultimately enhancing team efficiency.

4. Delayed accounts receivable collection

Delayed accounts receivable collection poses a significant accounting problem for businesses, impacting cash flow and operational efficiency. Late payments from customers disrupt financial stability and hinder the ability to meet obligations, leading to increased financial strain.

Solution:  To address this  problem of accounting, businesses must implement strategic accounts receivable management practices. This includes establishing clear payment terms and communicating them upfront to set expectations with customers. Additionally, prompt follow-up on overdue payments and incentives for early settlement can expedite collections and improve cash flow. By adopting a proactive approach to accounts receivable management, businesses can enhance financial stability and operational effectiveness.

5. Lack of internal controls

Internal controls are policies and procedures designed to safeguard assets, prevent fraud, and ensure accurate financial reporting. However, many businesses lack robust internal controls, leaving them vulnerable to errors and fraudulent activities.

Solution:  Develop and implement a comprehensive system of internal controls tailored to your business’s specific needs. This may include segregation of duties, regular audits, and implementing checks and balances throughout the organization.

6. Regulatory compliance and reporting burdens

Navigating the ever-evolving landscape of regulatory compliance and reporting requirements can be a daunting task for accounting professionals. With complex regulations such as GAAP and IFRS constantly evolving, staying compliant can feel like an uphill battle.

Solution:  To address these challenges effectively, businesses can implement solutions such as investing in advanced accounting software, providing regular training for financial professionals on regulatory changes, ensuring compliance with GAAP standards, and maintaining transparency in operations. By proactively addressing regulatory compliance issues and reporting burdens, businesses can enhance their financial reporting accuracy, compliance, and overall operational efficiency.

7. Outdated systems and manual processes

Technological advancements have transformed the accounting landscape, rendering outdated systems and manual processes inefficient. Despite this, finance teams, often considered the lifeblood of any successful business, still rely on obsolete systems and manual methods, struggling with technological obsolescence. Many of these teams continue to manually process and send payments, collect checks, reconcile financial data from a multitude of sources, and match a large volume of transactions.

This reliance on outdated methods hampers their ability to deliver accurate results and leads to hours of lost time. Without streamlined automation and digital integration, tasks such as data entry, reconciliation, and reporting become laborious and error-prone.

Solution:  To overcome this  issue in accounting, it’s imperative to embrace technology and automation. Regularly assess and upgrade accounting systems and software to stay current with technological advancements. Explore cloud-based solutions that offer scalability, automation, and real-time data access. Additionally, provide training and support to employees to ensure smooth adoption of new technologies.

By harnessing the power of innovative  accounting solutions  like HighRadius, accounting heads and managers can streamline processes and eliminate manual errors. HighRadius offers cutting-edge automation tools that seamlessly integrate with existing systems, revolutionizing the way businesses manage their finances.

1. How do you resolve accounting issues?

Resolving accounting issues requires a systematic approach, starting with identifying the root cause through audits and reviewing financial records. Implementing corrective measures in line with accounting standards, such as adjusting entries or implementing internal controls, is crucial. Also, effective communication with stakeholders is essential to ensure transparency and alignment.

2. What constitutes the most challenging aspect of an accountant’s role?

The role of an accountant comes with various challenges, but one of the most significant is striking the right balance between accuracy and efficiency while also meeting tight deadlines and managing a high volume of transactions.

3. How can we solve accounting problems?

Solving accounting problems demands a multifaceted approach. It starts with a thorough analysis followed by the implementation of appropriate solutions. Additionally, leveraging technology can streamline processes and help prevent future issues.

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Accounting Equation Problems and Solutions with Examples

What is the Accounting Equation?

The Accounting Equation is based on the double entry accounting, which says that every transaction has two aspects, debit and credit, and for every debit there is equal and opposite credit. It helps to prepare a balance sheet, so it is also called the Balance Sheet Equation.

Accounting Equation Formula

We already know what the words “Asset” and “Liability” mean from the previous lesson. Let’s quickly define this new term, “Owners Equity”.

What is Owner’s Equity?

We can define Owners Equity as “the amount of money that you (the owner) have invested in the business.”

Whenever you contribute any personal assets to your business your owner’s equity will increase. These contributions can be any asset, such as cash, vehicles or equipment. For example, if you put your car worth $5,000 into the business, your owner’s equity will increase by $5,000. If you invest $10,000 of your savings into the business, your owner’s equity will increase by $10,000.

Likewise, if you take money out of business, your owner’s equity will decrease. For example, you go into your store and take $100 from the cashier to buy yourself a shirt. Because you are taking $100 out of business, your owner’s equity will decrease by $100.

Let’s see if you can identify which of the following transactions will result in a change in owner’s equity:

Problems and Solutions: For each of these transactions we could simply have a “yes” and “no” button. I’ll write the correct answer below for you to code.

Transaction 1:

You invest $1,000 of your personal savings into the business.

Change in owner’s equity?

Incorrect Correct

In this scenario you are investing your own personal funds into the business. Any personal investment will increase your owner’s equity.

Transaction 2:

Your new oven breaks. You hire a repairman $50 to fix it.

Correct Incorrect

Again, you are introducing a personal asset into your business and using it as a business asset. Any investment of personal assets will increase your owner’s equity.

Transaction 3:

You purchase a computer for the business using the business bank account.

You are not making any personal investment here. You are using business funds to purchase a business asset. Therefore there was no new investment by you. Your owner’s equity will remain unchanged.

How does the Accounting Equation Works?

Every single transaction that occurs in your bakery will be recorded using the accounting equation .

Before we go any further, there are three very important things to remember about the equation:

• The left side is referred to as “The Debit Side”
• The right side is referred to as “The Credit Side”
• The equation must always be in balance.

The two sides of the equation:

The Debit Side: The left side of the equation is known as the debit side. As you can see, the left side of the equation consists of Assets.

The Credit Side: The right side of the equation is known as the credit side. As you can see, the right side of the equation consists of Liabilities and Owners Equity.

Remember, the equation must ALWAYS balance.

Note : Throughout this lesson, you will also notice that we refer to different “accounts”. An account can be thought of as a collection of related entries. For example, every entry that relates to our loan will be recorded in the “loan account”. Every transaction that relates to our oven will be recorded in the “oven account”. It Might be part of the reason this subject is called “ accounting ”!

Examples of the Accounting Equation

Let’s look at some examples to see the accounting/bookkeeping equation in action.

Transaction 1

After making cupcakes in your Grandma’s kitchen your whole life, you decide to open a bakery. You use your $10,000 in savings to start your business.

Now let’s look at how this fits into the accounting equation.

Accounts affected:

You have just put $10,000 into the bank, which is an asset. This goes on the debit side. Now that the debit side has gone up, we need to balance this with $10,000 on our credit side.

We know that our $10,000 investment represents an increase in owner’s equity, and owner’s equity will go on the credit side.

With these two entries, the equation is now balanced.

Let’s fit this into the accounting equation.

We started off with $0 = $0 + $0. Doesn’t get much easier than that!

Now it’s changed a little.

As you can see, we have +$10,000 on the left side (the debit side), and we have +$10,000 on the right side (the credit side). Because both sides went up by $10,000, we’re still in the balance. Phew!

Still don’t get it? Don’t worry, it’ll click soon enough. Let’s look at another example.

Transaction 2

You need an iPhone to take delivery calls from all your crazy customers. You buy one off eBay for $500.

Remember in the first example we put money into the bank? Well, this time we’ll be using the bank again, only now we’ll be spending money. That means our bank account, an asset, is going to decrease .

Now that we know the Debit side has decreased, we need to record the second side of the transaction that will keep the equation in balance.

We’re going to create a new asset account called iPhone, because we need to record the new phone as an asset . Remember, it cost $500, so the two sides of the transaction are:

BANK -$500 (Debit side decrease) iPhone+$500 (Debit side increase)

Our bank caused the debit side to decrease, but then our new phone caused it to increase. That means our debit side had no change in the end, and our equation still balances.

You may be wondering, why didn’t the credit side change in this example like it did in the previous example?

Remember, the credit side is only involved in transactions that relate to liabilities and owner’s equity. In this particular transaction, only assets were involved: we used an asset (bank) to purchase another asset (iPhone).

We saw above that owner’s equity only relates to investments made personally by the owner. In this example, we used the business bank account to purchase a business asset. Therefore the owner was not involved. If we had used the owner’s personal bank account to buy the iPhone, then our owner’s equity on the credit side would have increased.

Still not getting it? Let’s do a few more examples.

Accounting Equation Problems and Solutions

Have a go at working out the two sides of each transaction. Remember, it needs to balance!

Problem: It’s time to go oven shopping, but first, you need some cash. You visit Anne, the loan officer, and she gives you a loan of $10,000.

Drag & Drop the blocks into correct positions in the table

Transaction 4:

Problem: It’s your lucky day. You just won a lottery prize of $5,000. You decide to invest your $5,000 into the business.

Drag & Drop the blocks into correct positions in table

• Owner’s Equity

Transaction 5:

Problem: We don’t want Anne to get angry. You better pay back some of the loans. You decide to pay back $1,000.

Transaction 6:

Problem: You need a computer to start taking internet orders and also to watch funny Youtube videos after work. You purchase a computer for $1,500.

Transaction 7:

Problem: Your oven got stolen! Time to purchase the new Bakemaster X Series! It costs you $2,000

After recording these seven transactions, our accounts now look like this. We have all our assets listed on the debit side and all our liabilities and owner’s equity listed on the credit side.

Take a quick look back and see if you can follow how the numbers have changed.

Still in balance. Perfect!

In case you haven’t figured out how we got to these figures, we’ve broken it down step by step for you below.

Let’s use our Bank account as an example.

Our bank account started at $0. Then the following happened:

As you can see, we added all transactions that related to the bank to arrive at our ending balance of $20,000. This is the same approach we took for all the accounts.

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1,001 Accounting Practice Problems For Dummies Cheat Sheet

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Accounting, as you may guess, involves a lot of math. As you practice various types of accounting problems, and when you begin doing accounting work for real, you will need to utilize various formulas to calculate the information you need.

10 useful accounting formulas

The following are some of the most frequently used accounting formulas. This list is not comprehensive, but it should cover the items you’ll use most often as you practice solving various accounting problems.

Balance sheet formula

Assets – liabilities = equity (or assets = liabilities + equity)

This basic formula must stay in balance to generate an accurate balance sheet. This means that all accounting transactions must keep the formula in balance. If not, the accountant has made an error.

Retained earnings formula

Beginning balance + net income – net losses – dividends = ending balance

Income statement formula

Revenue (sales) – expenses = profit (or net income)

Keep in mind that revenue and sales may be used interchangeably. Profit and net income may also be used interchangeably. The income statement is also referred to as a profit and loss statement.

Gross margin

Sales – cost of sales

Gross margin is not a company’s net income or profit. Other expenses, such as selling, general, and administrative (SG and A) expenses, are subtracted to arrive at net income.

Operating income (earnings)

Gross profit – selling, general, and administrative (SG and A) expenses

Statement of cash flows formula

Beginning cash balance + cash flow sources (uses) from operations + cash flow sources (uses) from financing + cash flow sources (uses) from investing = ending cash balance

This formula adds cash sources and subtracts cash uses.

Inventory formula

Beginning inventory + purchases – cost of sales = ending inventory (or beginning inventory + purchases – ending inventory = cost of sales)

Net sales formula

Gross sales – sales discounts – sales returns and allowances

Book value of fixed (depreciable) assets

Original cost – accumulated depreciation

Straight line depreciation

(Original cost – salvage value) / number of years in useful life

Salvage value is the dollar amount that the owner can receive for selling the asset at the end of its useful life.

Financial statement formulas

After you create financial statements, you need some tools to analyze a company’s results. Following are the most frequently used formulas to analyze financial statements. Get familiar with them so that you can analyze statements with confidence.

Components of work-in-process

Direct materials + direct labor + factory overhead applied

Work-in-process (WIP) represents cost incurred in production for partially completed goods. WIP is a subaccount within inventory. When goods are completed, they are moved to finished goods (another inventory account).

Current ratio

Current assets ÷ current liabilities

The current ratio illustrates how easily a company can cover its current bills.

Quick ratio

(Current assets less inventory) ÷ current liabilities

The quick ratio excludes inventory from current assets. The rationale is that inventory is the current asset that will take the longest time to convert into cash. Other current assets, such as collecting accounts receivable, may be converted into cash more quickly.

Asset turnover ratio

Revenue (or sales) ÷ assets

This ratio explains how much profit a company generates for every dollar of assets.

Return on equity

Net income ÷ equity

This ratio explains how much profit a company generates for every dollar of equity.

Debt to equity ratio

Debt ÷ equity

This ratio measures what percentage of a firm’s total capitalization is debt. Capitalization refers to all funds raised by the company to operate the business.

Contribution margin

Sales less variable costs

Contribution margin represents the amount that will be used to cover fixed costs. Any dollars remaining after paying fixed costs is considered profit.

Return on capital

Operating profit ÷ capital

Capital is similar to equity. It represents funds raised to operate a business. Operating profit refers to profit generated from normal business activity.

Break-even formula

Sales – variable costs – fixed costs = $0 profit

The break-even formula calculates the level of sales that will generate a profit of $0.

Formula to assign overhead costs

Total overhead costs incurred ÷ activity level

Overhead costs, such as a factory’s utility costs, can’t be directly traced to a product. Instead, overhead costs are allocated based on an activity level. The activity level chosen should impact the amount of overhead costs incurred. For example, the number of machine hours used drives machinery repair costs. Machine hours should be the activity level for machine repair costs.

More financial analysis formulas

After you create financial statements, you need some tools to analyze the company’s results. Following are some additional formulas accountants use to analyze financial statements. Become familiar with these formulas, and use them as you practice various accounting problems.

Burden rate

Fixed manufacturing costs ÷ units produced

Fixed costs can’t be directly traced to a unit produced. For example, a $50,000 monthly factory lease must be paid, regardless of the number of units produced in a given month. To assign fixed cost to each unit of product, companies used the burden rate.

Cost of idle capacity

Percentage of available capacity unused × fixed manufacturing overhead costs

Idle capacity refers to unused capacity. Assume you could produce 20% more baseball gloves this month, using your existing factory costs (materials, labor, and overhead). Say that the factory pays a foreman $50,000 in salary and benefits to supervise production. The cost of idle capacity is 20% multiplied by $50,000, or $10,000. The firm is paying an extra $10,000 for production capacity it’s not using.

Calculating loan interest

Interest rate for period × principal amount of loan

Interest can be compounded (computed) annually, monthly, or even daily. Pay attention to the stated annual interest rate on the loan and how often interest is compounded. If a 12% loan is compounded monthly, the monthly interest rate is 12% ÷ 12 months, or 1%.

Effective interest rate

Interest paid ÷ principal amount owed

Because of the effects of compounding, the actual interest paid on a loan may be different from the stated interest rate on the note multiplied by the principal.

Present value and future value factors

Present value factor less than 1; future value factor more than 1

A present value factor discounts a cash flow to its present value. To calculate the present value, you multiply the factor times the cash flow amount. A present value factor will be less than 1. The future value of a cash flow adjusts the cash flow to its future value, given an interest rate. A future value factor will always be more than 1.

Return on investment (ROI)

Profit (net income) from investment ÷ cost of investment

A more complex version of the formula is operating income divided by operating assets. Operating assets represent an investment in a project or business. The purpose of this formula is to determine the profitability of a given project.

Return on investment (DuPont model)

Profit margin × asset turnover

This is a more complex formula that’s used for ROI. Profit margin is operating profit divided by sales. Asset turnover is calculated as sales divided by average assets. Average assets refers to assets at beginning of period + assets balance at end of period ÷ 2.

Return of investment to shareholders

Retained earnings balance – payments to shareholders

A dividend is a payment of retained earnings to shareholders (investors). If a company makes payments to shareholders that are greater than the balance of retained earnings, those payments are a return of the investors’ original investment.

72 ÷ rate of return on investment

The rule of 72 states how many years it will take for a sum of money to double, given a rate of return that is compounded each year. If, for example, the rate of return is 8%, a sum of money will double in 72÷8, or 9 years.

Weighted average cost of capital (WACC)

Annual cost to obtain financing ÷ capital balance

Companies can raise funds by issuing debt or equity. Outstanding debt requires annual interest payments. Shareholders who purchase equity may also insist on required annual dividend payments. Interest payments on debt and dividend payments to shareholders are both considered financing costs. The annual cost of financing divided by the funds raised to operate the business (capital) is WACC.

About This Article

This article is from the book:.

• Accounting ,

About the book authors:

Kenneth Boyd is the owner of St. Louis Test Preparation (www.stltest.net). He provides online tutoring in accounting and finance. Kenneth has worked as a CPA, Auditor, Tax Preparer, and College Professor. He is the author of CPA Exam For Dummies . Kate Mooney has been teaching accounting to both undergraduates and MBA students at St. Cloud State University since 1986, after earning her PhD from Texas A & M University. She is a licensed CPA in Minnesota and is a member of the State Board of Accountancy.

This article can be found in the category:

• General Accounting ,
• 10 Useful Accounting Formulas
• Financial Statement Formulas
• More Financial Analysis Formulas
• Straight-Line Depreciation — Practice Questions
• Total Manufacturing Costs — Practice Questions
• View All Articles From Book

Top Accounting Problems & Solutions in 2024

Accounting problems have never been an easy issue to solve, but today presents some unique challenges. The IRS is ramping up its compliance and audit efforts while cross-border trade and transactions increase complexity for firms of all sizes. Although the Financial Accounting Standards Board (FASB) claims to be trying to keep GAAP accounting requirements nimble and less burdensome, those at the tail end of their decisions often feel differently. 

But today’s era in accounting offers new solutions to old and ongoing problems in accounting. Artificial intelligence, finance automation software , and streamlined data analytics combine with simpler payment processing methods and other next-gen tech to make your accounting team’s lives easier. 

Still, though some issues in accounting are new based on shifting times, others are constant and have plagued executives for decades. Work with your team to understand some of today’s top accounting problems - and how to best address them. 

What Are Accounting Problems? 

Accounting problems range in severity, complexity, and frequency. But, while the details vary, the core definition of accounting problems doesn’t. Accounting problems are any identifiable, preventable accounting factor that contributes directly to a tangible negative outcome within your business, including:

• Inaccurate financial statements and regulatory filings.
• Physical and digital security risks, including fraud. 
• Outdated accounting standards usage. 
• Negative audit outcomes. 

The keyword in our definition is preventable . Other factors, unforeseen and unpredictable, can impact your business negatively. The trick with managing accounting problems is that each of them is avoidable - if you have the knowledge, foresight, and tools to combat them,

What Causes Accounting Problems?

The root cause of every accounting problem is implied above - if you don’t have the knowledge, foresight, or tools to fight accounting problems, you’re not equipped to deal with them before they arise.

Beyond conceptual causes, though, material causes include (among many others):

• Lacking internal controls contributing to unnoticed human error and fraud.
• Financial teams not conducting regular training or keeping abreast of changing regulations and reporting standards. 
• “Single points of failure,” where your financial and accounting cycle relies on a sole individual whether due to staffing concerns, competency, or training.
• Ethical causes that contribute to fraud, or even “soft fraud” wherein employees creatively interpret information to paint an artificially rosy picture.

The Top Ten Accounting Problems

No organization is perfect, and chances are high that your firm needs improvement within at least one of these domains. That isn’t bad, though - what’s bad is identifying an issue and not acting upon it. Remember, the first step in addressing your accounting problems is developing the knowledge to identity and act upon them, so understanding where your firm falls short kickstarts the process of optimizing your enterprise. 

The Securities and Exchange Commission (SEC) is ramping up its enforcement efforts and prosecuted 9% more enforcement violations in 2022 than last year. Remember, the SEC won’t accept ignorance as an excuse for mismanaging accounting problems, and neither should you. 

1. Human Error and Inaccurate Data Entry

Human error is the most common accounting problem, costing corporations millions of dollars annually. Manually managing thousands of lines of transactional accounting isn’t easy, and time pressure coupled with exhaustion can create sloppiness that creates a catastrophic snowball effect over time. These problems range from simple, such as double vendor payments , to far more difficult to untangle, like inadvertently missing payroll. 

Solution: Accounting automation tools with baked-in validation checks and error notifications go a long way towards removing human error elements from the equation but aren’t a final solution. You’ll still need to implement robust staff training, both during onboarding and on an ongoing refresher basis. Third-party or automated audits , reviews, and reconciliation also help as a set of fresh eyes might catch errors those with skin in the game (or simple stat exhaustion) cannot. 

2. Cash Flow Management and Statement Accuracy

Your income statement might paint a rosy picture, but if you can’t manage your cash flow, you’re in trouble - especially as higher rates increase borrowing costs and make credit management a trickier proposition. 

Even if your physical cash management strategies are solid, keeping your cash flow statement compliant is another matter. Rules change often, and the SEC notes that “preparers and auditors may not always apply the same rigor and attention to the statement of cash flows as they do to other financial statements.”

Solution: The solution to this accountancy issue is double-pronged: First, ensure your accounting team is as diligent with your cash flow statement as other filings. Matching cash flow across all three categories is tough, especially if overseas transactions and currency exchange affect your bottom line, but many accounting tools can help serve as a vital assistant in the process. Second, develop a system like a third-party auditor to check your cash flow statement from an external, unbiased perspective. 

3. Strategic Financial Analysis

One of today’s top commodities is data, but many companies don’t leverage the depths of data they generate when it comes to financial analysis. Even firms digging into granular aspects of marketing and productization often overlook the benefit that rigorous and objective strategic financial analysis offers.

Solution: Your financial platform likely offers tools to mine existing data. Some also offer analytics dashboards, while others require migrating to a third-party service, but extracting data from value is a two-fold process. Pulling the data tends to be the easy part, whereas consolidating it into a digestible and accessible dashboard to deliver insight can be elusive. 

Remember, not everyone has the time or inclination to study reams of accounting documentation. To best derive effective and actionable insight from your data, it needs to be delivered in a format that helps stakeholders identify trends to shape decision-making with a quick glance. 

4. Fraud, Waste, and Abuse

While we’d like to think employees, and even managers, wouldn’t defraud a company, the fact stands that human nature creates incentives that can send even the most honest workers down a bad path. Even in cases where fraud never happens, sloppy financial management can create significant wastage and unnecessary expense. 

Solution: You should have a robust series of checks on expense management , with particular attention paid to approval workflows and order matching. Furthermore, you should schedule recurring reviews of your workflow processes, even if you manage a robust automated expensing and procurement system . 

Maintaining an internal veil between departments and even individual employees while ensuring a sole staffer doesn’t have exclusive access also helps prevent payment fraud .

5. Account Reconciliation 

If you don’t reconcile accounts properly , you’re in for a world of pain. Unreconciled accounts can paint a rosy picture on paper but leave you holding the bag when your real-world balances don’t match. At the same time, slipping slightly can compound rapidly as a missed reconciliation on a single account in one period can snowball into a six-figure error a year later.

Solution: This accounting problem is easy - reconcile your accounts often and accurately. Make sure your accounting team’s access runs the gamut of credit, banking, and other accounts to make sure nothing slips under the radar. Centralizing your account management on a single database tends to be a good practice, especially if your company juggles many accounts at once. 

6. Security and Internal Controls

Too often, companies face one of two accountancy challenges related to internal controls . They either rely too much on just a few employees without external validation checks or outsource everything to software and adopt a “hands-off” approach. Both significant accounting challenges can bring a well-run company to its knees. 

Solution: If you can’t keep a substantial separation between employees, i.e., running a small operation, you’ll need to set aside time to validate approvals as they route personally. It’s burdensome and time-consuming, but the effects of not doing so are far worse. If you can use automated accounting software to implement controls, ensure you’re still conducting regular reviews of the workflows to ensure they remain accurate and useful. 

7. Misaligned Revenue Recognition

Properly recognizing revenue is tough, especially for subscription-based firms like SaaS companies. Worse yet, there’s an incentive to improperly time revenue recognition, as “borrowing” revenue today from tomorrow’s earnings can artificially inflate current reports and help boost a company’s image. But that short-lived boost tends to collapse quickly once the bill comes due.  

Other misaligned revenue recognition includes channel stuffing, where companies push products to distributors without the necessary demand signal to pump sales stats. Some companies can even falsify revenue, particularly in cash-based businesses, but the trick doesn’t usually go unnoticed for long.

Solution: Ensure your accounting platform has accurate revenue recognition controls, and develop your operating procedure to address circumstances in which there’s a degree of uncertainty or room for interpretation. You’ll also need to ensure your accounting staff is up-to-date on changing accounting requirements and standards to maintain compliance as regulatory guidance evolves.  

8. Non-Cash Expenses

Any time financial engineers, no matter how experienced, begin working with non-cash expenses, room for error multiplies. In some cases, the rules supporting non-cash expenses are unclear; in others, they’re open enough to interpretation that one accountant might generate a very different series of figures for the same circumstance. 

Remember, non-cash expenses include:

• Depreciation and amortization
• Depletion 
• Asset impairment
• Stock-based compensation

Asset impairment is one of the most common non-cash expense accounting problems. Determining value via mark-to-market accounting demands nuanced market understanding, accurate outlook, and honesty. For example, valuing assets like real estate requires a close look at local market factors, current condition, and how long the company has held the real estate asset. Depending on an individual accountant’s perspective, a real estate asset could be “worth” much more or less than another’s assessment of the same property. Inaccurate non-cash expensing can, therefore, create an artificially inflated balance sheet and cause concern that your company is misleading investors. 

Solution: The best way to mitigate accounting issues associated with non-cash expenses is to have a comprehensive standard operating procedure for common items. Even straightforward non-cash expenses, like depreciation, should be meticulously prescribed to your financial team (i.e., whether an item depreciates along a straight line, via units of production, etc.). If you’re a smaller firm, your CFO or financial controller should prioritize codifying an SOP that addresses all non-cash expenses to save time and prevent legal entanglement later. 

9. Payroll Errors or Inefficiencies 

Smaller companies can’t usually afford to outsource their payroll, retirement benefits, and tax management requirements. This is understandable since third-party firms are costly and often unnecessary for companies with just a handful of employees. But, when you rely on less experienced internal assets to manage payroll, you open the door to significant problems in accounting. Certain benefit and tax structures are complex to navigate solo, but even basic salary payments are prone to miscalculation and error. 

Solution: Remember - your employees are your greatest asset, and payroll errors are a great way to create dissatisfied staff. If you can’t afford to wholly outsource your payroll management, find a software solution that effectively serves your company’s payment and compensation structure. You may also want to spend the cash up front for consulting to get a solid system in place and pay for recurring audits along the way to ensure you remain on track. 

10. Technology Challenges

Not all of us are digital natives and certain sectors of the workforce struggle to adapt as accounting tech evolves. At the same time, your company might be totally dependent on outdated manual tools to balance the books and manage supplier payment accounts. While those systems and tools might have worked well in the past, shifting trends point to an imminent need to ditch outdated financial software in favor of something cloud-based and easily integrated within your existing workflow.

Solution: Training, no matter your platform of choice, is the first step to ensuring everyone understands the tools they’re given. Beyond that, depending on your company’s circumstances, you can solve this accounting problem by exploring tools that offer:

• Payment management across a spectrum of methods ( ACH , check, card, etc.)
• BI and data analytics (see the third accounting problem)
• Recurring bill management
• AP automation and automated customer billing solutions

We’ve referenced it a lot in relation to solving your accounting issues, but automated financial and accounting tools go a long way toward solving problems in accounting. At their baseline, effective automated accounting tools free up untold amounts of time compared to manually managing your finances, freeing your team up to focus on business growth and operational optimization.

At the same time, these tools help prevent catastrophic results - in the event of fraud or regulatory noncompliance - while keeping vendors and customers happy by offering timely and accessible payment options. They also bundle a suite of security services to manage documentation long-term and keep your (and your customers’) information safe. 

Jeremy is a finance writer experienced with a range of B2B solutions, including accounting, financial automation, and corporate financial management. He lives in Austin, TX with his wife & young son.

Related content

Accounting Equation Problems and Solutions

Click here to download accounting equation problems.

Previous Lesson: Principles of Accounting

Next Lesson: Accounting Variation Proforma Problems and Solutions

Accounting is based on the principle of two-sided. In order to carry out business activities, the company needs funds; these funds must be given to the company by someone. The funds owned by the company are called assets .   Part of these assets is provided by the owner, total amount of funds contributed by him is called owner’s equity or capital. If the owner is the only one who contributed, then the equation A = O.E will be fair. (assets equal to capital).

However, the assets may be contributed by someone else who is not the owner. The debt of the enterprise for these assets is called liabilities. Therefore, now the equation will take the following form: A = L + O.E . (Assets equal equity plus liabilities). The left and right sides of the equation always coincide.   

Assets= Liabilities + Owner’s Equity

The equality of both parts of the equation is always maintained. For deep understanding of accounting equation, following are important accounting equation questions:

Habib Ullah Sadiq is wholesale trader; following transactions are record in Accounting Equation?

i.  Commence business with cash Rs. 200,000 and Land Rs. 50,000.

ii.  Bought merchandising for cash Rs. 80,000.

iii.  Cash sales of worth Rs. 25,000.

iv.  Bought goods on credit from Salman of worth Rs. 50,000.

v.  Sales on account to Ali Raza Rs. 12,000.

vi.  Purchase furniture of the value of Rs. 5,000 by cash.

vii.  Received cash form Ali Raza of Rs. 10,000.

viii.  Return defective furniture of worth Rs. 1,500.

xi.  Paid wages Rs. 1,000, Rent 2,000 and Electricity Bill Payable Rs. 1,500.

Accounting Equation Format Download

>> Read Accounting Equation explanation.

Video Lecture: Accounting Equation Problems and Solutions

Click here to download worksheet used in video.

Muhammad Faizan Abid had the following transactions. Use accounting equation to show their effect on his Assets, Liabilities and Capital?

a)  Invested Rs. 15,000 in cash.

b)  Purchased securities for cash Rs. 7,500.

c)  Purchased a home for Rs. 15,000: giving Rs. 5,000 in cash and the balance through loan account.

d)  Sold securities costing Rs. 1,000 for Rs. 1,500.

e)  Purchase an old car for Rs. 2,800 cash.

f)  Received cash as salary Rs. 3,600.

g)  Paid cash Rs.500 for loan and Rs. 300 for interest.

h)  Paid cash for expenses Rs. 300.

i)  Received cash for dividend on securities Rs.200.

>> Understand  Types of Accounts  for Accounting Equation Problems and Solutions .

Selected Transactions from Shah Transport Services began on June 1, 2016 by Zahid Shah as?

a.  Zahid Shah invested Rs. 600,000.

b.  Truck was Purchase by business for Rs. 430,000.

c.  Equipment purchased on credit for Rs. 9,000.

d.  A bill of Rs. 7,200 for transporting goods was sent to Mr. Ashraf Abbasi, a customer.

e.  Cash of Rs. 6,000 is received from the customer who was billed in d. 

f.  Received Rs. 22,300 is cash for transporting goods.

g.  A payment of Rs. 5,000 was made on the equipment purchased in c. 

h.  Paid expenses of different types for Rs. 1,700 in cash.

i.  Equipment of Rs. 1,200 was withdrawn from business for Zahid Shah’s personal use.

Required:  Arrange the Assets, Liabilities and Owner’s Equity accounts in an Accounting Equation, using the following account titles: Cash, Trucks, Equipment, Account Receivables, Account Payable and Owner’s Equity:

>> Further study  Golden Rules of Accounting .

Prove that the Accounting Equation is satisfied in all following transactions of Wajeeha Ejaz owner of business enterprises?

I.  Started business with cash value of Rs. 500,000.

II.  Rent paid in advance for a year Rs. 6,000.

III.  Purchased merchandising inventory for cash Rs. 80,000 and on account Rs. 20,000 from Mr. Tahir.

IV.  Purchased Marketable securities for cash Rs. 100,000.

V.  Cash Sales Rs. 30,000 (cost 20,000).

VI.  During the period rent expires Rs. 2,000.

VII.  Commission paid during the trading was Rs. 1,000.

VIII.  Received cash dividend Rs. 4,000 on marketable securities.

IX.  Paid to Rs. 19,500 to Mr. Tahir in full settlement.

X.  Withdrew inventory for personal purpose by owner of worth Rs. 6,000.

>> Practice  Journal Entry Problems and Solutions .

Show the effect of the following transactions upon the Accounting Equation?

      June 2017

>> Read Balance Sheet  for better understanding the Balance Sheet Equation .

Related Questions

Accounting Equation

Accounting Equation MCQs

Accounting Equation Examples

Accounting Equation Questions

Accounting Equation Format

Related Problems

Accounting Equation Exam Questions

Accounting Equation Exercises

Accounting Equation Problems PDF

Golden Rule of Accounts

Expanded Accounting Equation

Related Exams

Principles of Accounting

Accounting MCQs

Accounting Problems

Accounting Problems PDF

Accounting Workbook

Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. 1). New Delhi: Tata McGraw-Hill Publishing Co.

Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.

Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill.

21 Comments

Plz solve depriciation of class 11 question no 3 Frome numerical problem from asmita publication

Thank you for sharing this information

commenced business with cash 200,000. purchase building for cash 50000. Purchase machine on credit base 70000. purchase goods for cash 100000 and 30000 on credit base. sold goods 60000 on cash . he paid outstanding wages 10000. He sold good 10000 costing Rs 8000 for cash. He deposit 10000 cash into bank. He pay bills by cheque 5000. He withdraw goods for Rs 5000 for his personal use. Kindly Send me the solution of this questio.

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For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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Author: Harold Averkamp, CPA, MBA

• 01. Accounting Basics Practice Quiz
• 02. Debits and Credits Practice Quiz
• 03. Chart of Accounts Practice Quiz
• 04. Bookkeeping Practice Quiz
• 05. Accounting Equation Practice Quiz
• 06. Accounting Principles Practice Quiz
• 07. Adjusting Entries Practice Quiz
• 08. Financial Statements Practice Quiz
• 09. Financial Accounting Practice Quiz
• 10. Balance Sheet Practice Quiz
• 11. Working Capital and Liquidity Practice Quiz
• 12. Income Statement Practice Quiz
• 13. Cash Flow Statement Practice Quiz
• 14. Financial Ratios Practice Quiz
• 15. Bank Reconciliation Practice Quiz
• 16. Accounts Receivable and Bad Debts Expense Practice Quiz
• 17. Accounts Payable Practice Quiz
• 18. Inventory and Cost of Goods Sold Practice Quiz
• 19. Depreciation Practice Quiz
• 20. Payroll Accounting Practice Quiz
• 21. Bonds Payable Practice Quiz
• 22. Present Value of a Single Amount Practice Quiz
• 23. Present Value of an Ordinary Annuity Practice Quiz
• 24. Future Value of a Single Amount Practice Quiz
• 25. Nonprofit Accounting Practice Quiz
• 26. Break-even Point Practice Quiz
• 27. Improving Profits Practice Quiz
• 28. Evaluating Business Investments Practice Quiz
• 29. Manufacturing Overhead Practice Quiz
• 30. Nonmanufacturing Overhead Practice Quiz
• 31. Activity Based Costing Practice Quiz
• 32. Standard Costing Practice Quiz
• 33. Stockholders' Equity Practice Quiz

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15 Accounting Problem Solving Interview Questions and Answers

Prepare for the types of questions you are likely to be asked when interviewing for a position where Accounting Problem Solving skills will be used.

When it comes to interviews, accounting problem solving questions are designed to test your ability to find creative solutions to real-world challenges. While there is no one right answer to these types of questions, the best way to prepare is to practice brainstorming and thinking on your feet.

To help you ace your next interview, we’ve compiled a list of sample accounting problem solving questions and answers. These questions will test your knowledge of basic accounting principles as well as your ability to think critically and come up with innovative solutions.

• You are a senior accountant and you have been assigned to work on the budget for a new project. What steps would you take in order to complete this task?
• You are training an intern on how to perform accounting tasks. How would you go about doing that?
• You need to provide financial information to your team but you are short staffed and don’t have time to do it yourself. What would you do?
• You are working as part of a small accounting firm and need to improve internal processes. Where should you start?
• A client is having trouble understanding their bill. How would you help them understand what they owe?
• Your boss has asked you to cut costs by 10% but still maintain the same level of quality. How would you go about achieving this goal?
• A CFO wants to know why expenses went over budget last quarter. How would you explain this using data?
• An employee used company credit cards to purchase personal items. What would you do?
• The bookkeeper accidentally recorded some transactions twice. What should be done to correct this issue?
• A client needs a refund for services rendered but can’t find any record of payment. How would you handle this situation?
• There were several rows missing from your bank statement. How will you account for this error?
• You discovered errors in the books that would affect the balance sheet. What approach would you take to fix this problem?
• A customer doesn’t want to pay their invoice because they think there are mistakes. How will you resolve this conflict?
• A vendor claims they didn’t receive payment for goods provided. How would you investigate this claim?
• A client has requested additional documentation regarding payments made to vendors. How would you obtain this information?

1. You are a senior accountant and you have been assigned to work on the budget for a new project. What steps would you take in order to complete this task?

This question is a great way to assess your analytical skills and how you prioritize tasks. When answering this question, it can be helpful to list the steps you would take in order to complete this task.

Example: “I would first gather all of the information I need for the budget, including the current financial status of the company, the amount of money needed for the project and any other relevant information. Then, I would create a spreadsheet with all of the information I gathered and calculate the total cost of the project. After that, I would compare the projected costs to the actual costs to ensure they are accurate.”

2. You are training an intern on how to perform accounting tasks. How would you go about doing that?

This question is a great way to assess your teaching skills and how you would train others on the job. When answering this question, it can be helpful to describe what you would do step-by-step in training an intern or new employee.

Example: “I would first explain the basics of accounting by showing them how to use the software we use at our company. I would then have them perform tasks like entering data into spreadsheets and reconciling accounts. After they are comfortable with these basic tasks, I would give them more complex assignments that require them to apply their knowledge.”

3. You need to provide financial information to your team but you are short staffed and don’t have time to do it yourself. What would you do?

This question is an opportunity to show your leadership skills and ability to delegate tasks. In your answer, explain how you would communicate the information to your team in a timely manner while also ensuring that it’s accurate.

Example: “I would first make sure I had all of the financial data needed for my presentation. Then, I would create a spreadsheet with the relevant information and send it to each member of my team so they could review it before our meeting. This way, everyone has access to the same information at the same time and can ask me questions if they need clarification.”

4. You are working as part of a small accounting firm and need to improve internal processes. Where should you start?

This question is a great way to assess your problem-solving skills and ability to work as part of a team. When answering this question, it can be helpful to highlight the steps you would take when starting any project or task.

Example: “I would start by identifying what processes need improvement. I would then create a list of all current accounting procedures and compare them to industry standards. After that, I would analyze each process and determine which ones are most important for our company. Finally, I would implement new procedures based on my analysis.”

5. A client is having trouble understanding their bill. How would you help them understand what they owe?

This question can help interviewers understand your customer service skills and ability to explain complex information in a way that’s easy for clients to understand. Use examples from previous experience where you helped clients understand their bills or invoices.

Example: “I once had a client who was confused about why they were being charged late fees when they paid their bill on time. I explained the billing cycle to them, which included how long it took for the company to process payments before crediting accounts. They understood after that explanation and didn’t have any more questions.”

6. Your boss has asked you to cut costs by 10% but still maintain the same level of quality. How would you go about achieving this goal?

This question is a great way to test your analytical skills and ability to work under pressure. When answering this question, it can be helpful to provide an example of how you would go about achieving the goal while still maintaining quality.

Example: “I would first look at our current budget and see where we could cut costs without affecting the level of service we provide. I would then implement those changes and monitor them closely for any errors or issues that may arise. If there are no problems with the new system after three months, I would recommend making the cuts permanent.”

7. A CFO wants to know why expenses went over budget last quarter. How would you explain this using data?

This question is a great way to test your ability to communicate with others in the accounting department. It also shows how you can use data to explain complex financial processes.

Example: “I would first look at the budget and compare it to actual expenses for that quarter. I would then break down each expense category, looking for any outliers or areas where we spent more than usual. If there were no major changes in spending habits, I would check if there was an error in our calculations or if we had overlooked something.”

8. An employee used company credit cards to purchase personal items. What would you do?

This question can help an interviewer understand how you would handle a challenging situation in the workplace. Use your answer to highlight your problem-solving skills and ability to make tough decisions.

Example: “I would first meet with the employee to discuss their actions and determine why they used company credit cards for personal purchases. I would then speak with my manager about what happened, and we would decide on a course of action together. Depending on the severity of the situation, we may choose to terminate the employee or give them another chance by issuing a warning. If it’s a minor offense, I would likely issue a warning and require them to reimburse the company.”

9. The bookkeeper accidentally recorded some transactions twice. What should be done to correct this issue?

This question is a great way to test your accounting problem-solving skills. It also shows the interviewer that you can work independently and make decisions on your own. In your answer, explain how you would fix this mistake.

Example: “I would first check if there are any transactions missing from the ledger. If not, I would go through each transaction twice and delete it from the system. Then, I would record the correct amount of money in the account.”

10. A client needs a refund for services rendered but can’t find any record of payment. How would you handle this situation?

This question can help an interviewer assess your problem-solving skills and ability to work with clients. Use examples from past experiences where you helped a client resolve this issue.

Example: “I once had a client who needed a refund for services rendered but couldn’t find any record of payment. I asked the client if they remembered what method of payment they used, and they said it was a check. I then looked through all of our records for checks that were never cashed and found one that matched the amount owed by my client. I contacted the company that issued the check and explained the situation. They agreed to send a new check to my client.”

11. There were several rows missing from your bank statement. How will you account for this error?

This question is a great way to test your accounting skills and how you use them. It also shows the interviewer that you can recognize errors in financial documents and correct them quickly.

Example: “I would first check my math, as this is usually where I find mistakes. If there are no mathematical errors, then I will contact my bank for more information on the missing rows. Once I have all of the necessary information, I will create new rows for the missing data and enter it into the spreadsheet.”

12. You discovered errors in the books that would affect the balance sheet. What approach would you take to fix this problem?

This question is a great way to test your problem-solving skills and ability to work with others. Your answer should show that you can be honest, communicate effectively and collaborate with others.

Example: “I would first meet with the accounting manager to discuss my findings. I would then explain how the errors affected the balance sheet and what steps we could take to fix it. If there was enough time before the end of the fiscal year, I would make sure all transactions were recorded correctly. If not, I would record any adjustments needed in the next quarter’s financial statements.”

13. A customer doesn’t want to pay their invoice because they think there are mistakes. How will you resolve this conflict?

This question is a great way to test your customer service skills. It also allows the interviewer to see how you would handle conflict with clients and other stakeholders. In your answer, try to show that you can be empathetic while still maintaining professionalism.

Example: “I understand that this situation must be frustrating for my client. I would first ask them if they have any questions about their invoice. If they say no, I will explain why we are asking for payment. If they still don’t want to pay, I will offer to send them an itemized list of what they owe us so they can verify it themselves.”

14. A vendor claims they didn’t receive payment for goods provided. How would you investigate this claim?

This question can help interviewers assess your ability to investigate and resolve accounting errors. Use examples from past experiences where you investigated vendor claims or other types of errors in payment processing.

Example: “I would first check the company’s bank statements for any payments made to that vendor. If I find no record of a payment, I will contact the person responsible for making the payment to verify whether it was processed. If they confirm that the payment was never made, I will work with them to determine what happened and how we can prevent this type of error in the future.”

15. A client has requested additional documentation regarding payments made to vendors. How would you obtain this information?

Interviewers may ask you to provide examples of how you would complete a task or process in your previous role. This question can help them understand the steps you take and whether you have experience with similar processes.

Example: “I would first check our accounting software for any payments made to vendors that haven’t been recorded yet. If I don’t find any, I would contact each vendor to confirm if we’ve paid them. If we haven’t, I would record the payment as an expense and enter it into our system. If we have already paid the vendor, I would send my client documentation confirming this.”

15 Intrapersonal Communication Interview Questions and Answers

15 mathematical interview questions and answers, you may also be interested in..., 20 data transformation interview questions and answers, 20 hireright interview questions and answers, 25 logistics analyst interview questions and answers, 17 restaurant district manager interview questions and answers.

Accounting Cycle - Problems and Solutions

Problem - 1.

Journalise the following transactions, post them into ledger and balance the accounts.Also prepare a trial balance.

General Ledger [Books of Mr.Manohar]

Trial Balance [Modern Method]

Problem - 2

Jounalise the following transactions and post them into the ledger. Also prepare a trial balance.

General Ledger [Books of M/s. Venkat & Co.]

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• The joys of problem solving
• Student e-magazine

Many accountants enjoy problem solving more than number crunching. So what typical problems can you look forward to cracking at work? Iwona Tokc-Wilde reports

Problem solving is something that accountants and finance professionals deal with virtually every working day. In fact, a recent survey by Robert Half shows it is this part of working in the profession that they like best: 41% of accountants say solving problems gives them the most job satisfaction, compared to just 22% who prefer working with numbers.

‘Accountants are usually excellent at dealing with detail and spotting patterns, which makes them good at – and enjoy – problem solving,’ comments Andi Lonnen, founder and director of Finance Training Academy.

If you are at the beginning of your journey into the profession and enjoy tackling problems, you have a head start. Problem solving is also a skill that is one of the 10 most sought-after trainee skills globally (see 'Related links').

Why problem-solving skills are so important

‘The role of accountancy and finance has shifted from a pure focus on fiscal control to one where it has an impact on the business,’ says Phil Sheridan, managing director at Robert Half.

‘The requirement for problem-solving skills is part of this transition as, by mining data and analysing trends, accountants are now translating numbers into actionable insights for the business and are increasingly being seen as strategic partners.’ By putting their data skills and their problem-solving skills to work together, they also help uncover potential areas for concern.

It is vital for accountants in practice to correctly identify, analyse and solve problems too.

‘As trusted advisers, it’s our role to look at everything in detail to pick-up anomalies, patterns and correlations in order to advise our clients on how to take things forward,’ says Shahzad Nawaz of AA Accountants. If they fail to pick up and analyse problems correctly, the accounts could be wrong.

‘This means the business owner would be relying on incorrect data, which could have a detrimental effect on the future of the business. And, of course, if external stakeholders are relying on the data, then we could potentially be misleading them too.’

Incorrect accounts could also have other serious knock-on effects.

‘If the accounting figures are incorrect, then the tax payments relating to the company will be incorrect too. Later on, the client could find themselves with additional tax to pay – with interest,’ says Tanya Addy of BHP Chartered Accountants. 

‘Inaccurate accounting can also land businesses in serious commercial difficulties especially if, as a result, directors/owners have been taking more salary or dividends from the business than they were entitled to. In the worst case scenario, it could even lead to closure of the business.’

Problem solving at work

There are many areas where trainee and new accountants can practise solving problems, depending on the job you are doing.

‘If it’s accountancy, you’ll be looking at helping a business with cash flow, debtors and improving their record-keeping,’ says Nawaz.

At the nitty-gritty level, you will be reconciling control accounts, trying to understand why an account might not be balancing and investigating and clearing old items on reconciliations.

‘The work to balance an account involves finding out what the problem is and then resolving it, for example identifying and correcting transposition errors,’ says Lodden.

If you work in tax, you’ll be involved in advising a client on how much tax they will need to pay (and how much tax they can save) in a particular year.

‘This will require a review of the information provided by the client, such as bank statements and expenses, analysing which expenses incurred are allowable and disallowable for taxation, quantifying the results and communicating them to the client and to tax authorities,’ explains Carolyn Napier, senior ACCA tutor at London School of Business and Finance. 

You will also be dealing with tax implications, and tax cost for both employer and employee, of providing benefits.

‘You will need to ascertain which benefits are taxable and which are tax-free, and then you’ll need to "solve the problem" of which tax or taxes are due and payable, and by what date,’ says Napier.

In industry, you may be given the opportunity to help analyse projects, and communicate your findings to various parts of the business.

‘This is where new and trainee accountants will need to be prepared to utilise their problem-solving skills – noting anomalies and seeking clarification on areas of uncertainly will ensure that a clearer picture can be obtained,’ says Sheridan.

Deborah Adigun-Hameed is an accountant and junior financial analyst at BlueBay Asset Management. By utilising her problem-solving aptitude and skills, she has been involved in major decisions that shape the company she works for.

‘I’ve contributed to key strategic discussions about which market and products are profitable, what we should be selling and how we compare with our competitors,’ says Adigun-Hameed.

‘I may be newly qualified, but my informed opinions and advice are really valued by the management.’

Both in practice and in industry, accountants are also increasingly called upon to help solve technology problems – for example, when a business intends to implement new business software solutions. They help with the evaluation and selection of a solution, and with planning and execution of the implementation process. They also assist in testing the new system and facilitate going live when the system is ready.

Hone your problem-solving skills

Problem solving is about using logic and your technical expertise to assess a situation and to come up with a workable solution. It is connected to other skills such as level-headedness and resilience, analytical skills and good teamworking skills.

It also requires creativity, which is best learnt through collaboration – brainstorming with others to clarify the problem, generate ideas and create as many potential solutions as possible. When putting forward ideas, be confident in your contributions.

‘Everyone, including those newly-qualified, has something to offer,’ says Adigun-Hameed.  ‘Always think outside of the box, as cliché as that may sound. No new idea is insignificant. Innovation can be incremental; change can be small or radical.’

Improving your listening and communication skills will also make you a better problem solver.

‘Learning to communicate well is vital as you need to build rapport with clients. If you have a good rapport with someone, you are confident to ask questions, which is how you can pin down problems and find answers to those problems,’ says Nawaz.

Above all else, getting practical on-the-job experience is how you can get really good at problem solving.

‘The first control account a trainee tends to tackle and perfect is the bank control account; every trainee accountant has had to look for that 1p difference – as painful as that sounds, it certainly helps you learn,’ says Lauren Burt, client manager at EST Accountants and Tax Advisers.

"Everyone, including those newly-qualified, has something to offer. Always think outside of the box, as cliché as that may sound. No new idea is insignificant. Innovation can be incremental; change can be small or radical" Deborah Adigun-Hameed - BlueBay Asset Management

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Job Costing Examples, Practical Problems and Solutions

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on April 20, 2023

Fact Checked

Why Trust Finance Strategists?

Table of Contents

Job No. 58 passes through three departments: X, Y, and Z. The following information is given regarding this job:

Required: Calculate the cost of Job No. 58 from the above figures.

Note: Calculation of overheads chargeable to Job No. 58 was made as follows:

The expenses shown below were incurred for a job during the year ended on 31 March 2019.

The total price for the above job was $180,000.

• You are required to prepare a statement showing the profit earned from the job during the year ended 31 March 2019, as well as an estimated price of a job which is to be executed in the year 2019-20.
• You should charge the same percentage of profit on sales as was the case for the the year 2019-20. Materials , wages , and chargeable expenses will be required at $50,000, $70,000, and $20,000, respectively, for the job.

The various overheads should be recovered on the following basis while calculating the estimated price:

• Factory overheads as a percentage of direct wages
• Administrative and selling and distribution overheads as a percentage of factory cost

Note: Calculation of overheads rates and percentage of profit on sales took place as follows:

M/s. Perfect Printers Ltd. operates a printing press. During November 2019, the plant was operating at full capacity. The material and labor costs of Job No. 101 and all other jobs worked on in November are shown below.

In addition to these costs, factory overheads incurred in November amounted to $44,000. Overhead is allocated to production based on direct labor costs.

• Show the factory's profit or loss on Job No. 101 using two different methods of accounting for overtime premium. Assume that the contract price for the job is $40,000.
• Indicate under what circumstances each method should be used.
• State whether the profit or loss of the company during November would be affected by the choice of one method or another.

Factory Overhead Recovery Rate = (Factory Overhead / Direct Labor Cost) x 100 = (44,000 / 44,000) x 100 = 100%

If the overtime premium is fully charged to Job No. 101, the job cost sheet would be prepared as shown below.

If the overtime premium is charged pro-rata to all jobs, the job cost sheet would be prepared as follows:

The overtime premium should be charged fully to Job No. 101 if it was a rush job and it was done at the request of the customer.

However, if the overtime work was due to limited production capacity and it was accidental that Job No. 101 was undertaken during the overtime, then the overtime premium should be charged pro-rata to all jobs.

The company's profit and loss during November will be affected by the choice of any method if all the jobs performed during the month are not completed by the end of the month.

If the overtime premium is fully charged to Job No. 101 but is not completed by 30 November 2019, then the loss on the job will not be included in the account for November 2019.

Similarly, if the overtime premium is charged pro-rata to all the jobs, the profit or loss on any job that remains incomplete will be carried over to the next month.

The job details shown below were taken from the costing books of a contractor for the month of December 2019.

The respective job accounts showed the following balances in the contract ledger on 30 November 2019.

• Job No. 201 = $321,580
• Job No. 202 = $141,865

A certificate of completion was obtained for Job No. 201. Of the balance of this account standing on 30 November 2019, $61,500 was in respect of plant and machinery. The remainder consisted of wages and materials.

A machine costing $5,500, specially brought for this contract, was also sold for $2,000 in December 2019.

For the remainder of the balance on plant and machinery, $40,000 was used on the job for 8 months and the rest for 6 months.

Of the former, 50% was transferred to Job No. 202 and the whole of the remaining plant was returned to stores. The contract price for Job No. 201 was fixed at $375,000.

• Prepare contract accounts for Job Nos. 1 and 2 and state the profit made on jobs certified as completed.
• Allow depreciation on machinery at 15% per annum. Assume 10% for establishment charges on the cost of wages and materials consumed.

1. Establishment charges in respect of Job No. 201 A/c were calculated as follows:

2. Depreciation on plant and value of plant returned to stores were calculated as follows:

3. A plant costing $40,000 was used for 8 months and a plant costing $16,000 was used for 6 months:

4. Half of the plant, with a total depreciated value of $36,000, was transferred to Job No. 202:

Job Costing Examples, Practical Problems and Solutions FAQs

What is job costing.

Job costing is the method of allocating production costs to specific jobs.

What is a job cost sheet?

A job cost sheet is prepared when the actual manufacturing costs are known. The information can be recorded in a job cost sheet which serves as a basis for charging stores, manufacturing, and administrative expenses to jobs.

What are some advantages of job costing?

Some of the main advantages of job costing over process costing include: job costing allocates overhead based on production volume, provides greater accuracy in assigning a cost to products, and differentiates between variable and fixed costs.

What information is included in a job cost sheet?

A job cost sheet should contain the job name, units started and units finished on each job, and direct materials used on the job

What is job-order costing?

Job order costing is a method of accounting for manufacturing costs using a specially designed set of accounts. It is based on the assumption that manufacturing activities are undertaken to fulfill specific customer orders or contracts.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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