The overall assets are considered to be economic resources, which could be divided into tangible and intangible form. In addition, the overall assets are mainly controlled by the company, which could be converted into cash for supporting its obligations. The assets are divided into current and non-current assets, where current assets are mainly identified to be cash, accounts receivables and inventory. However, non-current assets can be identified to be machinery, land and equipment’s, which cannot be sold quickly to generate cash.

In the similar way liabilities are mainly considered as obligations of the company, which needs to be paid in future date. These liabilities mainly incur from past transactions that is conducted by the company. Furthermore, equity is mainly considered to be the difference between total asset and liabilities of an organisation. In same instance, current liabilities can be identified, as account payable, short term obligations and term loan. On the other hand, non-current liabilities can be identified as long tem loan, bonds issued and long term financial obligations.

The equity can also be stated as the contribution that is provided owner/shareholders in form of capital, which is directly used in maintaining the relevant activities of the organisation. The balance sheet statement directly reports assets, liabilities and equity functions (Scholes, 2015). Equity can be identified as the total investment, which is conducted by shareholders, which is depicted in balance sheet in form of common stock.

Furthermore, the overall income is identified to be the revenue generated by the company after selling its products and services. Relevant income cash also is detected the overall inflow of funds, which could allow the company to afloat in the competitive market. Income can be identified as revenue and any cash inflow, which is received by the company. Lastly, expenses are the costs incurred from operations of the company, which help in deriving the actual net income from operations. Moreover, the Income statement mainly includes both income and expenses conducted by the organisation. Balachandran, Marra, & Rangan (2014) mentioned that with the help of adequate financial report companies are able to depict their actual financial position to its investors. Expenses are mainly identified as the cost of goods, administrative expenses, rent and any cash outflow, which is been conducted by the company.

The overall balance sheet directly includes net income, additional investment in the business, and owner’s withdrawal from the income statement. Hence, the income statement is directly related to the balance sheet for depicting the actual financial statement. The balance directly reflects in balance sheet as retained income, deduction in owners’ equity and high investment. The major linkage between income and balance sheet is the relevant transfer of cash inflow and outflow, which helps in deriving the net income of the organisation. Moreover, with the help of income statement the relevant changes in balance sheet cannot be conducted, which might reduce viability of its operations. Hence, charges of depreciation are also transferred to balance sheet reducing value of assets accumulated by the company.

Providing relevant response to Bob:

With the help of double entry system companies are mainly able to conduct business transactions in two different accounts. In addition, double entry system directly help in maintaining the relevant accounting equation, which is asset= liability + equity. Hence, the use of double entry system directly allows the organisation to adequately adjust the relevant transaction in its financial report, where both increment in cash and liability both increases with the inclusion of bank loan. The income and expenses directly depicts the retained income of the organisation, which is reflected in equity section of the balance sheet (Loughran & McDonald 2016). The balance sheet equation (asset = liability + equity) can mainly help in identifying the relevant double entry system, which might tally all the relevant entries. The use of double entry system such as depreciation entry could reduce the balance in income statement and reduce asset value in balance sheet for tallying the balance sheet equation.

The errors in the double entry system are mainly identified from the use of Trial balance, which could directly identify any kind of problems those in recording transactions. The overall errors identified by the owner detected from trial balance could directly reflect on the financial performance of the organisation. The overall wrong entry could be conducted, which might reflect on the double entry system but could only be detected in Trail balance. Hence, the double entry system does not present the errors, which could be conducted while recordings made by individuals (Palepu, Healy & Peek, 2013). Therefore, the errors in double entry system can be conducted in the recording process, which might be the case for Sarah. This error in recording could directly reflect on the trail balance from which the entries can be adjusted and depict the actual transaction of the organisation.

Blacker Ltd Balance sheet:

References:

Balachandran, K. R., Marra, A., & Rangan, S. (2014). Research Challenges in Accounting and Finance in a Globalized Economy Fair value measurements, Valuation models, and Management practices. Journal of Accounting, Auditing & Finance, 29(1), 88-89.

Loughran, T., & McDonald, B. (2016). Textual analysis in accounting and finance: A survey. Journal of Accounting Research, 54(4), 1187-1230.

Palepu, K. G., Healy, P. M., & Peek, E. (2013). Business analysis and valuation: IFRS edition. Cengage Learning.

Scholes, M. S. (2015). Taxes and business strategy. Prentice Hall.