Question 1
The fund balance for the nursing home can be determined with certainty given the value of total assets and the value of total liabilities. Balance sheet normally records the value of assets, liabilities and capital which in this case represent the fund value. The fund balance typically represents the net assets of a company especially from one specific fund. It comes from an accounting concept that when a liability of a given fund is subtracted from the assets, the remaining amount represents the balance owned by the business. Since the value of the total assets and total liability are given, it is possible to determine the fund balance with certainty. As a result, the information provided is adequate to establish the fund balance. In this case, value of assets is $ 20 million and the value of liability is $ 17 million. Thus the fund balance is given as $20 million - $ 17million = $ 3million.
Question 2
The transaction on June 30 where a payroll of $ 10,000 was paid to the employees will affect wages account and bank account. However, if the payment was made in cash it can affect the wage account and cash account. As a result, the wages account will be debited by $ 10,000 while the bank or cash account will be credited by $ 10,000 on the date.
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The transaction that occurred on July 5 whereby $ 2,000 of labor was charged to the nursing department was an error and thus should be corrected. Failure to correct the error can lead to misrepresentation of the financial statements. This can include giving inaccurate liabilities, assets and fund balances. The inaccuracy in fund balances can be misleading when giving forecast for the future expenses and needs in the departments that are affected by the wrong transactions.
