Importance of Financial Accounting

This report emphasizes the crucial aspect of financial accounting within an organization. It explains how financial accounting is not only essential for external parties but also plays a vital role in internal decision-making. The report highlights the responsibilities of a financial or accounting manager, including recording monetary entries and preparing balance sheets and income statements. It also discusses the importance of following appropriate accounting standards, which includes capital and revenue expenditure to produce long-term and short-term objectives.

Accounting Fundamentals

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a) Preparation of ledger accounts for accounting transactions of Maxim...................................3
b) Trial balance of above entries.................................................................................................5
c) Preparation of profit and loss statement of financial position statement of Maxim ..............5
TASK 2............................................................................................................................................6
a) Preparation of ledger accounts of following transactions of Pendo .......................................6
b) Preparation of Trial balance at 31st January of Pendo...........................................................9
c) Formation of profit and loss statement and financial position statement of Pendo..............10
TASK 3..........................................................................................................................................11
a) Preparation of Ledger accounts of Mafuta............................................................................11
b) Trial balance at 31st January of Mafuta................................................................................13
Profit and loss statement and financial position statement at 31st January of Mafuta.............14
TASK 4..........................................................................................................................................15
Ledger accounts and recording of transactions.........................................................................15
TASK 5..........................................................................................................................................19
Demonstrate the difference between revenue and capital expenditure with reference to
International accounting standard.............................................................................................19
CONCLUSION..............................................................................................................................21
REFRENCES.................................................................................................................................22

INTRODUCTION
Financial fundamental emphasise on recording all the financial transaction of business
that affects the functioning of business (Hilton and Platt, 2013). Financial department record,
summarize and finally present the business report for the interested stakeholders of the company.
Thus, company follows appropriate accounting standard such as IAS, IFRS and so on to make
the better comparison among various competitors. This report cover topics like practical
application of financial transaction, ledger account, trial balance, preparation of profit and loss
account that depict the actual position of business and demonstrate the difference between
revenue and capital expenditure with reference to International accounting standard (Wright,
2017).
TASK 1
a) Preparation of ledger accounts for accounting transactions of Maxim
Date Particular Debit amount Credit amount
05/04/18 Cash a/c 300
To capital 300
07/04/18 Purchase a/c 200
To cash a/c 200
08/04/18 Cash a/c 250
To loan form Tatiana 250
15/04/18 Motor car a/c 150
To van a/c 150
20/04/18 Cash a/c 350

To sales 350
28/04/18 rent a/c 50
To cash a/c 50
29/04/18 Loan a/c 200
To cash a/c 200
30/04/18 Drawing a/c 60
To cash a/c 60
Cash a/c
Date Particular Amount Date Particular Amount
05/04/18 To capital a/c 300 07/04/18 By purchase 200
08/04/18
To loan form
Tatiana 250 15/04/18 By Motor van 150
20/04/18 To sales 350 28/04/18 By rent 50
29/04/18 By loan paid 200
30/04/18 by Drawing 60
30/04/18
By closing
balance 240
900 900
Capital a/c
Date Particular Amount Date Particular Amount

30/04/18 To drawing 60 05/04/18 By cash 300
30/04/18 To closing balance 240
300 300
Purchase a/c
Date Particular Amount Date Particular Amount
07/04/18 To cash 200 30/04/18 By trading a/c 200
200 200
Loan a/c
Date Particular Amount Date Particular Amount
29/04/18 To cash 200 08/04/18 By cash 250
30/04/18 To closing balance 50
250 250
Motor van
Date Particular Amount Date Particular Amount
15/04/16 To cash 150 30/04/16
By closing
balance 150
150 150
Sales a/c
Date Particular Amount Date Particular Amount
30/04/16 To Trading a/c 350 20/04/18 By cash 350
350 350
Rent a/c
Date Particular Amount Date Particular Amount
28/04/18 To cash 50 20/04/18 By P&l ac 50
50 50
Drawing a/c

Date Particular Amount Date Particular Amount
30/04/18 To cash a/c 60 30/04/18 By capital a/c 60
60 60
b) Trial balance of above entries
Trial balance
S.N. Particulars
Debit
amount
Credit
amount
1 Cash 240 -
2 Capital - 240
3 Purchase 200 -
4 Loan a/c - 50
5 Motor Van 150 -
6 Sales - 350
7 Rent 50 -
Total 640 640
c) Preparation of profit and loss statement of financial position statement of Maxim
Trading and P&L a/c Statement
Particular Amount
Sales 350
Less: Cost of sales -100
(Purchase-closing
stock)
Gross profit 250

Rent paid 50
Net profit 200
Financial position statement
Assets
Non Current assets
Motor van 150
Current assets
Cash 240
Closing stock 100
Total assets 490
Liabilities
Capital 240
add: profit 200 440
Loan 50
Total liabilities 490
TASK 2
a) Preparation of ledger accounts of following transactions of Pendo
Journal entries
Date Particulars Amount (£) Amount (£)
01/01/18 Cash a/c 5000
To capital a/c 5000
(Being capital introduced)
02/01/18 Motor van 600
To cash a/c 600

(Being Motor van acquired)
03/01/18 Purchase a/c 1300
To cash a/c 1300
(Being purchase made)
04/01/18 Cash a/c 1000
To loan form Sergei a/c 1000
(Loan received from Sergie)
10/01/18 Motor expenses 200
To cash a/c 200
(Being motor expenses paid)
13/01/18 Cash a/c 300
To sales 300
(Sales made)
20/01/18 Cash a/c 500
To sales 500
(Being sales made)
24/01/18 Storage Expenses a/c 150
To cash a/c 150
(Being expenses made)
27/01/18 Loan a/c 350
To cash a/c 350
(Repayment of loan)
30/01/18 Drawing a/c 175
Cash 175

(Drawings made)
Ledger accounts
Cash a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
01/01/18 To capital a/c 5000 02/01/18 By motor van 600
04/01/18
To loan form
sergri 1000 03/01/18 By Purchase 1300
13/01/18 To sales 300 10/01/18 By motor expenses 200
20/01/18 To sales 500 24/01/18 By storage expenses 150
27/01/18
By repayment of
loan 350
30/01/18 By drawing 175
31/01/18 By closing balance 4025
6800 6800
Motor van a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
02/01/18 To Cash 600 31/01/18 By closing balance 600
600 600
Purchase a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
03/01/18 To Cash 1300 31/01/18 By trading a/c 1300

1300 1300
Loan form Sergie a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
27/01/18 To Cash 350 04/01/18 By cash 1000
31/01/18 To balance c/d 650
1000 1000
Sales a/c
Date Particular Amount (£) Date Particular
Amount
(£)
31/01/18 To trading a/c 800 13/01/18 By cash 300
20/01/18 By cash 500
800 800
Storage expenses
Date Particular
Amount
(£) Date Particular
Amount
(£)
24/01/18 To Cash 150 31/01/18 By P&L a/c 150
150 150
Drawing a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
30/01/18 To Cash 175 31/01/18 By Capital a/c 175
175 175

Capital a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
31/01/18 To Drawing 175 01/01/18 By cash 5000
31/01/18 To balance c/d 4825
5000 5000
Motor expenses
Date Particular
Amount
(£) Date Particular
Amount
(£)
10/01/18 To Cash 200 31/01/18 By P&L a/c 200
200 200
b) Preparation of Trial balance at 31st January of Pendo
Trial balance
S.N. Particulars
Debit Amount
(£) Credit Amount (£)
1 Cash 4025 -
2 Motor Van 600 -
3 Purchase 1300 -
4 Loan a/c - 650
5 Sales a/c - 800
6 Storage expenses 150 -
7 Capital - 4825

8 Motor expenses 200 -
Total 6275 6275
c) Formation of profit and loss statement and financial position statement of Pendo
Profit and loss statement
Particulates
Amount
(£)
Sales 800
Less: Cost of sales 500
(Purchase-closing stock)
Gross profit 300
Less: expenses
Storage expenses 150
Motor expenses 200
Net loss -50
Financial position statement
Non current assert Amount (£)
Motor van 600
Current assets
cash 4025
Stock 800
Total assets 5425
Equity
Capital

4825
Less: Net loss -50 4775
Current liability
Loan form Sergei 650
Total liabilities 5425
TASK 3
a) Preparation of Ledger accounts of Mafuta

Payable to Max's a/c
Date Particular Amount (£) Date Particular Amount (£)
Jan, 9 To cash a/c 21 Jan, 1 By Balance b/d 21
Payable to Rich's a/c
Date Particular Amount (£) Date Particular Amount (£)
Jan, 15 To cash a/c 162 Jan, 1 By Balance b/d 12
Jan, 5 By purchase a/c 150
162 162
Inventory a/c
Date Particular Amount (£) Date Particular Amount (£)
Jan, 1 To Balance b/d 458 Jan, 31 By Trading a/c 458
Jan, 31 To Trading a/c 374 Jan, 31 By Balance c/d 374

Feb, 1 To Balance b/d 374
b) Trial balance at 31st January of Mafuta
Trial Balance at 31 January
Particulars Debit (£) Credit (£)
Cash in hand a/c 323 -
Capital a/c - 1049
Fixtures and fittings a/c 230 -
Sales a/c - 412
Wages a/c 58 -
Purchase a/c 225 -
Office expenses a/c 3 -
Receivables a/c - -
Harvey 138 -
Moon 26 -
Inventory a/c 458 -
1461 1461
Profit and loss statement and financial position statement at 31st January of Mafuta
Statement of Profit and Loss
For the month ended 31 January
Particulars Amount (£)
Sales 412
Less- Cost of goods sold 309
Gross profit 103
Less – Expenses
Wages 58

Office Expenses 3 61
Net Profit 42
Statement of Financial position at 31 January
Particulars Amount (£)
Non current assets
Fixtures and fittings 230
Current assets
Inventory 374
Trade receivables (138+26) 164
Cash 323 861
Total Assets 1091
Capital account 1049
Add – Net Profit 42 1091
Total Liabilities 1091
Working Note:
Cost sale = Purchase + Opening inventories – Closing stock
= 458 + 225 – 374 = 309
TASK 4
Ledger accounts and recording of transactions
Date Particular Debit amount Credit amount
02/06/18 Claire a/c 8500
To sales a/c 8500

(Being sales are made)
13/06/18 Purchase a/c 12000
To Georgina 12000
(Being purchase are made)
14/06/18 Hywel a/c 8550
To sales a/c 8550
(Being sales are made)
20/06/18 Cash a/c 6000
To sales a/c 6000
(being sales are made)
21/06/18 Purchase a/c 4500
To Andrew 4500
(Being purchase are made)
22/06/18 Sales return a/c 1000
to Claire a/c 1000
(Being sales return are made)
24/06/18 Mandy a/c 5000
To sales a/c 5000
(Being sales are made)
24/06/18 Cash a/c 7125
Discount allowed a/c 375
to Claire a/c 7500

(Payment made by Claire)
25/06/18 Cash a/c 8550
To Hywel a/c 8550
(Payment made to Hywel a/c)
Georgina 12000
To Cash 11160
To discount
received 840
(Payment made to Georgina)
27/06/18 Andrew a/c 4500
To discount
received 90
To cash 4410
Ledger accounts
Sales a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
30/06/18 To Trading a/c 28050 02/06/18 By Claire 8500
14/06/18 By Hywel 8550
20/06/18 By cash 6000
24/06/18 By Mandy 5000
28050 28050
Purchase a/c
Date Particular Amount Date Particular Amount

(£) (£)
13/06/18 To Georgina 12000 30/06/18 By Trading a/c 16500
21/06/18 To Andrew 4500
16500 16500
Claire a/c
Date Particular Amount Particular Amount
02/06/18 To sale 8500 By Cash 7125
By discount
allowed 375
8500 8500
Georgina a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
25/06/18 To Cash 11160 13/06/16 By Purchase 12000
To Discount
received 840
12000 12000
Hywel a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
14/06/18 To sales 8550 25/06/18 By cash a/c 8550
8550 8550
Andrew a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
27/06/18 To Cash 4410 21/06/18 By Purchase a/c 4500

To Discount
received 90
4500 4500
Cash a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
20/06/18 To sales 6000 25/06/18 By Georgian 11160
14/06/18 To Hywel 8550 27/06/18 By Andrew 4410
24/06/18 To claire a/c 7125 30/06/18 By Balance c/d 6105
21675 21675
Sales return a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
22/06/18 To claire a/c 1000 30/06/18 By Trading a/c 1000
1000 1000
Mandy a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
24/06/18 To sales 5000 30/06/18 By Balance c/d 5000
5000 5000
Discount allowed a/c
Date Particular
Amount
(£) Date Particular
Amount
(£)
24/06/18 To Claire 375 30/06/18 By P&L a/c 375
375 375
Discount Received account
Date Particular Amount Date Particular Amount

(£) (£)
30/06/18 To P&L 930 25/06/18
By
Georgina 840
27/06/18 By Andrew 90
930 930
Trial balance
Particular Debit amount Credit amount
Sales 28050
Purchase 16500
Cash a/c 6105
Discount received 930
Discount allowed 375
Sales return 1000
Mandy 5000
Total 28980 28980
TASK 5
Demonstrate the difference between revenue and capital expenditure with reference to
International accounting standard
Revenue expenditure: Revenue expenditure are those expenditure which are incurred on
continuous or regular basis. In simple words, it include those transaction which are incurred by
business firm in its day to day activities such as printing, postage, stationery, wages and so on.
These expenditure are incurred for short duration due to which the company gets its profit within
a financial year (Dosamantes, 2013).
Capital expenditure: Unlike revenue expenditure, capital expenditure are made on the
long term basis. Within this business makes huge expenditure like installation of new machinery