Financial Accounting and Management Control

The provided report explains the purpose of financial accounting, which is to help users develop decisions related to investment by providing accurate and reliable information. The report also discusses suspense accounts and their main features, as well as bank reconciliation statements. It references various books, journals, and online sources for further reading.

FINANCIAL ACCOUNTING
PRINCIPLES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
1. Defining financial accounting and its purpose...................................................................4
2. Internal and External stakeholders of an organization and why they are interested in
organization's financial information.......................................................................................6
CLIENT 1........................................................................................................................................8
Journal entry in the books of Alexandra study.......................................................................8
Trial balance:........................................................................................................................18
CLIENT 2......................................................................................................................................18
A.) Preparation of profit and loss statement of Munteanu Ltd. For the year ended 31st
december 2018......................................................................................................................18
B.) Statement of financial position of Munteanu Ltd as on 31st December 2018................18
C.) Explanation on following concepts................................................................................19
D.) Describing purpose of depreciation with its two methods.............................................20
E.) Critically evaluating the difference between the financial statements prepared by sole
trader and the limited companies..........................................................................................20
CLIENT 3......................................................................................................................................21
A.) Explaining the purpose of preparing the bank reconciliation statement and reason of this
preparation on monthly basis................................................................................................21
B.) Explaining areas which may cause record vary from the bank records.........................22
C.) Explaining the term imprest which is used in petty cash system...................................22
D.) Cash book and bank reconciliation statements..............................................................22
CLIENT 4......................................................................................................................................24
A.) preparation of balances...................................................................................................24
B.) Explaining the term Control account..............................................................................25
CLIENT 5......................................................................................................................................25
a.) Explaining the term suspense account with its main features.........................................25
b) Trial balance.....................................................................................................................26
c.) Journal entries and correction..........................................................................................26
CONCLUSION..............................................................................................................................27

REFERENCE...................................................................................................................................1

INTRODUCTION
Financial accounting is the process of recording, summarizing and reporting the financial
transactions of a company. Field of financial accounting is highly significant which in turn
provides stakeholders with suitable framework for decision making. Thus, the assessment will
create for developing better understanding of financial accounting and its purpose. Further, in
this report two internal stakeholders and four external stakeholders for large businesses will
evaluate in order to identify their interest in financial information of the organization. Small
accountancy firm which is selected in this report is Berley Chartered accountant which deals in
giving financial services to clients. Moreover, in this report calculation related to clients will also
be provided.
1. Defining financial accounting and its purpose
Financial accounting:
The financial accounting can be described as that branch of accounting that deals with
tracking the financial transaction of the company. The transactions are recorded in the books of
account as per the guidelines, standards to summaries the same and present the information in
financial reports or statement which includes profits and loss account, balance sheet, cash flow
statement etc. This is a process of recording, summarizing and reporting the myriad of
transaction which are a result from the operations and activities of a business over a period of
time (Financial accounting, 2018). The presentation of financing information of business
activities as per the standardized guidelines in various forms of statements record the operating
performance of company for a specific period. This utilize pre determined accounting principles
to decide the treatments of a particulate transaction as per the established principles.
The financial accounting may be performed using either of two methods accuracy and
cash method or a both. In general practice accrual method is followed as this record the dual
effect of a transaction giving the exact accounting treatments of each financial transaction of the
organization. The transactions are recorded in accordance with Generally accepted Accounting
principles (GAAP).
Purpose served by financial accounting:
The purpose of financial accounting is to make sure that all the certified accounting
standards are aided with in summarizing and recording of the financial transaction of the firm.
The purpose served by the financial accounting are not limited but its main aims is to assists in

harmonized recording, decision making etc. Some of the main purpose served by it are recouped
below:
Recording of the financial transaction:
The most important aspect of financial accounting is to record the financial and monetary
data and information of a business. To be carried out in such a manner that gives the final
extract about the performance of company as well as assist in decision making process.
Harmonized way record the transaction:
The main purpose served by financial accounting is summarizing and recording of the
monetary transaction related to a business pertaining to a particular period. This allow the
business to follow a uniform method in recording of the transaction with uniformity giving a
scope of comparison regarding own financial performance & position and competitors as well.
Assist in decision making process:
The main purpose served by financial accounting is to accumulate reports on the financial
information regarding the performance, financial position and cash flow of the business (The
importance of financial accounting, 2018). The information is used by the management in
decision making process on how to manage the business, invests and lend money etc.
Adherence with prescribed standard and guidelines:
This accounting emphasizes on abiding with regulatory guidelines and standards for
recording financial transaction associated with business. The transaction must be recorded as per
guidelines of GAAP, FASB, IFRS etc. which fulfills the legal obligation of the business
organization.
Relevance:
Purpose of financial accounting is to help its reader in making decision by analyzing
financial capability of company. Thus, financial accounting has the purpose to for providing
useful information which must be relevant. For satisfying these objective, entity report result on
quarterly and annual basis (Freedman, 2019).
Reliability-
It is the purpose financial accounting to provide information which must be reliable. It
reliable financial statements are not produce by company then investors are not able to gain the
information by which they will able to develop economic decision.
Comparability-

Another purpose of financial accounting is to provide information which is comparable.
System of recording and reporting accounting information is developed in order to provide
information which is more comparable.
Consistency-
It is the secondary quality of information which must be comparable where users will
able to relay and develop their decision regarding investment in company.
2. Internal and External stakeholders of an organization and why they are interested in
organization's financial information
Stakeholders can be defined as an independent body or institutions such as organizations,
individuals, groups that are concerned with the operations of a company and are interested in the
financial results of a business concern. Such stakeholders can be internal and external that are
briefly discussed below:
Internal stakeholders:
Internal stakeholders can be referred as those groups or individual that are present within
in the business organisation. Examples of such internal stakeholders are:
 Employees- these are the group of stakeholders which have direct interest for business
operations of the entity. Reason which states their interest is that they are one which plays
main role in developing effective business functions. They analyse their involvement by
analysing the nature of business in which they will earn of themselves. For example:
transportation, mining, construction are the business where employees develop interest by
analysing health and safety policies. Management- these are also a group of internal stakeholder which has the direct interest
in business operations of the entity. They generally want to earn high wages and also
wants to retain their jobs for long term perspective. Thus, they have huge interest in
financial capability and growth of business.
External stakeholders
External stakeholders are such individuals and groups that are not within the business
organisation but are affected by the operations of the company (Bredmar, 2016). Examples of
such groups or individuals are :
 Customers- These are the main group of stakeholder for every organisation because it is
said that the business only exists to serve their customers. That is why it is been said that

the consumers are the actual stakeholder of the business which mainly impacted by value
and quality of service which entity provides.
 Investors- these are the form of stakeholders which include both shareholders and debt
holders. They generally invest capital in business with the expectation of getting of
earning a certain rate of return. They are mainly concerned with concept of shareholder
value.
 Government Authorities- these are also a major stakeholder group in business because
they collect taxes from the entity as well as from people which are employed in the
company. They get benefited from the overall gross domestic product which is also
contributed by companies. Suppliers/Creditors- these are the group of stakeholders which sells goods and services
to the business and will only relay upon the revenue generation with the business
operations conduct on daily basis. It is also true that these are the group which directly
involved in the functions which operated by company because of which their interest
generated with health and safety too.
The different stakeholders are interested in company's financial reasons because of the
various reasons that are briefly discussed below:
Employees: The employees of a company are concerned with the profitability and
stability. This is because of profitability of the company helps employees to assess the ability of
firm to pay their salaries on time. Profits are the basis on which employees' benefits are decided.
Through company's stability, employees are assured of their jobs in the future. This satisfies their
need of job security. Further, personnel evaluate organisation's financial performance with the
motive to assess or identify probabilities of organisation in relation to expansion of operations in
different markets (Osadchy and et.al., 2018). Moreover, such expansion possibilities provides a
gateway for the career development and growth opportunities to the existing workforce of the
company.
Management: In big and large organisations, management are the professionals
appointed by the Board of Directors, who are also elected by the shareholders of company to run
the business in the most effective manner. This group of the entity is given with the
responsibility of conducting day to day activities of business on the behalf of owners. The
financial performance of the company helps the managers in assessing the level of effectiveness

of firm's policies and strategies regarding every aspect of enterprise. The current financial
position of the company helps the management in deciding the future plans in terms of expansion
of operations. For example, finance manager is concerned with profits made by the company
during a particular period. This in turn helps management team in assessing the funds available
within company. Meanwhile, financial statement analysis helps management in identifying
opportunities in relation to taking new projects (Harrison and van der Laan Smith, 2015).
The management analyses the financial position of the organisation for determining the
long term and short term solvency, profitability, liquidity and return from the investments made
by the business. In other words, by evaluating financial statement management team can assess
whether goals pertaining to sales and profit are met or not. Hence, by undertaking such
information management team of business unit can develop strategic framework for upcoming
time period.
CLIENT 1
Journal entry in the books of Alexandra study
Journal entries in the books of Alexandra for January are as follows
Date particulars Debit Credit
1st jan 2019 Storage expense A/c Dr 450
To bank A/c
2nd jan 2019 Purchase A/c Dr 6080
To S. hood A/c 1450
To D main A/c 2060
To W Tone A/c 960
To R foot A/c 1610
3rd jan 2019 J Wilson A/c Dr 1200
T . Cole A/c dr 1650

F. Syme A/c Dr 2100
J . Allen A/c Dr 1020
P. white A/c Dr F. Lane A/c
Dr 2520
F. lane A/c Dr 980
To sales A/c 9470
4th jan 2019 Motor Expenses A/c Dr 470
To cash A/c 470
7th jan 2019 Drawing A/c Dr 1500
To cash A/c 1500
9th jan 2019 T. cole A/c Dr 680
J. Fox A/c Dr 1310
To sales A/c 1990
11th jan 2019 Sales return A/c Dr 680
To J. wilson 270
F.syme 410
16th jan 2019 Cash A/c Dr 7020
To P. Mullen A/c 1400
To F. Lane A/c 3100

To J. Wilson 850
To F. Shyme 1670
19th jan 2019 R. foot A/c Dr 50
To Purchase return A/c 50
22st 2019 Purchase A/c Dr 3740
To L.Mole A/C 1830
To W. Wright 1910
24th jan 2019 S. Hood A/c DR 3600
J. Brown A/c Dr 4600
R. Foot A/c Dr 1400
To Bank A/c 9600
27th jan 2019 Salary A/c Dr 4800
To bank A/c 4800
30th jan 2019 Business rates A/c Dr 1320
To bank A/c 1320
Purchase ledgers
S. hood Capital A/c
date details Amount date Details Amount
24th jan
2019 cash book 3600 1st jan 2019 Balance b/d 12150

Purchase day book 1450
balance c/d 10000
13600 13600
J. Brown
date details Amount date Details Amount
24th jan
2019 cash book 4600 1st jan 2019 Balance b/d 16600
balance c/d 12000
R. foot
date details Amount date Details Amount
19th jan
2019 Purchase return book 50 2nd jan 2019 Purchase day book 1610
24th jan
2019 cash book 1400
balance c/d 160
W. Tone
date details Amount date Details Amount
31st jan
2019 balance c/d 960 2nd jan 2019 Purchase day book 960

L. Mole
date details Amount date Details Amount
31/01/19 balance c/d 1830
22nd jan
2019 Purchase day book 1830
W. Wright
date details Amount date Details Amount
31st jan
2019 balance c/d 1910
22nd jan
2019 Purchase day book 1910
Sales Ledgers
J. Wilson
date details Amount date Details Amount
1st jan 2019 sales 1200 11th jan 2019 sales return 270
16th jan 2019 cash 850
31st jan 2019 balance c/d 80
T. Cole
date details Amount date Details Amount
3rd jan
2019 sales 1650 31/01/19 balance c/d 2330

9th jan 2019 sales 680
F. syme
date details Amount date Details Amount
3rd jan
2019 sales 2100 11th jan 2019 sales return 410
16th jan 2019 cash 1670
31 st jan 2019 balance c/d 20
J. Allen
date details Amount date Details Amount
3rd jan
2019 sales 1020 31st jan 2019 balance c/d 1020
P. White
date details Amount date Details Amount
3rd jan
2019 sales 2520 31st jan 2019 balance c/d 2520
F. Lane
date details Amount date Details Amount
1st jan 2019 balance b/d 6100 16th jan 2019 cash 3100
3rd jan
2019 sales 980

31st jan 2019 balance c/d 2020
J. Fox
date details Amount date Details Amount
9th jan 2019 sales 1310 31 st jan 2019 balance c/d 1310
P. Mullen
date details Amount date Details Amount
1st jan 2019 balance b/d 4400 16th jan 2019 cash 1400
31st jan 2019 balance c/d 3000
Books of Primary entry

Cash book
Nominal Ledgers

Real Ledger

Trial balance:
CLIENT 2
A.) Preparation of profit and loss statement of Munteanu Ltd. For the year ended 31st december
2018

B.) Statement of financial position of Munteanu Ltd as on 31st December 2018.
C.) Explanation on following concepts
Going concern:
It is an assumption which state that the entity will remain in business for foreseeable
future which means that the entity will not be forced in order to develop operations and to liquid

its assets in any financial year. This is the term which used by accountant in order to recognise
certain expenses for longer period (Arora, 2016).
Accrual concept:
It is the most fundamental principle which states that revenue will only get recorded
when they get earned not when the cash of such revenues get received. This principle also states
that expenses are only get recorded when they get incurred not when they are paid.
Consistency:
This is the concept which state accounting methods, principles and procedures which
once adopted will be consistent with one financial year to another. It is the concept which
considered as one of the most characteristics or quality which makes financial statements useful.
Prudence:
It is the principle which state that do not overestimate the amount of revenue and do not
underestimate the amount of expenses by which result must be conservatively state financial
statements.
D.) Describing purpose of depreciation with its two methods
The main purpose of depreciation is to match the cost productive asset which has a useful
life of more than a year with the revenue which earned by using such asset (Del Giudice,
Manganelli and De Paola, 2016). Depreciation must be systematically allocated from year to
year until the result appeared as zero or negative. Its two methods are straight line and written
down.
Straight line method:
It is the default method which is used for recognizing the amount of fixed assets over its
useful life. This is the most generally used technique and also highly recommended because it is
easy in calculating this method.
This method is useful in situation when economic benefits are anticipated to be evenly
realized over its useful life.
Written down value method:
It is also known as reducing balance or diminishing method where depreciation is
calculated with fixed rate of percentage each year on decreasing book value in order to find the
productive value of the asset (Liapis and Kantianis, 2015).

This method is used in the circumstances when company wants to ascertain a previously
bought asset’s current worth and which is calculated by deducting accumulating amortization
from the original value of asset. It basically used for keeping a check assets and determination of
their sell on value.
E.) Critically evaluating the difference between the financial statements prepared by sole
trader and the limited companies
Basis of difference Sole trader Limited companies
Meaning Sole traders are the one who
owns and operates business
without any interference of
others.
In this, owners are legally
accountable for debt.
However, responsibility is
limited to the part of capital
invested by them.
Tax assessment Tax get charged on the income
which is earned by sole
proprietor (Narayanaswamy,
2017).
Corporate needs to follow
proper accounting concepts,
principles, rules and other
regulatory framework while
assessing tax obligations.
Compliance with rules and
regulations
It is not compulsory for the
sole trader in relation to
compliance with any
accounting standards such as
UK GAAP, IFRS etc. Hence,
it is their own choice to decide
whether financial statements
needs to prepare or not.
Compliance with accounting
rules and regulations is
necessary in the context of
public companies.
Auditing requirement Sole traders are free from
obligation pertaining to audit
of final accounts every year.
Financial statements needs to
be audited every year. Thus,
private limited companies have
to follow strict accounting
principles in order to

preparation of financial
statements.
Restrictions Sole trader is free to prepare
its balance sheet in either ways
i.e., horizontal or vertical
manner.
Limited companies have to
compulsorily follow the rules
and procedures provided and it
has to prepare its balance sheet
in vertical manner only.
Owner’s equity The owner’s equity consist of
only one component which is
account of owner’s equity.
Shareholder’s funds includes
share capital, reserves &
surplus, retained earnings,
other revenues etc.
Treatment of tax It is levied on owner’s income It is levied on income of
company because of its
separate legal status.
CLIENT 3
A.) Explaining the purpose of preparing the bank reconciliation statement and reason of this
preparation on monthly basis
Purpose of preparing bank reconciliation statement is to compare records to those of bank
for measuring any difference arising with cash book transaction of the company. In other words,
it is used for ensuing the entries which are recorded in cash book with the entries recorded in
bank statements. Its purpose is to confirm the accuracy of balances, it also provides proper
accuracy of entries made in both books and bank records.
Burcu Ltimited prepares it periodically in order to identify the bank related transaction
are recorded properly in bank column of cash book or not. It also helps in finding errors while
recording transaction as per bank balance (Christensen, Nikolaev and Wittenberg‐Moerman,
2016).
B.) Explaining areas which may cause record vary from the bank records
Some reason which specify the areas which creates difference between the balance on
bank statement and in books of accounts include:

 Outstanding checks
 Deposits in transit
 Errors which identified in books of accounts of company.
 Bank service charges
 Check printing charges
 Some other electronic charges.
It creates difference because any item which recorded in company's general ledge accounts
but did not have recorded in bank statements. The same adjustment has been created in the cash
book of entity so that accurate transaction relates to business operation get recorded.
C.) Explaining the term imprest which is used in petty cash system
Imprest system in petty cash is a form of financial accounting system which is the most
common in petty cash. Its characteristics in petty cash is that a fixed amount will get reserved for
the certain period so that it will get used in certain circumstances (Pijper, 2016). This is the
system which allow replenishment on the money which get spend. In other words, it means that
the general ledger petty cash will remain as active for certain set of accounts while preparing
financial statements for the company. For example: under the petty cash custodian is confiding
with certain amount of currency and coin then amount under this statement will only report with
the debit balance only.
D.) Cash book and bank reconciliation statements

CLIENT 4
A.) preparation of balances
Sales ledger account
Purchase ledger account

B.) Explaining the term Control account
Control account is known as general ledger account which only contain summary of
amounts as per the business transactions. Details in each of the control account will be recorded
separately in subsidiary ledger so that any balance ledger account at the time of preparation get
matched. This is the account which keeps the ledger free of details where there is still a correct
balance in order to prepare the financial statements of the company (Ahmetshina, Vagizova and
Kaspina, 2018).
Its purpose are as follows-
The purpose of preparing control account is to keep the general ledger free from the
details without any details where there are chances of containing the correct balance which will
be used at the time of making financial statements of the company.
CLIENT 5
a.) Explaining the term suspense account with its main features
It is the type of account which is used for temporarily basis in order to carry doubtful
entries at the time of preparing financial accounts. Under this account transaction get recorded
until its original source will not identify by the accountant. It generally located in the general
ledger where the amount gets recorded with the perception to investigation.
Its main feature are as follows-
 It helps in preparing the trial balance because if that account will not get agree then whole
financial statements gets wrong. Thus, for matching trial balance this accounts prepared.
 This is the account which helps in locating the errors because where accountant finds
errors which committed at past (Stubbs and Higgins, 2018).

b) Trial balance
c.) Journal entries and correction

CONCLUSION
From the above report it can be concluded that financial accounting is the term which
helps organization in giving reliable and accurate information to users upon which they can rely
and develop their economic decision. In this report, purpose of financial accounting has been
explained where it is analyzed that it helps users of entity in developing decision which relates to
investment. Further, in this report suspense account and its main features are elaborated in order
to prepare general ledger account correctly. Moreover, explanation also has been provided on
bank reconciliation statement through which it is analyzed that for matching cash balance with
bank statements this account gets prepared.