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Assignment on Financial Accounting Principles

Added on - 23 Nov 2020

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FINANCIAL ACCOUNTINGAND PRICIPLES
Table of ContentsINTRODUCTION...........................................................................................................................1MAIN BODY...................................................................................................................................11. Financial accounting and its purpose.................................................................................12. Regulations regarding Financial Accounting.....................................................................23. Accounting rules.................................................................................................................34. Accounting concepts and conventions...............................................................................4CLIENT 1........................................................................................................................................5CLIENT 2........................................................................................................................................7CLIENT 3........................................................................................................................................9CLIENT 4......................................................................................................................................13CLIENT 5......................................................................................................................................14CLIENT 6......................................................................................................................................16REFERENCES:.............................................................................................................................17
INTRODUCTIONThe financial accounting involves identifying, classifying, summarising the financial datain a significant manner, to make it useful for its users and interpreting the results to ascertain thefinancial position of business (Financial reporting standard,2017). It is mandatory for allorganisation either it is small or large to follow accounting rules, regulations and conventions.“DNS Accounting” is an accounting firm in U.K is a small accountancy firm working asaccounting and auditing in U.K. In order to prepare the books of accounts in effective andefficient manner then, it is crucial to follow the accounting terminology. In this report,Introduction of Financial Accounting and its purpose, rules- regulations and principles ofFinancial accounting and its concepts and conventions are mentioned in one part and in secondpart analysation of numerical data is presented.MAIN BODY1. Financial accounting and its purposeFinancial Accounting:It is a branch of accounting which is engaged with recording,classifying, summarising the financial data in proper manner, in order to present a present aproper analysation of financial data and to ascertain the financial position of business. Moreoverunder financial accounting only those transactions are to be recorded which are related tofinancial character. Financial accounting involves several stages to record , analysing andascertaining the financial data. First stage begins from recording of financial transactions injournal(in form of entries) after that in ledger (in form of separate accounts), after that in trialbalance(classification and interpretation of journal and ledger) and finally in consolidate Profitand Loss accounts and Balance sheet. the final accounts shows the net profit or net loss ofbusiness incurred in financial year and on other hand balance sheet shows the final financialposition of the business. Moreover there are some purpose of financial accounting:To prepare and maintain the the financial transactions of business.To ascertain the financial position of business:By analysing the financial data andbalance sheet.To shows the financial position of business:With the help of balance sheet whichshows the net assets and net liabilities of business at the end of financial year.1
To ascertain the profit and loss:By presenting the profit and loss account that showsnet profit or net loss incurred during a financial era.To provide a financial report in a significant manner to its internal and externalusers:Moreover, internal users includes board of directors, equity owners,management etc. and external users includes government organisations, tax authorities,financial organisations and potential investors.Presentation:To present the financial data in such a way that must be relevant, reliable,consistent, and comparable so that ascertainment of financial position becomes easier.2. Regulations regarding Financial AccountingFinancial accounting regulatory frameworks pertains three types of regulations namely;Professional regulations: The professional regulation pertains the valuation ofinventory use differently by different companies. Before the establishment of AccountingStandard Board (ASB) the entities were free to select and follow the different accountingmethods and it leads to different results of profits figures, then it become very critical for users torely on company's annual reports. Then after the establishment of Accounting Standards Board(ASB) the board issued several accounting standards and made mandatory for each entity tofollow these standards while preparing books of accounts. In case of international accountingregulations, the regulations in form of accounting standards were issued by InternationalAccounting Standards Committee(IASC) to ensures international comparability and consistencybetween the financial statements prepared by companies of two or more different nations(Mangala and Kumari, 2015).IFRS issued by the international accounting standard board(IASB) as a regulations regarding thepreparation of financial statements. IFRS 1 First time adoption of international financialreporting standards: according to this standard company which decides to follow IFRS first timeto prepare financial statements then company uses the accounting policies presented in IFRSfinancial statement throughout the year. The adoption of IFRS help the company to present itsfinancial statements comparable and consistent. So that the financial statements of that companybecomes comparable with other companies of different nations of world.IFRS7 states the Disclosure of accounting information: Disclosing of financial statements to itsusers is essential part which have to perform by the management of company as becomemandatory by IFRS following company. Disclosing it to its internal and external users. The2
internal users includes board of directors, equity owners, employees etc. on the other handexternal users includes government authorities, tax authorities, potential investors etc. Thegeneral public also needs the true financial information of public company as public companygenerates funds from public by issuing shares and correct financial position of company depictsin its financial statements of company (Keerasuntonpong and Cordery, 2016).3. Accounting rulesIn accounting terms mostly using double entry system because every transactions affecttwo accounts. First is debited and second is credited, due to it's dual aspects. The golden rules ofaccounting are as follows -Debit the Receiver, Credit The Giver:This Rule is applied on personal accounts, whena individual gives something to the company. The company recorded this individual ascredit in books of accounts and the receiver needs to be debited.Debit what comes in, credit what goes out:This Rule used for real accounts includingmachinery, land and building etc. In this principle already existing these accounts whenreceiving something so add balance in existing account. When giving something that timereduce balance from existing account.Debit all expenses and losses, credit all incomes and gains:This Rule applied onnominal account and including capital of the company. When credit all incomes andgains so increase balance of capital and when debit all expenses and losses so decreasebalance of capital.Accounting Principles:Economic Entity assumptions:In this principle accountant keeps all the businesstransactions separate from personal transactions. In accounting terms for legal purposethey have different different entities (Maseda and et. al., 2016).Time period Principle:This concept that a business results and it's operations arereporting in standard period of time. It assumes that business should report their financialstatements (income statement/balance sheet) in specific time period.Monetary unit principle:In financial accounting, only those transactions will evaluatewhich can be expressed in monetary terms, the transactions which cannot be expressed inmonetary terms are not to be included in accounting.3
Cost principle:Accounting involves consistency and comparability that is why itrequires to record the accounting transactions to be recorded at their historical values.Full Disclosure principle:If any information important relating to financial statementfor an investor or lender so that information disclosed with in the notes of the statement.That is why because basic accounting principle that in financial statements are attachedfootnotes (Sever, Žager and Sačer, 2013).Going concern principle:This principle defines that the will longer carry its businessoperations in foreseeable future, financial statements will also prepared on this basis tilllonger company survives.Matching principle:In this accounting principle company would be use the accrualbasis of accounting. The matching principle requires the revenues of the financial yearmust be matched with expenses of that financial year.Revenue Recognition Principle:In this principle revenues are recognized as money isactually received regarding product has been sold or a service has been performed.Materiality:According to this concept to financial statements are prepared to maintain asystematic record so it become useful to its users that is internal users and external users.Helpful in making economical decision. Financial statements are the material and it'sinformation is known as materiality.Conservatism:According to this principle expenses and liabilities are recorded as soonas possible but when you are sure for revenues and assets.4. Accounting concepts and conventionsAccounting concepts are basic accounting assumptions or regulations on the basis ofwhich books of accounts and final reports are prepared. While accounting conventions arecustoms, methods and process on the basis of which financial statements are prepared by a firm,these are having universal acceptance but changes with time. Partiality is impossible in applyingaccounting concepts.Consistency: According to this, accounting method, practices and policies on whichfinancial statements are based should be same in subsequent financial years. Because users offinancial information compares financial reports of a firm from one year to another. Thus it willbe easy for them. For instance, depreciation is charged according to straight line method,4
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