Financial Accounting TABLE OF CONTENTS INTRODUCTION
Added on 2021-02-20
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Financial accounting
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1A.......................................................................................................................................................1Concept of financial accounting and its purposes.......................................................................1Who are internal and external stakeholders and explain why financial information is useful....3B.......................................................................................................................................................7Client 1........................................................................................................................................7Client 2......................................................................................................................................14Client 3......................................................................................................................................17Client 4......................................................................................................................................20Client 5......................................................................................................................................20CONCLUSION..............................................................................................................................22REFERENCES ............................................................................................................................23
INTRODUCTIONFinancial accounting is the management of financial data which helps in analysingcurrent position of company (Zeff, 2017). Study is based on different clients. Report will containconcept of financial accounting and its purpose. It will prepare bank reconciliation statement,trial balance, sales and purchase control account of different clients. Furthermore, it will explaincontrol account and suspense account.AConcept of financial accounting and its purposesFinancial Accounting is concerned with keeping track records of the financialtransactions of the organisations. As per standard framework recording of the transactions isdone than summarisation and thereafter represented in form of financial reports and financialstatement like income statement or balance sheet. Companies are required to prepare financial statement on a regular basis. These Financialstatements are external as they are made for people outside the company, like stakeholders andfor the general public for enabling them to make decision. When the information is circulated inpublic it will obviously reach to secondary recipients like customers, employees, competitors,labour organisations etc (Ellwood and Newberry, 2016). The motive behind preparation of the financial statement is not about reporting the valueof the company rather the purpose is of providing sufficient to outsiders so that they are able toanalyse and assess the valuation of the company. Guidelines for Standard framework are givenunder Generally Accepted Accounting Principles which are used in every jurisdiction. It laysdown the standardised procedures rules and conventions that are required to be followed by theaccountants while recording the transactions and preparing the financial statements (Oulasvirtaand Bailey, 2016).IFRS International Financial Reporting Standards is bundle of accounting standardslaying down how transactions are to be recorded in the books and reported in financialstatements. The above standards are given by International Accounting Standard Board. IFRS arebecoming widespread across borders. In financial reporting consistency is becoming a
prerequisite among the global organisations. Objective of financial accounting is to gainresources from the outsiders like potential and existing investors, creditors, lenders to makedecisions by making available the financial information. Every company has to comply with thefollowing while preparing financial statements.Relevance – financial accounting is used for making decisions. The accounting informationgiven by the financial accounts should be capable of influencing the decisions of the viewer.Financial statement should be relevant and reliable enabling the viewers to take decisions(Hayoun, 2018).Materiality – Information given by the financial statement should be material thereshould not be misstatement or omission as the users economic decisions depend on the financialstatements prepared by the organisations. Immaterial information should not be given in thefinancial statements.Reliability – organisations must ensure that the financial accounting done by them iserror free and unbiased. Managers should be able to rely upon the financial accounts prepared.Information should not be moulded to fit in the relevance index as it would lose reliability. Understandability – there should be clear expression by the accounting records aboutevery transactions recorded by it. Accounts should be understandable by the end users and thetarget users for whom the statements have relevance. Comparability – financial accounts and statements prepared by the organisations shouldhave the comparability with the statements of other enterprise. Stakeholders and other usersshould be able to compare the statements with other entities for making decisions and coming ata conclusion. Purpose behind accounting are Systematic record of transactions the main purpose behind the accounting is to have a systematic record of the transactions whichis called book keeping (Edwards, Schwab and Shevlin, 2015). Thereafter the transactions areclassified and logically summarized for interpretations and for analysisAscertaining the results of recorded transactions
For getting the results of the operations carried by the enterprise profit and loss statementis prepared by the organisations for particular periods. Profit and loss statement helps theorganisation and stakeholders to arrive at a decision. It also helps the organisations to takecorrective actions if the company's profit are declining (Kim and Zhang, 2016). Ascertaining financial position of the enterpriseOwners are not only concerned with the profits of the enterprise but also its standing inthe market. Financial accounts are prepared by the enterprise for knowing the financial status ofthe organisation. It also enable the users to make decision about their investments seeing thefinancial statements.Information for Rational decision making Financial accounting is considered as the business language through which financialresults are communicated to the different organisations and various stakeholders of theenterprise. Investors must be able to make decisions on the basis of the financial informationgiven by an enterprise (Demerjian, 2018).For knowing the solvency statusPreparation of balance sheet and profit and loss account not only projects the wealth andowning of the enterprise but is also relevant for knowing the capability of the organisations inmeeting its liability over the specific time frame. Knowing the solvency level is very importantfor every organisation to make arrangements before it affects the functioning of the organisation(Callen, 2015).Who are internal and external stakeholders and explain why financial information is usefulStakeholders are group of people who are affected by the financial reports of thecompany. They are people who has stake in the company means they have invested in theorganisation. These all people are affected by the activities of the company. There are 2 types ofstakeholders i.e. internal and external (Types of stakeholders,2019).
Internal stakeholders: Internal stakeholders are people within the organisation i.e. employees, managers, ownersand investors. These people have interest in the financial information and are usually affected byit. Employees, owners and investors need to have a look in the financial report because they wantto know the current position of the company and take decision to continue work here or leave theorganisation. Internal stakeholders want company to be successful (Brown and Jones, 2015).Employees: In the organisation, employees are stakeholders because they work for thecompany to generate revenue. Employees are affected by the financial information of thecompany because firm provides employment to them and if company does not performwell, its financials report is negative which means business is in loss and cannot paysalary to employees. Employees job may be in danger thus employees need to check thefinancials so that they make correct decisions at right time. Workers need job securityIllustration 1: Types of stakeholders(source: Types of stakeholders. 2019 )
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