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Concept of Financial Accounting and Purpose - PDF

   

Added on  2020-10-22

11 Pages3040 Words105 Views
Financial Accounting

Table of ContentsINTRODUCTION...........................................................................................................................1PART 1............................................................................................................................................1(A): Concept of financial accounting and its purpose............................................................1(B): Regulation related with financial accounting .................................................................2(C): Accounting rules and concepts.......................................................................................2(D): Convention and accounting concepts associated with material and consistency...........4PART 2............................................................................................................................................41. Sole traders and its advantages and disadvantage..............................................................42: Capital for sole traders.......................................................................................................43: ASSETS=LIABILITIES + EQUITY.................................................................................54: IAS 1: Financial statement and its purpose with need.......................................................55: Statement of sole trader and company...............................................................................66. IAS 2- Inventory and evaluation........................................................................................67. Accrual concept..................................................................................................................68: Accounting Consistent and Prudence concept...................................................................69: Depreciation and its purpose in formulating accounting statements..................................610: Purpose of preparing Bank Reconciliation Statements....................................................711: Control account................................................................................................................712: Suspense account..............................................................................................................7CONCLUSION................................................................................................................................8REFERENCES................................................................................................................................9

INTRODUCTIONFinancial accounting is an effective field of reporting that is associated with the overallsummary, analysis and recording of financial transaction pertaining to the specific business. Thisconsists of formulation of financial statements that is available for effective public consumption.This project is based on two parts that provide specific information about accounting reporting aswell as rules that are taken into account recording of financial transaction. This report is dividedin two part in which First part covers the financial reporting and apart from this, other parts ofthis report deal with discussion about sole traders and other accounting concepts that areprepared within an organisation (Bertoni and De Rosa, 2012). Simpson Wood accountancy firm,that provide financial accounting treatment and auditing services in the UK is chosenorganisation to assist the report.PART 1(A): Concept of financial accounting and its purposeFinancial accounting is said to be the art of recording, classifying and summarizing thetransaction in significant manner in accordance of money transaction. These transaction is beingrecorded in financial statement which consists of balance sheet, profit and loss statement as wellas cash flow statement. All this information is taken into consideration for analysing financialposition of the Simpson Wood company. The aim of this reporting is to provide accounting datato the investors so that they can make their capital investment decision accordingly. There arevarious types of accounting statements such as:Incomes statement: This is known as one of the primary report that can be prepared tokeep every profit generated by Simpson Wood during the particular period of time.Purpose: The main purpose behind formulation of income statement is to present thedifferent stakeholders an situation that how much profit and loss is generated by organisationduring one reporting period.Balance sheet: It is known as one of the more reliable financial statements that candisplays companies overall total assets and liabilities of “Simpson Wood”. It has beendetermined that a standard set of rules can allow within an organisation that can consists of twoside. Purpose: To examine essential changes in an individual item that can recorded into thebalance sheet so that future decision can be made effectively (Edwards and et. al., 2013). 1

Cash flow statement: It is one of the reliable statements which can provide all theinformation about the cash inflow and outflows those are done within Simpson Wood companywithin an accounting period of time. Purpose: The main objective of using financial reporting system is to provide specificinformation that can facilitate for effective decision making. To deliver cash related informationto the investors. (B): Regulation related with financial accounting It has been recommended that most of the business organisation need to follow essentialrules and regulations those are made by the concern agencies or board. This can reduce thechances of mistakes and errors while recording of certain transactions. For this purpose,monitoring and controlling the financial outcomes at wide level is much tough task. It would notbe simple to analyse the results, whether transactions are posted into their respective format. Incontext to deal with such kind of issues, Simpson Wood company need to follow certain legalstandards and policies. However, the idea is just to become more reliable to take into accountevery possible decision (Horngren and et. al., 2012). IASB (International accounting standard board): It is said to be international body thatcan be made for the aim of control all the accounting related regulation those are used by theaccountant while recording of various transactions. There are certain standards such as: AS 2 Valuation of stock: This particular standard is considered as one of the effective setof regulation that can be govern by Simpson Wood to regulate the total worth of inventories keptby the company.IFRS (International financial reporting standards): It is basically considered aseffective accounting norms that is being made by independent body known as IASB. It consistsof certain rules such as:IFRS 1: It is needed for Simpson Wood to adopt IFRS standard for the first time toregulate a complete set of financial statements. According to this standard, proper structureassociated with taxation in order to deliver appropriate skills to the accountant. (C): Accounting rules and conceptsThere are various rules related to treatment of diverse nature of accounts which are definedas follows; 2

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