Accounting Principles Assignment Solved
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Added on 2020-01-07
Accounting Principles Assignment Solved
Added on 2020-01-07
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FINANCIAL ACCOUNTINGPRINCIPLES
Table of ContentsINTRODUCTION...........................................................................................................................5A. (i) Financial accounting...........................................................................................................5A. (ii) Explain the regulation relating to financial accounting....................................................6A. (iii). Describe accounting rules and principles........................................................................8A. (iv) Explain the conventions and concepts relating to consistency and material disclosure...8B. CLIENT 1...................................................................................................................................9(i) Books of prime entry...............................................................................................................9(ii) Complete double entry recording in ledgers........................................................................11(iii) Trial balance to check arithmetical accuracy......................................................................25CLIENT 2......................................................................................................................................26(A). Preparation of Statement of profit and loss acount............................................................26(B). Preparation of Statement of Financial Position..................................................................27CLIENT 3......................................................................................................................................28(A). Preparation of statement of profit & Loss..........................................................................28(B). Preparation of statement of SOFP, balance sheet...............................................................29(C). Explaining the consistency and prudence accounting concepts.........................................30(D). Briefly presenting the aim of depreication and two depreciation methods........................30CLIENT 4......................................................................................................................................31(A). Explaining the purpose of bank reconcilation statement....................................................31(B). Listing several areas which may vary Cash book (bank column) & pass book balances. .31(C). (i) Preparation of bank reconcilation statements on 1st December 2016............................32(ii). Preparation of Kendal Ltd’s updated cash book for December 2016.................................32(iii) Preparation of bank reconcilations statement as at December 2016...................................32CLIENT 5......................................................................................................................................33
(A). (i). Preparation of Sales Ledger Control Account..............................................................33(A). (ii). Preparation of purchase Ledger Control Account.......................................................33(B). Explaining the term “control Account” & its uses.............................................................34CLIENT 6......................................................................................................................................34(A). Describing the term “suspense account” & its main features.............................................34(B) Drafting a trial balance........................................................................................................35(C). Prepration of Journal entries to show corrections & clear the suspense account...............35(D). Differentiate between Suspense account and Clearing Account........................................36CONCLUSION..............................................................................................................................37REFERENCES..............................................................................................................................37
List of TablesTable 1 Journal entry in Books of Alex for Month of May 2016...............................................................11Table 2 Trial Balance of Alex...................................................................................................................25Table 3 Statement of profit and loss acount of Peter Piper for the year ended 31st December 2016..........27Table 4 Calculation of cost of goods sold..................................................................................................27Table 5 Statement of financial position of Peter Piper as on 31st December 2016....................................27Table 6 Statement of P&L of Raintree ltd for the year ended 30th September 2016.................................28Table 7 Statement of SOFP of Raintree ltd as on 30th September 2016....................................................29Table 8 Bank reconcilation statement of Kendal Ltd on 1st December 2016............................................32Table 9 Kendal Ltd’s updated cash book for December 2016...................................................................32Table 10 Bank reconcilations statement of Kendal Ltd as at December 2016...........................................32Table 11 Sales Ledger control a/c of Henderson.......................................................................................33Table 12 purchase Ledger Control Account of Henderson........................................................................33Table 13 Trial balance...............................................................................................................................35Table 14 Journal entries for rectifying errors.............................................................................................35Table 15 Preparation of Suspense a/c........................................................................................................36Table of FiguresYFigure 1 Regulatory framework of financial accounting.................................................................6Figure 2 International standards of accounting...............................................................................7
INTRODUCTIONBusinesses carry out number of transactions in a given reporting year, such activities heldduring a year is recorded in a coherent and logical manner in the financial statements of theenterprise. Financial Accounting (FA) is a process whereby accountant record the monetaryactivities in the annual accounts, such as profit and loss statement, balance sheet and cash flowstatement to examine their return and financial health. It follows various concepts like accural,double-entry, consistency, matching, monetary measurements and accounting standards i.e. UKGAAP, IAS & IFRS. The current project mainly targeted at the preparation of various accountslike P&L a/c, balance sheet, trial balance, rectification entries, control account & Bankreconcilation statement (BRS) as well following the relevant accounting standards andguidelines. A. (i) Financial accounting Financial accounting is the field of accounting that is concerned with the analysis,examination, summarizing and reporting of the financial transactions conducted during thebusiness operations. It involves the construction of annual accounts, also called financialstatements i.e. statement of comprehensive income (SOCI), statement of financial position(SOFP, balance/sheet), statement of cash flow (SOCF), statement of changes in retained earningsalong with the necessary notes representing the adopted accounting standards, conventions andrevenues and expendiure recognition principles (Deegan, 2013). The key aim behind thefinancial accouting is to determine the net profitability and the financial status at te end of everyfinancial year. Such statements are created adopting accounting rules and standards such as UKGAAP, IAS (International Accounting standards) & in the globalized era, multinationalcompanies publish their accounts in harmonized manner through following IFRS. Double entrybook-keeping system is followed by the establishments to prepare their accounts, wherein everyaccounting activity is recorded in both the sides, credit and debit. It is essential to prepareaccounts because without arranging a proper record of the monetary activities held in the dailyoperations, enterprise cannot examine their financial position i.e. solvency and liquidity as wellas organizational performance (Pratt, 2013). It not only helps the internal stakeholders such asmanagers and employees but also assists outsiders such as government, shareholders, lenders,
creditors and other regulatory authority to gather required information for the rationalizeddecision-making purpose. In UK, as per the Company Act, 2006, all the private as well as publiclimited organizations are legally required to report their financial transactions in annual accountsand publish it to communicate external users. A. (ii) Explain the regulation relating to financial accountingFigure Regulatory framework of financial accounting(Source: Deegan, 2013)In UK, independent regulatory body, Financial Reporting Council (FRC) govern thefinancial accounting practices by creating necessary rules and regulations. As per the regulations,in UK, Generally Accepted Accounting Principles (GAAP) represents the local rules. it presentsthe guidelines and accounting conventions which is required to be followed to report businesstransactions in the annual accounts.
Figure International standards of accounting(Source: McAuley, 2015)However, besides this, with the internationalization of the businesses, global accountingstandards, IAS and IFRS have been issued to ensure transparency in the system. Thus, as perthis, all the establishments who are working in more than one country must have to follow therespective rules and standards while preparing their annual financial statements. The main aim ofthis is to harmonize the accounting practices of multinational enterprise and build trust amonginvestors as they will be able to effectively examine the financial reports and made soundinvestment decisions (Weil, Schippe and Francis, 2013). Company Act, 2006 also impose legalrequirement upon entities to construct SOCI, SOFP and SOCF using relevant standards andguidelines and audit the statements by an independent auditor to make it sure that reportedinformation is truely correct and fair without any material misstatement. Apart from this,organizations who are listed in recognised stock exchange like London Stock Exchange (LSE) isrequire to follow the listing rules and as per this, they have to present their fianncial accounts tothe SE.
A. (iii). Describe accounting rules and principles As said earlier that UK GAAP presents the conventions, principles and accounting rulesto guide accountatnts how the regular transactions will be reported in their financial statements.The necessary rules and principles concerned with the accounting are mentioned here as follows:Accural concept: This principles states that in the annual reports, transactions will berecord at the time of their occurence. There will be no effect of its cash generation or expenditureoccurence on the financial reporting. In other words, activities will be recorded when they heldirregardless of whether cash is received/paid or not (Saunders and Cornett, 2014). Going concern: It assumes that business will continue its functions for long duration tocomplete its committments and there is no probability of its liquidiation in foreseeable future.This accounting principle allow the enterprise to defer several transactions like prepaid expenseand also amortize depreciation and others over a given period (Jollands and Quinn, 2017). Matching principle: It matches the expenses incurred with the revenues because ofdouble-entry book keeping and accural accounting basis. For instance, sales commission must berecorded at the time of sales instead of when the commission is actually paid to sales personnel. Full disclosure: Corporations must record each and every information in their accountswhich are important for the stakeholders like lenders and investors in any way. Moreover, notesalso must be shown disclosing all the relevant principles and standards in footnotes to finalaccounts, so that, investors can make better decisions (Gregory, Uys and Gregory, 2014).Disclosing all the material statements or information is necessary otherwise, default person willbe penalised by fine and other lawsuit. Monetary principle: In the financial statements, only those transactions are reported thatcan be measured in monetary terms, GBP. Thus, it only provide quantitative results i.e. sales, andcost and do not disclose any qualitative results and performance i.e. environmental performanceand others. A. (iv) Explain the conventions and concepts relating to consistency and material disclosureAccounting concepts postulates necessary assumptions upon which the entire accountingand reporting is based. However, conventions represents customs that enable accountant to dealwith the practical accounting issue and problems. The consistency and material disclosureconcepts & conceptions are analyzed here as under:
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