Accounting Practices and Financial Statements

The assignment discusses the role of accounting practices in maintaining records, reports, and financial statements at the end of an accounting year. It emphasizes the use of general accepted accounting standards to increase reliability and credibility of fiscal statements. The importance of reporting under financial accounting processes is highlighted as it builds trust among users of financial statements, creating potential long-term or short-term advantages for businesses.

Finance accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
BUSINESS REPORT......................................................................................................................4
1. Define financial accounting and its purpose ...........................................................................4
2. Regulations relating to financial accounting:..........................................................................5
3. Describe accounting rules and principles................................................................................5
4. Conventions and concepts relating to consistency and material disclosure............................6
CLIENT 1........................................................................................................................................7
(a) Journal Entry in the books of David:......................................................................................7
(b) Ledger Accounts:...................................................................................................................9
(c) Trial Balance as at 31st January, 2018:................................................................................14
CLIENT 2......................................................................................................................................16
(a) Statement of profit and loss for Peter Hampau for the year ended 31st July 2018 .............16
(b) Statement of financial position for Peter Hampau as at ended 31st July 2018 ...................17
CLIENT 3......................................................................................................................................18
(a) Profit and loss account of Bowling Limited:........................................................................18
(b) Balance Sheet of Bowling Limited......................................................................................18
(c) Accounts concepts : Consistency and Prudence:..................................................................19
(d) Purpose of depreciation in formulating accounting statements and methods of
Depreciation:..............................................................................................................................19
CLIENT 4......................................................................................................................................20
(i) Bank reconciliation statement at 1st December 2017:..........................................................20
(ii) Durrell Ltd's updated cash book for December 2017 :........................................................20
(iii) Bank Reconciliation Statement as at 31"t December 2017:...............................................21
CLIENT 5......................................................................................................................................21
(a) Sales Ledger Control and Purchase Ledger Control Account:.............................................21
(b) Control Account:..................................................................................................................22
CLIENT 6......................................................................................................................................22
(a) Suspense Account:................................................................................................................22
(b) Preparation of Trail Balance:...............................................................................................23

(c) Journal entries in order to show necessary corrections for eliminating suspense account
balance:......................................................................................................................................23
(d) Difference between a Suspense A/c and Clearing A/c:........................................................24
CONCLUSIONS............................................................................................................................24
REFERENCES .............................................................................................................................25

INTRODUCTION
Financial Accounting is an area of accounting that considers cash or other monetary
items as a basis of determination of performance rather than as a determinant of production. In
financial accounting process accounting data or information is classified as cash inflow and out
outflow in terms of revenue and expenditure, assets and liabilities. Financial data and
information are collected and then summarised in order to prepare financial statements, income
statements, cash flows, change in equity for reporting purpose (Edwards, 2013). In financial
accounting main motive of organisation is to present financial data and information in a
systematic manner for user of financial data such as investors, relevant authorities, lenders and
creditors, debtors etc. This report describes purpose of financial accounting, regulations
concerned with financial accounting, rules and principles of accounting, different aspects of
financial reporting including concepts and conventions related to consistency and material
disclosure.
BUSINESS REPORT
1. Define financial accounting and its purpose
Financial accounting: It refers to set of activities related to preparation of financial statements
to present or report financial performance and position to internal or external users of financial
data. Major activities of financial reporting includes recording, classifying, summarising,
posting, analysing and reporting of financial data or information of business organisation
including drafting of financial statements such as balance sheet, profit and loss and cash flow
analysis. Financial accounting not only covers monetary items but also non monetary items
which assists in reporting purpose. Financial accounting starts with collection of financial data
and information and ends with reporting of financial performance and position (Fourie, 2015). In
financial accounting process accounts are prepared in accordance with local and international
accounting assumption and standards.
Purpose of financial accounting: The primary purpose of financial accounting is reporting of
final accounts to external or internal. Financial accounting assists in compliance of rules and
regulations prescribed by relevant authorities. Financial accounting through internal check
ensures accuracy in recording of financial information and data. It assists in identification of
suitable accounting policies, assumptions, conventions and other fundamentals as per business

structure of organisation. Financial accounting provides a basis for choosing and implementing a
most appropriate strategy as per business requirement. Actual outcomes regarding financial
performance and position of business organisation under financial accounting process define the
objectives and goals of company.
2. Regulations relating to financial accounting:
Regulations refers steps normally in form of order, taken by relevant authority or
governing body to control and regulate activities of organisations or individuals. To establish
proper control and to maintain uniformity in accounts relevant authorities create regulations.
Regulations relating to financial accounting: Regulations provides guidance for preparation and
presentation of financial accounts such as generally accepted accounting policies and standards.
Some regulations are applicable for business organisations operating its business globally such as
IFRS (International financial reporting framework). For making uniformity in financial
accounting process some regulations are framed regarding accounting assumptions, concepts,
methods, conventions and policies (Hale and Held, 2012). For business organisation regulated
under any specific act, regulations are framed under such relevant act.
3. Describe accounting rules and principles
Data and information are initially recorded using accounting entries. There are some
accounting rules are discussed below which helps the organisation to smooth their financial
accounting process:
Debit what comes in, credit what goes out: This rule is mainly framed for real account.
Real accounts includes all assets of a firm whether tangible or intangible such as plant and
machinery account, furniture and fixture, goodwill, land and buildings account, free hold
premises etc. Real accounts are classified as Tangible real accounts and Intangible real accounts.
Tangible real accounts includes building accounts, plant account, inventory account etc. Whereas
Intangible real accounts includes accounts of items which do not have any physical existence
such as goodwill, patent, copyright etc.
Debit the receiver, credit the giver: This rule is framed for personal accounts. Personal
account refers to a general ledger account concerned with individuals, firms and associations like
creditors account, debtors account, capital account, banks account etc. Under this rule if person
give something to organisation it treated as inflow therefore personal account will be credited

and if person receive something from the organisation than amount should be debited on name of
person (Hall, 2012).
Debit all expenses and losses, credit all incomes and gains: This rules is framed for
nominal account. Nominal account refers to General ledger account concerned with all revenues
or income, expenses, losses and gains. In this rule capital is treated as liability for business and
liability shows credit balances. Incomes and gains leads to increase in capital therefore all
incomes and gains are credited whereas all expenses and losses should be debited because
expenses or losses leads to decrease in capital.
Principles: Following are the major principles of accounting that provides a framework for
preparation of final accounts, are as follows:
1. Dual aspect concept: Dual aspect concept truly resembles to double entry system.
According to dual aspect concept each and every transaction in an business organisation
affects both debit and credit side simultaneously. Under Single entry system only one
side of an account is affected which creates complexity in accounting calculation
therefore single entry system is avoided by entities (Jönsson, 2013).
2. Cost principle: This principle emphasises on reporting of assets on their cost. As per
this principle business organisation should record their assets on actual cost.
3. Matching principle: According to this principle, all expenses of business should be
matched with revenues which are occurred or being occurred in particular period.
4. Conventions and concepts relating to consistency and material disclosure
Accounting convention refers to guideline and framework for adoption of accounting
principles. It includes general practices and guidelines which assists in preparation of final
accounts (Mullinova, 2016). Accounting conventions are used in areas where no accounting
standard is prescribed. Conventions are applied by business organisations as per their
requirements to reduce complexity in accounting process.
 Convention of consistency: Conventions of consistency emphasises on maintaining
consistency in applied policies and assumptions from period to period. Use of this
convention assists in preparation of comparative accounts and to reduce complexities in
accounting process.

 Convention of material disclosure: This convention creates uniformity in disclosures of
materiel items in different organisations. Disclosure of material items in final accounts
helps to identify any fraud, error or irregularity in business organisation.
CLIENT 1
(a) Journal Entry in the books of David:
Date Particulars Debit Credit
01/01/18 Premises A/c …...........…........... Dr. 440000
Motor Van A/c…...........…...........Dr. 45250
fixtures A/c…...........…........... Dr. 10100
Inventory A/c …...........…...........Dr. 40900
P Mole A/c …...........…........... Dr. 2200
F Lane A/c…...........…........... Dr. 2100
Bank A/c …........... …........... Dr. 42400
Cash A/c …...........…........... Dr. 10600
To S Hamid A/c 10150
To J. Brown A/c 9600
To Capital A/c (Balancing Figure) 573800
(Being Owner's Capital is calculated )
Therefore, David Study's Capital at 1st January = £
573800
Date Particulars Debit Credit
01/01/18 Storage cost A/c…...........…........... Dr. 800
To bank A/c 800
(Being storage cost is paid)
02/01/18 Purchases A/c…...........…........... Dr. 7680

To S Hamid A/c 2450
To D Main A/c 2560
To W Tag A/c 1060
To R Foot A/c 1610
(Being goods purchases on credit from various parties)
03/01/18 J Wilson A/c …...........…...........Dr. 2020
T Cole A/c …...........…........... Dr. 1840
F Seema A/c…...........…........... Dr. 2380
J Allen A/c …...........…...........Dr. 990
P White A/c …...........…...........Dr. 2820
F Lane A/c …...........…...........Dr. 1170
To Sales A/c 11220
(Being goods sold on credit to various parties)
04/01/18 Motor Expenses A/c …...........…........... Dr. 670
To Cash A/c 670
(Being motor expense is paid)
07/01/18 Capital A/c…...........…...........Dr. 2000
To Cash A/c 2000
(Being cash withdrawal by owner himself)
09/01/18 T Cole A/c …...........…...........Dr. 1280
J fox A/c …...........…...........Dr. 2310
To Sales A/c
(Being goods purchase on credit with various parties)
11/01/18 Sale Return A/c …...........…...........Dr. 680
To J Wilson A/c 370

To F Seema A/c 310
(Being goods is returned back by the parties
16/01/18 Bank A/c …...........…...........Dr. 7150
Discount Allowed A/c …...........…........... Dr. 461
To P Mole A/c 1710
To F Lane A/c 3364
To J Wilson A/c 963
To F Seema A/c 1574
(Being Payment received from parties after allowing
discount @ 5%)
19/01/18 R Foot A/c …...........…........... Dr. 110
To Purchases Return A/c 110
(Being Goods is returned to creditor)
22/01/18 Purchases A/c …...........…...........Dr. 3140
To L Mole A/c 1330
To W Wright A/c 1810
(Being goods purchased on credit)
24/01/18 S Hamid A/c…...........…........... Dr. 3860
J Brown A/c …...........…...........Dr. 4260
R Foot A/c …...........…........... Dr. 1750
To Bank A/c 7500
To Discount Recieved A/c 2370
(Being payment is made to creditors after receiving
discount @ 10%)
27/01/18 Salaries A/c …...........…........... Dr. 14500

To Bank A/c 14500
(Being salaries are paid through cheque)
30/01/18 Business Rates A/c …...........…........... Dr. 2220
To Bank A/c 2220
(Being business rates are paid through cheque)
(b) Ledger Accounts:
Storage Cost A/c
Date Particulars Amount Date Particulars Amount
01/07/18 To Bank A/c 800 31/07/18 By Profit & Loss A/c 800
Total 800 Total 800
Sales A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Trading and
P&L A/c
14810 03/01/18 By J Wilson A/c 2020
By T Cole A/c 1840
By F Seema A/c 2380
By J Allen A/c 990
By P White A/c 2820
By F Lane A/c 1170
09/01/18 By T Cole A/c 1280
By J fox A/c 2310
Total 14810 Total 14810
S Hamid A/c
Date Particulars Amount Date Particulars Amount
24/01/18 To Discount
Received A/c
1260 01/01/18 By Opening Balance
(B/f)
10150

To Bank A/c 2600 02/01/18 By purchases A/c 2450
31/01/18 To Closing
Balance C/d
8740
Total 12600 Total 12600
W Tag A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Closing
Balance C/d
1060 02/01/18 By purchases A/c 1060
Total 1060 Total 1060
J Wilson A/c
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/c 2020 11/01/18 By Sales Return A/c 370
16/01/18 By Bank A/c 880
By Discount Allowed
A/c
83
31/01/18 By Closing Balance c/d 687
Total 2020 Total 2020
F Seema A/c
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/c 2380 11/01/18 By Sales Return A/c 310
16/01/18 By Bank A/c 1470
By Discount Allowed
A/c
104
31/01/18 By Closing Balance c/d 496
Total 2380 Total 2380
P White A/c
Date Particulars Amount Date Particulars Amount

03/01/18 To Sales A/c 2820 31/01/18 By Closing Balance c/d 2820
Total 2820 Total 2820
P Mole A/c
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
2200 16/01/18 By Bank A/c 1600
By Discount Allowed
A/c
110
31/01/18 By Closing Balance c/d 490
Total 2200 Total 2200
Capital A/c
Date Particulars Amount Date Particulars Amount
07/01/18 To Cash A/c 2000 01/01/18 By Opening Balance b/f 573800
31/01/18 To Closing
Balance C/d
571800
Total 573800 Total 573800
J fox A/c
Date Particulars Amount Date Particulars Amount
09/01/18 To Sales A/c 2310 31/01/18 By Closing Balance c/d 2310
Total 2310 Total 2310
Motor Van A/c
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
45250 31/01/18 By Closing Balance c/d 45250

Total 45250 Total 45250
Discount Allowed A/c
Date Particulars Amount Date Particulars Amount
16/01/18 To P Mole A/c 110 31/01/18 By Trading and P&L
A/c
461
To F Steel A/c 164
To J Wilson A/c 83
To F Seema A/c 104
Total 461 Total 461
Discount Received A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Trading and
P&L A/c
2370 24/01/18 By S Hamid A/c 1260
By J Brown A/c 960
By R Foot A/c 150
Total 2370 Total 2370
Salaries A/c
Date Particulars Amount Date Particulars Amount
27/01/18 To Bank A/c 14500 31/01/18 By Trading and P&L
A/c
14500
Total 14500 Total 14500
Motor Expenses A/c
Date Particulars Amount Date Particulars Amount
04/01/18 To Cash A/c 670 31/01/18 By Trading and P&L
A/c
670
Total 670 Total 670

Purchases A/c
Date Particulars Amount Date Particulars Amount
02/01/18 To S Hamid A/c 2450 31/01/18 By Trading and P&L A/c 10820
To D Main A/c 2560
To W Tag A/c 1060
To R Foot A/c 1610
22/01/18 To L Mole A/c 1330
To W Wright A/c 1810
Total 10820 Total 10820
Bank A/c
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
42400 01/01/18 By Storage cost A/c 800
16/01/18 To P Mole A/c 1600 24/01/18 By S Hamid A/c 2600
To F Lane A/c 3200 By J Brown A/c 3300
To J Wilson A/c 880 By R Foot A/c 1600
To F Seema A/c 1470 27/01/18 By Salaries A/c 14500
30/01/18 By Business Rates A/c 2220
31/01/18 By Closing Balance C/d 24530
Total 49550 Total 49550
D Main A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Closing
Balance A/c
2560 02/01/18 By purchases A/c 2560
Total 2560 Total 2560

By Purchases Return A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Trading and
P&L A/c
110 19/01/18 By R foot A/c 110
R Foot A/c
Date Particulars Amount Date Particulars Amount
19/01/18 To Purchase
Return A/c
110 02/01/18 By purchases A/c 1610
24/01/18 To Discount
Received A/c
150 31/01/18 By Closing Balance C/d 250
To Bank A/c 1600
Total 1860 Total 1860
T Cole A/c
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/c 1840 31/01/18 By Closing Balance C/d 3120
09/01/18 To Sales A/c 1280
Total 3120 Total 3120
J Allen A/c
Date Particulars Amount Date Particulars Amount
03/01/18 To Sales A/c 990 31/01/18 By Closing Balance C/d 990
Total 990 Total 990
F Lane A/c
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
2100 16/01/18 By Bank A/c 3200

03/01/18 To Sales A/c 1170 By Discount Allowed
A/c
164
31/01/18 To Closing
Balance C/d
94
Total 3364 Total 3364
Cash A/c
Date Particulars Amount Date Particulars Amount
01/01/18 To Opening
Balance (B/f)
10600 04/01/18 By Motor Expenses A/c 670
07/01/18 By Capital A/c 2000
31/01/18 By Closing Balance C/d 7930
Total 10600 Total 10600
Sales Return A/c
Date Particulars Amount Date Particulars Amount
11/01/18 To J Wilson A/c 370 31/01/18 By Trading and P&L A/c 680
To F Seema A/c 310
Total 680 Total 680
L Mole A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Closing
Balance C/d
1330 22/01/18 By Purchases A/c 1330
Total 1330 Total 1330
W Wright A/c
Date Particulars Amount Date Particulars Amount
31/01/18 To Closing
Balance C/d
1810 22/01/18 By Purchases A/c 1810
Total 1810 Total 1810

J Brown A/c
Date Particulars Amount Date Particulars Amount
24/01/18 To Discount
Received A/c
960 01/01/18 By Opening Balance b/f 9600
To Bank A/c 3300 31/01/18 By Closing Balance C/d
31/01/18 To Closing
Balance C/d
5340
Total 9600 Total 9600
Business Rates A/c
Date Particulars Amount Date Particulars Amount
30/01/18 To Bank A/c 2220 31/01/18 By Trading and P&L A/c 2220
Total 2220 Total 2220
(c) Trial Balance as at 31st January, 2018:
Trial Balance for the month of July
Particulars Debit Credit
Purchases 10820 -
Bank 24530 -
D Main - 2560
Purchases Return - 110
R Foot 250 -
T Cole 3120 -
J Allen 990 -
F Lane - 94
Cash 7930 -
Sales Return 680 -
L Mole - 1330
W Wright - 1810

J Brown - 5340
Business Rates 2220 -
Storage cost 800 -
Sales - 14810
S Hamid - 8740
W Tag - 1060
J Wilson 687 -
F Seema 496 -
P White 2820 -
P Mole 490 -
Capital - 571800
J fox 2310 -
Motor Van 45250 -
Discount Allowed 461 -
Discount Received - 2370
Salaries 14500 -
Motor Expenses 670 -
Premises 440000 -
Fixtures 10100 -
inventory 40900 -
Total 610024 610024

CLIENT 2
(a) Statement of profit and loss for Peter Hampau for the year ended 31st July 2018
Peter Hampau
Statement of Profit or Loss for the year
ended 31 July 2018
£ £ £
Revenue 1,20,000
Less cost of sales
Opening inventory 4,500
Add purchases 70,000
74,500
Less closing inventory Note 1 -42,640 -31,860
Gross profit 88,140
less expenses
Wages and salaries 16,500
Add wages and salaries accrued 1,520 18,020
Motor expenses 4580
Admin expenses 1,650
Heating and lighting 550
Advertising expenses 1,030
Less advertising expenses
prepaid -447 583
Depreciation on premises 560
Depreciatiomn on equipment 1,900
Deprecition on motor vehicles 360 2,820
28,203
Net profit 59,937

(b) Statement of financial position for Peter Hampau as at ended 31st July 2018
Peter Hampau
Statement of Financial Position as at 31 July 2018
ASSETS £ £ £
Non-Current Assets cost
Accumulated
depreciation Net Book Value
Freehold Premises (4450+560) 28,000 -5,080 22,990
Equipment (6800+1900) 19,000 -8,700 10,300
Motor vehicles (1200+360) 3,000 -1,560 1,440
Total Non-Current Assets 50,000 -15,270 34,730
Current Assets
Inventory Note 1 42,640
Trade receivables 11,520
Prepaid advertising
expenses 447
Cash in hand 300
Total Current Assets 54,907
Total Assets 89,637
Equity and liabilities
Equity
Capital 24,380
Add profit 59,937
84,317
Less drawings -2800
Total Equity 81,517
Current Liabilities
Trade payables 5,600
Accruals: wages and salaries 1,520

Bank overdraft 1,000
Total Current Liabilities 8,120
Total Equity and Liabilities 89,637
CLIENT 3
(a) Profit and loss account of Bowling Limited:
Bowling Limited
Statement of Profit or Loss for the year ended 31st July 2018
£000
Revenue 1,05,000
Less:Cost of sales 31,000
Gross profit 74,000
Expenses
Less: Administrative cost 30,000
Less: Distribution cost 30,000
Operating profit 14,000
Less: Tax 4,000
Profit for the year 10,000
(b) Balance Sheet of Bowling Limited
Bowling Limited
Statement of Financial Position as at 31st July 2018
£000
Assets

Non-Current Assets
Land and buildings
(60000-1000-7000) 52,000
Plant and machinery
(65000-10000-15000) 40,000
Total Non-current Assets 92,000
Current Assets
Inventory 18,000
Trade receivables 24,000
Other receivables (prepayments) 3,000
45,000
Total Assets 1,37,000
Equity and Liabilities
Share Capital 50,000
Share Premium 20,000
Retained earnings 32,000
1,02,000
Current Liabilities
Trade payables 14,000
Other payables 2000
Bank overdraft 15000
Tax payable 4000
Total current liabilities 35,000
Total Equity and Liabilities 1,37,000
(c) Accounts concepts : Consistency and Prudence:
Accounting concepts includes fundamental assumptions, rules and principles which
provides a basis for recording of accounting transactions and preparation of final accounts.
Accounting is purely based on principles and accounting principles are framed on the basis of

some assumptions such assumptions are also known as accounting concepts (Bushman and
Smith, 2001).
Consistency: As per this accounting concept accounting policies adopted by business
organisation should be applied consistently from one period to another period. Change in
adopted accounting policies and assumption allow only in case if it is required by relevant statue
or change would results in better presentation of accounts.
Prudence: As per this accounting concept business organisation should record
expenditures and obligation or liabilities as soon as they occur whereas revenues and incomes
should be recorded when realized.
(d) Purpose of depreciation in formulating accounting statements and methods of Depreciation:
Depreciation is provided to show the decrease in assets arises due to physical wear and
tear and obsolescence of assets during a particular period (Holthausen and Watts, 2001).
Depreciation is simply exhibits real consumption of particular asset. Following are major
methods to calculate depreciation:
Straight line method: Under straight line method an equal amount of depreciation is
provided during the whole useful life of asset. This is an simple and most widely used method of
depreciation. Formula of depreciation under this method is:
Cost of assets less Residual value
Total Useful life of asset
Written down value method: Under this method a certain formula is used to calculate
fix percentage of depreciation and such percentage is applied to book value of asset to get
amount of depreciation for the year. This method is used for assets that have more efficiency in
the beginning and thereafter decreases year after year (Libby, Bloomfield and Nelson, 2002).
This method is usually adopted for plant and machinery, fixtures and fittings, motor vehicles,
etc.. This is the formula for calculation of rate of depreciation:

CLIENT 4
Purpose of bank reconciliation: Bank-reconciliation statement is prepared by organisation to
reconcile the amount of bank account prepared by organisation with amount shown in bank
statement or pass book of bank (Edwards, 2013).
Reason for variation in cash book and bank statement: Due to deposit of any amount by
customers directly into bank account, bank charges charged by bank and organisation in unaware
the fact, cheque issued but not presented etc. are major reason for difference in balance of cash
book and bank statement as on a particular date (Bank reconciliation statement. 2017).
(i) Bank reconciliation statement at 1st December 2017:
Bank Reconciliation Statement as at 1st December 2017
Debits £
Balance as per opening Bank Statement 17,478
Outstanding Lodgements 176
17,654
Un-presented Cheques 1,163
Balance as per corrected Cash Book 16,491
(ii) Durrell Ltd's updated cash book for December 2017 :
Dr Corrected Cash Book (Bank) Cr
£ £
31/Dec Balance b/d 19,973 Overstated amount 1
Overstated amount 9 Bank charges 47
Standing order 137
310923 (Direct D) 297
Balance c/f 19,500
19,982 19,982