1.Financial Accounting and its Purposes

Finance Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
BUSINESS REPORT......................................................................................................................1
1.Financial Accounting and its purposes................................................................................1
2:Regulation related to finance...............................................................................................2
3: Accounting rules and principles.........................................................................................3
4 Convection and concept related to consistency and material disclosure.............................4
CLIENT 1........................................................................................................................................4
CLIENT 2........................................................................................................................................4
(a) Statement of profit and loss for Peter Hampau for the year ended 31st July 2018 ..........4
(b) Statement of financial position for Peter Hampau as at ended 31st July 2018 ................6
CLIENT 3........................................................................................................................................6
(a) Profit and loss account of Bowling Limited:....................................................................6
(b) Balance Sheet of Bowling Limited...................................................................................7
(c) Accounts concepts : Consistency and Prudence:..............................................................8
(d) Purpose of depreciation in formulating accounting statements and methods of
Depreciation:..........................................................................................................................8
CLIENT 4........................................................................................................................................9
(i) Bank reconciliation statement at 1st December 2017:......................................................9
(ii) Durrell Ltd's updated cash book for December 2017 :.....................................................9
(iii) Bank Reconciliation Statement as at 31"t December 2017:..........................................10
CLIENT 5......................................................................................................................................10
(a) Sales Ledger Control and Purchase Ledger Control Account:.......................................10
(b) Control Account:.............................................................................................................11
CLIENT 6......................................................................................................................................11
(a) Suspense Account:..........................................................................................................11
(b) Preparation of Trail Balance:..........................................................................................11
(c) Journal entries in order to show necessary corrections for eliminating suspense account
balance:.................................................................................................................................12
(d) Difference between a Suspense A/c and Clearing A/c:..................................................12

CONCLUSION..............................................................................................................................13
REFERENCES .............................................................................................................................14
APPENDIX....................................................................................................................................15
(a) Journal Entry in the books of David Study....................................................................15
(b) LEDGER ACCOUNTS..................................................................................................17

INTRODUCTION
Financial accounting is field of accounting mainly concerned with recording of financial
transaction, classification of different transactions, reporting and analysis in order to know
performance and profitability of business organisation. Furthermore, it include financial
statement, profit and loss account, cash flow statements and other significant statements to know
true position of business organisation (Edwards, J. R., 2013). Main duty of accountant in a
business organisation is to record all financial transaction in journals, post them in ledger,
prepare trial balance and finally reporting through financial statements to present true and fair
view of financial statement. This report exhibits various aspects of financial accounting like
purpose of financial accounting, regulations relating to financial accounting, accounting rules
and principles and explanation about convections and concepts relating to consistency and
material disclosure. This report also covers bank reconciliation statement, process of preparing
bank reconciliation statement and, suspense account and its importance.
BUSINESS REPORT
1.Financial Accounting and its purposes
Financial accounting refers to set of activities related to preparation of final accounts of
a business organisation in order to access and provide information about actual performance and
financial position to internal and external users of financial accounting such as employees,
investors, lenders and creditors, suppliers, government, customers and other regulatory bodies.
Such final accounts are prepared by business organisations while considering various accounting
policies, guidelines, rules and regulations (Hale, 2012). A Business organisation prepare
financial accounting which mainly includes statement of financial position, profit and loss
account or income statement, statement for change in equity and cash flow statement.
Purpose of Financial statement
 Financial statement shows financial details of company like profit earned, assets, retained
earnings for both internal and external user who so ever are interested in financial
statements of company.

 Investor invest in company after analysing the financial statement of the company. Firm
with more assets and profits will attract more investor. Therefore, this is win win
situation for both investor as well as for firm.
 Lenders/Creditor prior of extending loan thoroughly checks financial statement of
respective company and then make decision related to extending or restricting their credit
requirement.
 Taxation are imposed by government on basis of revenue and assets of company. Hence,
real position is displayed by financial statement thus charged tax accordingly.
 Financial statements help in making external comparison (between different firm) as well
as internal comparison (within the firm).
2:Regulation related to finance
Stakeholder of company are the users of financial statement. They access financial
statement for their personal interest like investment/purchase share of particular company,
provide credit to company, purchase product etc. Moreover, the main concern of user is that they
get useful, reliable and relevant data as a base for future actions. Taking into consideration the
requirement of user, government has developed a regulatory framework known as GAAP
(General Accepted Accounting Principle). It is a standard method that involve concept, rules or
principle, which ensure financial statement of company is transparent, reliable as well as
consistent (Fourie, 2015).
There are three regulatory/financial standard in UK
Financial policy committee: It check financial statement as a whole. It's work is to manage risk
associated with the stability of firm. Hence, they are responsible for macroeconomic regulation.
Prudential regulatory authority: These authority are responsible for microeconomic regulation.
Their objective is to safeguard the interest, safety and financial strength of firm by reducing
external factor that have negative effect on firm.
Financial conduct authority: Financial conduct authority's responsibility is to conduct business
regulation, safeguard interest of investors and promote competition for customers. They have
additional power like withdraw existing product, or imitated product as well as they can stop the
functioning of any firm, which provide misleading data to outside party.
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3: Accounting rules and principles
Accounting rules: Accounting is a dual entry system, which affect two account one is debit
account, and other one is credit account. There are three rules of accounting for personal account,
real account and nominal account (Hall, J. A., 2012).
Personal account:It includes account of human being (sole proprietor, debtor) and artificial
independent body (company, bank). As well as account of group person like drawing account,
prepaid salary account etc. Hence, the golden rule for personal account is “debit the receiver and
credit the giver”.
Real account: Real account is a part of impersonal account that include firm's tangible asset
(machinery account, cash account) and intangible assets (patent account, goodwill account). The
golden rule for real account is “Debit what comes in, credit what goes out”
Nominal account: Nominal is again a part of impersonal account that include all fictitious
account like expense, revenue, gain and loss of firm. Such as travelling expenses account,
advertisement expense, commission paid and rent received account. The golden rule for nominal
account is “debit all expenses and losses, credit all income and gain” .
Accounting principles
Economic Entity: As business and businessmen are two separate legal entities. So it is duty of
accountant to separate the account of business owner from its business. Like drawings are
liability of business owner.
Monetary measurement: Accountant of firm record only those transaction which can be
displayed in term of money. There can be non monetary transaction which are important for
business but can't become part of financial transaction.
Historical cost principle: The value of assets keeps on changing with time. Moreover, it is the
duty of accountant to update only that price on which assets were taken or brought into the firm.
Firm don't have to do anything with current value of asset. Their further valuation takes place on
basis of historical prices.
Full disclosure of account: Any relevant information to stakeholder must be displayed in the
books of firm. This principle make sure that stakeholders don't get manipulative or misleading
data as well as it ensure firm don't hide any relevant entry.
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