Accounting Concepts and Financial Statements

This assignment provides a comprehensive overview of accounting concepts and financial statements. It explains the importance of financial reports for companies, stakeholders, and investments. The report covers various topics such as cash flow modelling, depreciation methods, and the preparation of financial statements including income statement, balance sheet, and equity holder accounts. Additionally, it discusses the use of suspense accounts, trial balances, journal entries, and corrections in accounting practices.

Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1- Financial accounting and its purpose......................................................................................1
2- financial statement uses for internal stakeholders and external stakeholders of the company
...financial information is useful for internal stakeholders like managers, employees and owner
of the company............................................................................................................................2
CLIENT 1........................................................................................................................................4
Journal entry in books of account of Alexandra study................................................................4
CLIENT 2......................................................................................................................................13
A profit and loss account..........................................................................................................13
b. Statement of financial position.............................................................................................13
c- Accounting concept of going concern,accrual concept, consistency and prudency............14
d- Purpose of depreciation and its types...................................................................................16
CLIENT 3......................................................................................................................................18
A-Purpose of preparing bank reconciliation reason to perform in monthly basis....................18
B) Reason for difference between bank statement and cash statement....................................18
C- Imprest term in petty cash statement....................................................................................18
D Cash and bank reconciliation statement...............................................................................18
CLIENT 4......................................................................................................................................20
a. preparation of balance accounts...........................................................................................20
CLIENT 5......................................................................................................................................21
A- Meaning of suspense account and its features.....................................................................21
b. Trial balance........................................................................................................................21
c. Journal entries and correction................................................................................................22
CONCLUSION..............................................................................................................................24
REFERENCES..............................................................................................................................25

INTRODUCTION
Finance term refers to necessary money which is required for company for accomplishment of
goals and economic objectives. Finance depict to investment and profitability opportunity of the
company. It helps to take decision for growth of the company and also evaluate financial position
of the company.
Present report includes financial accounting and its purpose which is uses for internal and
external stakeholders of the company. Further it explain about going concern concept , accrual
concept , consistency concept and prudent concept of accounting (Warren and Jones, 2018). This
report will includes depreciation and its type’s further financial statement prepared by sole
traders and limited company. It will includes purpose of bank reconciliation and reasons of
difference between cash statement and bank statement. It will also consist that imprest term
which is used in pretty cash system and suspend account and its features.
1- Financial accounting and its purpose
Financial accounting is the process of accounting which is focus on analysis,
summarising the financial transaction of the company .financial accounting shows financial
strength of the company. Generally accepted accounting principle is standard framework of
preparing the financial accounting (Warren and Jones, 2018). It is useful for internal members as
well as external members so that they can analysis and summarised financial transaction before
investing their funds.
Financial accounting must be clear to understand, relevant and comparable which is helpful to
compare from other companies. In financial accounting company prepare income statement,
balance sheet, cash flow statement and stakeholder’s equity. By analysing these statements
internal members like promoters, employees invest capital and external person like shareholders,
customer, creditors invest their money into the company for maximising the wealth.
Purpose of financial statements
 Financial statement of the company provide financial information or picture of financial
position to their customers and investors that are helpful for invested money into the
company.
 Statement is useful for predict future earning capacity of the company so investors and
customer to make their financial related decision.
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 Financial statement provides cash flow of the company that helps to investors, customers,
creditors and shareholder to know about the liquidity position and flow of the cash
(Buchanan and Davis, M, 2018).
 These statement analysis management effectiveness of the company that is depend upon
profitability.
 Financial accounting records all facts that helps to take effective decision regarding
expansion of business, enhance earning capacity.
 It is provide all financial data to government to take decision regarding the taxes, duties
and prices.
 Through financial statement company can analysis standard budget and actual budget and
take corrective action top remove variance. It is useful for cost reduction and making
strategy for achieve the goals of the company.
 Managers of the company getting all information through financial statement that is helps
to making policies.
 Financial statement provide all necessary information to credit rating agency to determine
the rating of the company. Credit rating helps to investors, shareholders and financial
institution for investment purpose.
2- Financial statement uses for internal stakeholders and external stakeholders of the company
financial information is useful for internal stakeholders like managers, employees and
owner of the company.
 Managers- financial statement provide financial information or records to managers by
using these statement manager able to measure company's performance like leverage ,
cost , sales , revenues , all assets and liability of the company. Managers can compare
own financial statement with competitors company statement so managers make
effective strategy and set benchmark for take operational decision and investment
decision that helps to compete competitors and achieving pre determine goals of the
company. It also helps for manager for measure and management the credit risk because
banks approve loan amount by analysing company financial statements and also helps to
analysis investment opportunities of the company (Trotman and Carson, 2018).
 Employees – financial statement helps to assessing the profitability and ability of the
company. It is useful for employees of the company because it shows profitability and
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debt so that ensure to employees about their job security. By analysing the financial
statements Employees can estimate about their future remuneration and incentives. If
company's financial position is strong that helps to retain employees in the company and
also helps to improve productivity and increase profits.
Financial statements is useful for external stakeholders like shareholders, customers, financial
institution, and investor of the company.
 Shareholders- financial statement represent financial health of the company at a
particular period. It provide information to shareholders for equity investment purpose.
Shareholder of the company can evaluate profitability ratio, debt ratio, liquidity ratio.
They can also evaluate dividend yield before investment in equity that helps to generate
profit and wealth maximisation (Filmer, and et.al., 2019). If company financial statement
positive then shareholder invest more fund that and enhance shareholders value it is also
beneficial for company.
 Financial institution- financial institution like banks and non-banking financial company
analysis financial statement then they decide whether loan granted or not. It provide all
profitability and debt amount if company have sufficient profit and not have any
outstanding debt and have good reputation in market then bank will easily provide loan
that is helps to expand business and generate profit.
 governments- financial statement shows assets and liability of the company by using
financial statement government can easily analysis that whether company appropriate
amount of tax paid or not. Government can easily calculate tax amount and all duties
which company have to pay to government at specific time period if company will not
pay tax amount then it will increase in obligation or debt. High debt impact on investors
and customer of the company (Maynard, 2017).
 Suppliers- with the help of financial statement suppliers can decide that sales on credit
are safe for them or not. Suppliers also analysis the ability to pay compensation amount.
If financial position of the company is positive that will helps to enhance contract
between suppliers and company. Company can provide better services to its customer
and generate profits.
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CLIENT 1
Journal entry in books of account of Alexandra study
Journal entries in the books of Alexandra for January are as follows
Date particulars Debit Credit
1st jan 2019 Storage expense A/c Dr 450
To bank A/c
2nd jan 2019 Purchase A/c Dr 6080
To S. hood A/c 1450
To D main A/c 2060
To W Tone A/c 960
To R foot A/c 1610
3rd jan 2019 J Wilson A/c Dr 1200
T . Cole A/c dr 1650
F. Syme A/c Dr 2100
J . Allen A/c Dr 1020
P. white A/c Dr F. Lane A/c Dr 2520
F. lane A/c Dr 980
To sales A/c 9470
4th jan 2019 Motor Expenses A/c Dr 470
To cash A/c 470
7th jan 2019 Drawing A/c Dr 1500
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To cash A/c 1500
9th jan 2019 T. cole A/c Dr 680
J. Fox A/c Dr 1310
To sales A/c 1990
11th jan 2019 Sales return A/c Dr 680
To J. wilson 270
F.syme 410
16th jan 2019 Cash A/c Dr 7020
To P. Mullen A/c 1400
To F. Lane A/c 3100
To J. Wilson 850
To F. Shyme 1670
19th jan 2019 R. foot A/c Dr 50
To Purchase return A/c 50
22st 2019 Purchase A/c Dr 3740
To L.Mole A/C 1830
To W. Wright 1910
24th jan 2019 S. Hood A/c DR 3600
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J. Brown A/c Dr 4600
R. Foot A/c Dr 1400
To Bank A/c 9600
27th jan 2019 Salary A/c Dr 4800
To bank A/c 4800
30th jan 2019 Business rates A/c Dr 1320
To bank A/c 1320
Purchase ledger
S. hood Capital A/c
date details Amount date Details Amount
24th jan
2019 cash book 3600 1st jan 2019 Balance b/d 12150
Purchase day book 1450
balance c/d 10000
13600 13600
J. Brown
date details Amount date Details Amount
24th jan
2019 cash book 4600 1st jan 2019 Balance b/d 16600
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balance c/d 12000
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Books of Primary entry
cash book
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Nominal Ledgers
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Real Ledger
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CLIENT 2
A profit and loss account
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b. Statement of financial position
c- Accounting concept of going concern,accrual concept, consistency and prudency
Going concern concept- This concept is fundamental principle of accounting. Going concern
means company able to continue its operations for long term period or unlimited period and
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company have sufficient resources to continue business for the long year and meet out the
obligations. For the purpose of running business company would prepare all plan for current year
and next year so they effectively manage to business. Company will not be liquidated and
dissolved in future. Going concern concept provide basis for future income and expenditure of
the enterprise. Due to going concern concept all asset and liability records on book value rather
than market value (Henderson and et.al., 2015).
Accrual concept - Financial statement of the company prepare by accrual concept. Company
records all revenue on the time of earned and all expenses records when company incurred.
Accrual concept not record when the company receive and paid amount in the form of cash.
Accrual concept provide true and fair financial position that helps to take effective decision of
financial. Mostly company record financial transaction when they occur but not on the time of
receive and pay cash this concept provide accurate position at a particular time period.
Consistency concept – company adapt only one method of accounting over the period of
business. Manager of the company can't regularly change to accounting concept. Consistency
concept is important because it is useful for comparison investors and manager can easily and
quickly compare financial statement with other company's position (Kuter and et.al., 2016). If
company want to change its accounting concept then company have to provide all information
like nature of changes and
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reason of changing accounting method and disclose to all members and auditors of the company.
This concept is effective use for preparing financial statement financial need not continue
changes methods.
Prudency concept- Prudent concept of accounting represent that company can't underestimate
liabilities and expenses as well as can't overestimated to revenues and assets of the company. It
represent unfavourable position of the company. Usually company adapt this concept because it
represent true and fair view position of the company and company never overestimate and
underestimate the financial risk of the company that will helps to reduce losses and generate
profits.
d- Purpose of depreciation and its types
Purpose of depreciation – main purpose of the depreciation is accounting for calculating cost of
usage of assets over a period of time. It helps to represent exact amount in balance sheet of the
company. Usually company use two types of depreciation first is straight line method and second
is written down method (Warren and Jones, 2018).
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Straight line method – It is simplest method because it recognise a fixed depreciated amount over
a useful life of the assets. This depreciation amount will be calculated by this formula
Depreciation amount = cost of the assets – scrape value / life of the asset
Written down value method – by using this method fixed percentage of amount charge for the
usage of assets over a period of time. Here depreciation amount reduce by every year so almost
company adapt this method of depreciation because it give appropriate amount of
depreciation .this method also called diminishing value method (Narayanaswamy, 2017).
E. Differentiate between financial statement prepared by sole trader and limited company
Basis Sole trader Limited company
Liabilities Owner of the company
responsible for all liabilities so
all tax will be pay by the
owner of the company.
Limited company is liable to
pay all tax and liability
because of separate legal entity
concept.
Audit Audit is not mandatory for
company.
Audit is mandatory for all
limited company. Audit to all
accounting concept and
financial statement of the
company.
Financial statement There is not require to prepare
financial statement.
Limited company must e
maintain financial record and
statement by following GAAP
principle.
Owner equity Owner prepare only one
account that is owner equity
account
Shareholders are owners of the
company it includes equity
amount and retained earnings.
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CLIENT 3
A-Purpose of preparing bank reconciliation reason to perform in monthly basis
Bank reconciliation statement main purpose to compare bank statement with cash book
which is provided by banks if any differences found then give advice for redressing the amount.
If cash book amount and bank statement amount matched so it helps to provide accurate amount
while preparing trail balance and balance sheet of the company.
Bank reconciliation statement prepare on regular basis for checking transaction are recorded
properly in cash book that will help to detecting error in recorded transaction and determine
accurate bank balance on the specified date.
B) Reason for difference between bank statement and cash statement
Main reasons to difference between bank statement and cash statement amounts because of
outstanding check means check (Macve, 2015). Bank services charges like debit card charges,
printing charges. When record bank statement but not yet record in cash book of the company
sometimes it create differences.
C- Imprest term in petty cash statement
Imprest is the most common term in petty cash system. Imprest term is an account which
is use to pay small amount of the business. In imprest account there have to maintain fixed
amount if amount spend after that it would have to replenish. Usually company use imprest
account to employee payroll and pay dividend.
D Cash and bank reconciliation statement
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CLIENT 4
a. preparation of balance accounts
Sales ledger
Purchase ledger
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CLIENT 5
A- Meaning of suspense account and its features
Suspense account is a temporary account in ledger which record the transaction which is
unclassified and there is uncertainty about the account in which it should be recorded.
it is opened for putting the difference of debit and credit side fall shorter in trial balance is a type
of brokerage account in which investor keep its short term securities on temporary basis.
It is beneficial for organisation to open the suspense account instead of not recording trh
transaction in books until there is information regarding recording the transaction in particular
account (Mullinova, 2016).
Features of suspense account-
 It helps in matching the balance of account.
 It temporary records the transaction
 it eliminates the error by preparing the suspense account.
 it helps in preparation of final accounts as the balance of Trial balance is proceeds for
final accounts.
 it helps in preparation of trial balance and record the unclassified transaction so to match
the balances,
It also helps in locating the errors because with the amount of suspense account ,it helps account
to find out the error made in the past.
b. Trial balance
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c. Journal entries and correction
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CONCLUSION
Finance report summarised that financial statement is significant for every company
because company can easily achieve goals. Stakeholders of the company get all information and
finance report which helps to take decision regarding investments. This report included that all
company adapt accounting concept for making financial statements and company take written
down value method for depreciation on fixed assets of the company. It also concluded company
maintain cash book for the purpose of checking bank statements balance and cash book balance.
Financial statement include income statement, balance sheet, cash flow statement and equity
holder account which is mandatory to maintain for all companies.
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REFERENCES
Books and Journals
Buchanan, D. L. and Davis, M. H., 2018. Cash Flow Modelling and Financial
Accounting. World Scientific Book Chapters. pp.7-37.
Filmer, H. L., and et.al., 2019. Accounting for individual differences in the response to tDCS
with baseline levels of neurochemical excitability. Cortex.
Henderson, S. and et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Kuter, M. and et.al., 2016, December. Depreciation Accounting in Francesco Datini's
Companies. In 5th International Conference on Accounting, Auditing, and Taxation (ICAAT
2016). Atlantis Press.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Maynard, J., 2017. Financial accounting, reporting, and analysis. Oxford University Press.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition
and assessment" for bank financial accounting. Modern European Researches. (1). pp.60-64.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning Pvt.
Ltd..
Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.
Warren, C. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Online
What are Financial Statements. 2019. [Online]. Available through
<https://www.myaccountingcourse.com/accounting-dictionary/financial-statements>
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