Financial Accounting Principles and Concepts

Financial Account Principle

Table of Contents
INTRODUCTION...........................................................................................................................3
Report to Line Manager...............................................................................................................4
Client 1.............................................................................................................................................7
A. Preparation of Journal entries.................................................................................................7
B. Ledger accounts......................................................................................................................9
C. Trial balance..........................................................................................................................18
Client 2...........................................................................................................................................19
A. Statement of Profit and Loss.................................................................................................19
B. Preparing balance sheet of Peter piper..................................................................................20
Client 3...........................................................................................................................................22
A. Producing Income statement.................................................................................................22
B. Preparing Statement of Financial Position............................................................................23
C. Consistency and Prudency concepts.....................................................................................28
D. Outlining purpose of depreciation........................................................................................29
Client 4...........................................................................................................................................30
A. Preparation of Bank Reconciliation Statement.....................................................................30
B. Causes of varying bank records with accounting books.......................................................31
C. Producing Bank Reconciliation Statement...........................................................................31
Client 5...........................................................................................................................................31
A. Sales ledger control account and Purchase ledger control account......................................31
B. Explaining meaning of control account................................................................................32
Client 6...........................................................................................................................................33
A. Meaning and features of suspense account...........................................................................33

B. Drafting trial balance............................................................................................................33
C. Preparing journal entries.......................................................................................................34
D. Differentiating suspense and clearing account.....................................................................34
CONCLUSION..............................................................................................................................34
REFERENCES..............................................................................................................................36
INTRODUCTION
Accounting plays crucial role in the company to prepare final accounts in effective
manner. Present report deals with preparation of financial statements of 6 clients and showing
financial position. Moreover, accounting principles and concepts are discussed in the report.
Accounting guidelines issued by various professional bodies are explained as well. Furthermore,
trial balance and ledger accounts are prepared for the clients. Moreover, sales and purchase
ledger control both are produced. Thus, it can be said that financial accounting principles
provides way to produce correct financial statements of the business.

Report to Line Manager
To: Line Manager
Subject: Importance of accounting regulations and concepts in the business and various
concepts for achieving growth of company.
Define financial accounting: - Financial accounting is a financial statement of a company. In
financial statement we include income statement and balance sheet of the company. It is the
process of recording, summarising, classifying and interpreting the financial statement of a
company. Financial accounting is the accounting activities of the company and it’s a
preparation of profit and loss accounts and balance sheet of a company. Company issue their
financial statement time to time and assess the statement regularly (Warren and Jones, 2018).
The main purpose of financial accounting is to forecast for the company, how to earn more
profits in future. Financial statement include cash flow, income statement, balance sheet,
retained earnings. In income statements include revenue and expenses of the company. Cash
flow include operating, investing and financing activities of the company. Balance sheet is a
statement of financial year it include assets, liabilities, capital equity etc. Financial statement
also shows the financial condition of a company. There are some principle regarding financial
accounting that is company report should be easy to understand and credible and comparable.
Financial accounting follow the common rules which is accounting standards. Financial
accounting is differ from managerial accounting and its forecast the financial reports of the
company and this reports shows to the stakeholders, regulators of the company. The IASB
(International Accounting Standards Board) objective is to provide financial information to
investor, shareholders and lenders. And then decision involves buying, selling, or holding
equity and to provide loans from credit.
Explain regulation relating to financial accounting: - The main purpose of financial
accounting is to forecast for the company. In the financial accounting prepared profit and loss
statement and statement of financial position of partnership to examine. The accounting
standards are designed for betterment of financial accounting. In accounting standards include
what transaction should be shown in financial statement (Mullinova, 2016). The main purpose
of creating accounts standards is to define proper accounting practice with in legal framework.
The necessity of accounting regulation is when an individual choose to start a business. The
need for accounting standards only becomes apparent when the key characteristics of the

various mediums through which business venture can be carried. Financial accounting
focusses on the following areas that is identification and recording of financial information. In
financial accounting the activities should be reported. In this include clarity, accuracy
materialistic data which helps in better to judge a report. Financial statement are prepared
under regulatory framework. First is professional regulation, in this its outline that
recommended methods that can be used to value inventory and to provide guidance on when
inventory should be recognised. The next international regulation, in this the main aim of the
IASC was to promote the company worldwide and compare consistency in financial
statements with other companies. ISAB main aim is to establish open participatory and
transparent due process, collaborate globally for standard setting community and to connect
with investors, regulators, business leaders and the global accountancy profession at every
stage of process. The ISAB has full control on developing and set its own technical aspects.
Describe accounting rules and principles: - The rules and concepts that govern in
accounting. The main purpose of accounting principle is the accounting is based on legalistic
accounting which is detailed or complicated. If any company distribute their financial
statements to the shareholder or to the public so its required to follow generally accepted
accounting principle for preparing financial statements (Libby, 2017). Some basic accounting
principle are:-
The business as a single entity concept:- The business is a single entity . Business all
activities are treated separately .A business can run long after the existence of its owner.
The specific currency principle: - All country have their own currency. Some companies
who conduct business in foreign currencies ant then convert the currencies in prevalent
exchange rate of currency.
The specific time period principle: - Financial statement prepare in a specific time period. In
income statement there is start date and end date. And balance sheet is prepare on a certain
date.
The Historical Cost Principle: - The prices which is items were bought and sold its
valuation is done in financial statements. The real value may changes in inflation and
recession time.

The Full Disclosure Principle: - This principle focuses on all accounting scandals in news
now days. And company should reveal all the relevant aspects of the functioning.
The Recognition Principle: - In this principle companies reveals their income and expenses
in the same time period in which they were accrued.
The Non-Death Principle of Businesses:-
In this principle businesses will continue to function eternally and have no end date as such.
The Matching Principle: - In this principle the accrual system of accounting should be used
for every debit there should be credit.
The Principle of Materiality: - the report should be materialistic and accurate. There are
inaccuracy in records of financial accounting so the company note judge the right and not to
forecast (KHAJAVI and EBRAHIMI, 2017).
The Principle of Conservative Accounting: - In this principle expenses are recorded
immediately but incomes are recorded only when it comes in cash.
Explain the conventions and concepts relating to consistency and material disclosure:-
Conventions includes those customs or tradition which is help the accountants while preparing
the accounting statements. Some accounting conventions are:-
Convention of disclosure: - The term disclosure only implies that there is information which
is material to all which is invested in company. It implies that accounts should be prepared that
all material information is clearly disclosed to the reader. The idea behind this convention is
that nobody can misuse the reports of a company.
Convention of materiality: - In this convention only those items should recorded which is
significant and insignificant items should be ignored. This is used because of accounting will
be over burden. An item material for one concern may be immaterial for another (EBRAHIMI,
TALEBNIA, VAKILIFARD and NIKOUMARAM, 2017).
Convention of consistency: - This convention implies that accounting practices should remain
unchanged from one year to another. Consistency does not mean inflexibility. If introduction
of innovative techniques and changes become necessary, the change and its effect should be
clear.

Client 1
A. Preparation of Journal entries
Journal entries are prepared to record daily business transactions in chronological order
and as such, each and every information is effectively recorded in the accounting books. Another
aspect of journal entry is that transaction should be balanced on both sides which means that
debit and credit should be equal. These entries are then extracted to ledger accounts and as such,
it provides summary of individual accounts in ledger. Thus, recording transactions in the form of
journal entries is the first step for the preparation of financial statements of the trader. It help to
provide effective way of scrutinizing transactions for producing financials with much ease. The
journal entries for Alexandra Study is listed below-