Accounting Conventions and Practices

This assignment delves into the crucial role of accounting conventions in shaping financial reporting. It examines two core conventions – consistency and materiality – and explores their practical implications. The analysis draws upon academic literature and research papers to provide a comprehensive understanding of how these conventions influence the accuracy, reliability, and comparability of financial statements.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MEANING OF FINANCIAL ACCOUNTING...............................................................................1
REGULATIONS RELATED TO FINANCIAL ACCOUNTING..................................................2
ACCOUNTING RULES AND PRINCIPLES................................................................................2
CONVENTIONS & CONCEPTS RELATED TO CONSISTENCY & MATERIAL
DISCLOSURE ................................................................................................................................3
CLIENT 1........................................................................................................................................4
CLIENT 2......................................................................................................................................13
CLIENT 3......................................................................................................................................15
CLIENT 4 ...................................................................................................................................16
CLIENT 5......................................................................................................................................17
CLIENT 6......................................................................................................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial accounting is a process which is used to disc the financial and accounting
information of an organisation in a specified structure. Financial accounting is a procedure of
recording, summarising and transcript the information as per accounting principles and
standards. Business operations contains various type of activities and financial transactions.
These transactions are required to be recorded in a specific format and structure (Ball, 2013).
Financial standards and accounting principles provide a structure to record these transactions in a
specific format. Financial position statement, cash flow and fund flow statement, balance sheet
as well as income statements are the formats which are followed in general business.
MEANING OF FINANCIAL ACCOUNTING
Financial accounting is considered as a series of set of rules, standards, regulations and
principles. Financial accounting standards are given by Financial Standards Boards and GAAP
(Generally Accepted Accounting Principles). It is one of the branches of evaluation and reporting
of financial statements and reports. Recording the monetary and non-monetary transactions in
books, preparing financial statements and cost accounting are the main areas considered in
financial accounting (Ball, Kothari and Nikolaev, 2013)
Financial reporting is one of the key criteria which help in managerial accounting.
Financial reporting helps in summarising the records and information to finalise the conclusion.
These information are also used in decision making strategies (Radebaugh, 2014). It is a style of
presenting financial information in the form of financial statements. These information are useful
for stakeholders, investors, financiers and for public. Basically, Historical Cost Accounting
(HCA) or Constant Purchasing Power Accounting (CPPA) are used while preparing financial
accounts. Cash flow statement, profit and loss account or income and expenditure statement as
well as financial position statement are considered in the financial statements.
Systematic recording and storing of information, determine the results as per the
transactions, define the financial position of business, providing required information to
managers for making strategies and plans, find out solvency position of organisation are the main
objective of financial accounting (Brown and et. al., 2015). There are five main bifurcations
made subject to financial transactions like revenues, expenses, assets, liabilities and equity,
revenue and expenditures. There are two type of transactions are fund such as capital nature
1

transaction and revenue nature transaction. As per rules, principles provided by GAAP, capital
expenditures and incomes must be presented in the balance sheet and financial position
statements and revenue nature income and expenditures must be shown in profit and loss
statements or income statements. All the current and non current liabilities and assets are shown
in balance sheet(Francis, Hasan and Wu, 2013).
REGULATIONS RELATED TO FINANCIAL ACCOUNTING
Financial accounting rules and principles are controlled and sans action by both general
and international accounting standard boards (DRURY, 2013). GAAP (Generally Accepted
Accounting Principles) is one of the authorised bodies which provide standards and principles
regarding financial and accounting (Nilsson and Stockenstrand, 2015). It provides guidelines
which are used in the organisational context. International Financial Reporting Standards (IFRS)
is one of the governed authorities which issued rules and standards subjected to financial and
accounting reporting. It is a set of passionate accounting standards which help to bifurcate the
nature of transactions in different sections. International Accounting Standards Board (IASB)
issue the IFRS rules and regulations.
ACCOUNTING RULES AND PRINCIPLES
Accounting rules and principles are also known as GAAP.
(a) Boundary rules
Entity rules: This rule tells the definition of an entity and separates the existence of
organisation from the owner. It indicates towards the ownership and responsibilities of entity and
bifurcate the owner’s role in organisation.
Periodicity rule: As per this rule, all the transactions and records must be maintained for
annual basis. Period of maintaining records is 12 months (Gaffikin, 2014).
Going concern: It is an assumption subjected to existence of organisation. As per this
assumption, it is estimated that organisation will exist forever and all the transactions will be
made for the future growth.
Quantitative rules: There must be countable information recorded in books no any kind
of assumptions and perspective to be used in while preparing financial statements (Vogel, 2014).
(b) Measurement rules
2

Monetary measurement: Every transaction must keep the details and information in a
specific manner and the details (Goh and et. al., 2015). There must be single currency opted as a
measurement tool.
Historic costs: This rule indicates towards valuation of assets in the books on their
historical cost when they were occupied. Records must not be changed as per the changes in
rates of asset values.
Realisation rule: It is considered as an important rule subjected to revaluation of assets
after a specified period (M Ancini, Vaassen and Ameri, 2014). As the cost of machinery was £
20000 but after revaluation, the cost of asset at present is £ 19800.
Matching Rules: As per this rule, the balance of assets and liabilities must be equal at the
end of year.
Dual Aspects: It is considered that there are two accounts get effected by every
transaction. As one account is debited and second account is credited (Gray, Coenenberg and
Gordon eds., 2013).
Material Rule: This rule says that there is no any need to open a separate account for
every insignificant thing. There should be a separate group to be assigned to record significant
transactions.
(c) Ethical Rules
Objectivity rule : Every transaction and events contains objective for specific period.
That objective must be cleared in reports as well as in books too (Hope, Thomas and Vyas,
2013).
Relevance rule : informations and records must be subject to the point in books. No any
kind of irrelevant informations published in reports or recorded in books of accounts.
CONVENTIONS & CONCEPTS RELATED TO CONSISTENCY &
MATERIAL DISCLOSURE
Convention of materiality : Accounting informations and details must be cleared and
relevant to the subject. No any kind of extra information, significant and insignificant details to
be considered in financial records. This convention points towards making accounting records
simple and understandable. Only relevant and subject to the point informations are used help
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managers to make strategies and plans. It helps to able provide fair judgement and make
decisions (Kuper, 2013).
Convention of Consistency : This accounting rule signify the scope of accounting
policies in organisation. This convention says that the policies and regulations regarding
accounting policies and financial standards must be remain unchanged for specific duration and
period (Convention related to consistency and materiality, 2018). As if an organisation uses
FIFO method to calculate the cost of closing inventory then this method must be followed at
least for 12 months (Lawrence, 2013).
CLIENT 1
(a) Books of prime entries
Journal entries (Figures in £)
Date Particular L/F Debit Credit
01/05/16
2/05/2016
3/05/2016
Storage a/c
To Bank a/c
(Being storage paid)
Purchase a/c
To D. Main
To S. Hood
To R. Foot
To W. Tone
(Being purchase made)
P. White a/c
T. Wilson a/c
F. Allen a/c
T. Cole a/c
F. Lane a/c
F. Syme a/c
To Sales a/c
400
6080
2420
1120
910
1640
770
2080
400
2060
1450
1610
960
8940
4

4/05/2017
7/05/2016
9/05/2016
11/05/2016
14/05/2016
16/05/2016
(Being sales made)
Motor a/c
To Cash a/c
(Being expenses paid to motor)
Drawing a/c
To Cash a/c
(Cash withdrawal for personal use)
J. Fox a/c
T. Cole a/c
To Sales a/c
(being sales made)
Sales return a/c
To J. Syme a/c
To F. Wilson a/c
(Being Goods returned)
Van a/c
To Abel Motors Ltd
(Being assets (van) purchased )
Bank a/c
To F. Lane
To F. Syme
To P. Mullen
To J. Wilson
(being payment maid)
Discount allowed a/c
470
1500
1310
680
680
28500
6669
351
470
1500
1990
410
270
28500
2945
1587
1330
807
5

19/05/2016
22/05/2016
24/05/2016
27/05/2016
To F. Lane
To F. Syme
To P. Mullen
To J. wilson
(Being Discount Allowed)
R. Foot account a/c
To Purchase return a/c
(Being Purchase return)
Purchase a/c
To W. Wright
To L. Mole
(Purchase made)
J. Brown a/c
R. Foot a/c
S. Hood a/c
To Bank a/c
R. Foot a/c
S. Hood a/c
J. Brown a/c
To Discount received
(360+460+140)
(Payment made and discount received)
Salaries a/c
To Bank a/c
(Being salaries paid)
50
3740
4140
1260
3240
140
360
460
4800
155
84
70
43
50
1910
1830
8640
960
4800
6

30/05/2016
31/05/2016
1/05/2017
Business rates a/c
To Bank
(Being rates paid)
Abel Motors Ltd a/c
To cash a/c
To Bank a/c
(Being able motors paid by bank and
cash)
Premises a/c
Van a/c
Fixtures a/c
Inventory a/c
Receivable a/c (1400+3100)
Cash at bank a/c
cash in hand a/c
To payables a/c (2150+4600)
To capital a/c (Balancing Figure)
(Being owner's capital calculated)
1320
28500
340000
51250
8100
63900
4500
62400
5600
1320
8500
20500
6750
529000
Journal entries for the month of 1 may 2017
01/05/17 Premises a/c
Van a/c
Fixtures a/c
Inventory a/c
Receivable a/c (1400+3100)
Cash at bank a/c
cash in hand a/c
To payables a/c (2150+4600)
To capital a/c (Balancing Figure)
(Being owner's capital calculated
340000
51250
8100
63900
4500
62400
5600
6750
529000
Calculation of owner's capital as at 1 May 2017
7

Assets
Premises a/c 340000
Van a/c 51250
Fixtures a/c 8100
Inventory a/c 63900
Receivable a/c (1400+3100) 4500
Cash at bank a/c 62400
cash in hand a/c 5600
Total assets 535750
Less: liabilities 6750
Owner's capital 529000
(b) Ledger posting
Premises
a/c
Date Particulars Amount Date Particular Amount
01/05/16 To balance B/d 340000
01/05/17 by balance 340000
Total 340000 340000
Van
account
a/c
Date Particulars Amount Date Particular Amount
01/05/16 To opening
balance
22750
14/05/16 To abel Motors 28500
8

01/05/17 by balance 51250
51250 51250
P. Mullen a/c
Date Particulars Amount Date Particular Amount
01/05/16 balance B/d 2800 16/05/16 By bank 1330
By Discount
allowed 70
01/05/17 by balance 1400
2800 2800
S. Hood
Date Particulars Amount Date Particular Amount
01/05/16 By balance b/d 1600
01/05/17 To Balance C/d 2150 02/05/16 By purchase 1450
2150 2150
S. Hood
Date Particulars Amount Date Particular Amount
01/05/16 By balance b/d 1600
01/05/17 To Balance C/d 2150 02/05/16 By purchase 1450
2150 2150
Storage
cost
Date Particulars Amount Date Particular Amount
01/05/16 To bank 400 01/05/17 By balance c/d 400
400 400
Sales a/c
Date Particulars Amount Date Particular Amount
03/05/16 By J. wilson 1120
By T. Cole 1640
By F. Syme 2080
9

By J. Allen 910
By P. White 2420
By F. Lane 770
09/05/16 By T. Cole 680
By J. Fox 1310
22/05/16 By L. mole 1830
01/05/17 To Balance C/d 14670 by W. Wright 1910
14670 14670
Purchase a/c
Date Particulars Amount Date Particular Amount
02/05/16 To S. hood 1450
To D. main 2060
To W. Tone 960
To R. Foot 1610
22/05/16 To L. Mole 1830
W. Wright 1910 01/05/17 By balance c/d 9820
9820 9820
Bank
account
Date Particulars Amount Date Particular Amount
01/05/16 To balance B/d 91392 01/05/16
By Storage
expensed 400
16/05/16 To P. Mullen 1330 24/05/16 By S. Hood 3240
To F. Lane 2945 By J. Brown 4140
To J. Wilson 807 By R. Foot 1260
To F. Syme 1586 27/05/16 By Salary a/c 4800
30/05/16 By Business rates 1320
31/05/16 By Able motors 20500
01/05/17 By balance c/d 62400
98060 98060
Fixtures a/c
10

Date Particulars Amount Date Particular Amount
01/05/16 To balance b/d 8100
01/05/17 By balance 8100
8100 8100
Inventory a/c
Date Particulars Amount Date Particular Amount
01/05/16 To balance b/d 63900
01/05/17 By balance 63900
63900 63900
F. Lane a/c
Date Particulars Amount Date Particular Amount
01/05/16 To balance c/d 5430 16/05/16 By bank 2945
by Discount
Allowed 155
03/05/16 To sales 770
01/05/17 By balance 3100
6200 6200
J. Brown
Date Particulars Amount Date Particular Amount
01/05/16
by balance
B/d 4600
01/05/17 To balance 4600
4600 4600
R. Foot
Date Particulars Amount Date Particular Amount
19/05/16 To Purchase Return 50 02/05/16 by purchase 1610
01/05/17 To balance c/d 1560
11

1610 1610
J. Wilson
Date Particulars Amount Date Particular Amount
03/05/16 To sales 1120 11/05/16 By Sales return 270
01/05/17 By Balance C/d 850
1120 1120
T. Cole
Date Particulars Amount Date Particular Amount
03/05/16 To sales 1640 01/05/17 By Balance C/d 2320
09/05/16 To sales 680
2320 2320
F. Syme
Date Particulars Amount Date Particular Amount
03/05/16 To sales 2080
11/05/2016
By Sales return 410
By bank 1586
by Discount Allowed 84
2080 2080
J. Allen
Date Particulars Amount Date Particular Amount
03/05/16 To sales 910 01/05/17 By Balance C/d 910
910 910
P. White
Date Particulars Amount Date Particular Amount
03/05/16 To sales 2420 01/05/17 By Balance C/d 2420
2420 2420
D. Main
Date Particulars Amount Date Particular Amount
01/05/17 To balance c/d 2060 02/05/16 by purchase 2060
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2060 2060
W. Tone
Date Particulars Amount Date Particular Amount
01/05/17 To balance c/d 960 02/05/16 by purchase 960
960 960
J. Fox
Date Particulars Amount Date Particular Amount
09/05/16 To balance c/d 1310 01/05/17 By Balance C/d 1310
1310 1310
Salaries A/c
Date Particulars Amount Date Particular Amount
27/05/16 To bank 4800 01/05/17 By Balance C/d 4800
4800 4800
Discount
allowed a/c
Date Particulars Amount Date Particular Amount
16/05/16 To P. Mullen 70 01/05/17 By Balance C/d 352
To F. Lane 155
To J. Wilson 43
To F. Syme 84
352 352
Discount
received a/c
Date Particulars Amount Date Particular Amount
01/05/17 960 24/05/16 By S. Hood a/c 360
By J. Brown a/c 460
By R. Foot a/c 140
960 960
Purchase
Return a/c
Date Particulars Amount Date Particular Amount
13

01/05/17 To Balance C/d 50 22/05/16 by R. Foot 50
50 50
Sales return a/c
Date Particulars Amount Date Particular Amount
11/05/16 To J. Wilson 270 01/05/17 By balance b/d 680
To F. Syme 410
680 680
Abel motors a/c
Date Particulars Amount Date Particular Amount
31/05/16 To bank 20500 14/05/16 By van 28500
01/05/17 To Balance C/d 8500
28500 28500
Cash in hand
Date Particulars Amount Date Particular Amount
01/05/16 To Balance b/d 7570 04/05/16
By motor
expenses 470
07/05/16 By Drawing 1500
01/05/17 by balance 5600
7570 7570
Motor expenses
Date Particulars Amount Date Particular Amount
04/05/16 To motor expenses 470 01/05/17 By balance c/d 470
470 470
Drawing account
Date Particulars Amount Date Particular Amount
07/05/16 To cash 1500 01/05/17
By balance
c/d 1500
1500 1500
L. Mole
Date Particular Amount Date Particular Amount
14

01/05/17 To Balance b/d 1830 22/05/16 by purchase 1830
1830 1830
W. Wright
Date Particular Amount Date Particular Amount
01/05/17 To Balance b/d 1910 22/05/16 by purchase 1910
1910 1910
(c) Trial balance
Trail Balance in the books of Alexandra fro the 01 may 2017 (Figures in £)
Premises a/c 340000 Nil
Van account a/c 51250 Nil
Fixtures a/c 8100 Nil
Inventory a/c 63900 Nil
P. Mullen 1400 Nil
F. Lane 3100 Nil
Cash at bank 62400 Nil
Cash in hand 5600 Nil
Purchase a/c 9820 Nil
Storage cost 400 Nil
T. Cole 2320 Nil
J. Allen 910 Nil
P. White 2420 Nil
Sales Return 680 Nil
Business rates 1320 Nil
Drawing account 1500 Nil
J. Fox 1310 Nil
Discount Allowed 352 Nil
Motor expenses 470 Nil
Salaries 4800 Nil
15

Owner's Capital Nil 520500
Sales a/c Nil 14670
Abel motors a/c Nil 8500
J. Brown Nil 4600
Suspense a/c Nil 2300
S. Hood Nil 2150
D. Main Nil 2060
W. Wright Nil 1910
L. Mole Nil 1830
R. Foot Nil 1560
W. Tone Nil 960
Discount
Received
Nil 960
Purchase Return Nil 50
CLIENT 2
(a) Peter Piper's Statement of Profit or loss for the year ended 31st December2017
Particular Amount Amount Amount
£ £ £
Sales 1215000
less cost of sales
opening inventory 82200
add purchases 778800
861000
less closing inventory note 1 101640 759360
Gross profit 455640
less Expenses
wages and salaries 177500
add amount accrued 1220 1220
motor expenses 87400
16

admin expenses 17650
heating and lightning 4950
advertising expenses 13280
less amount prepaid 8470 4810
depreciation on premises 5400
depreciation on equipment 17250
depreciation on motor
vehicle
2800 25450 318980
Operating Profit 136660
ASSETS £ £ £
Non-current Assests cost accumulated
depreciation
Net book
value
Freehold Premises (37500+5400) 270000 -42900 227100
Equipment (97500+17250) 172500 -114750 57750
Motor vehicles (14000+2800) 28000 -16800 11200
Total Non-current Assests 470500 -174450 296050
Current Assets
Inventory (closing) 101640
trade receivables 106960
prepayments: advertising 8470
cash in hand 2440
Total current Assests 219510
Total Assets 515560
Equity and Liabilities
Equity
Capital 332120
add profit for the year 136660
468780
less drawings -42640
total equity 426140
Current liabilities
Trade Payables 76910
bank overdraft 11290
17

accruals: wages and salaries 1220
Total current liabilities 89420
Total Equity and liabilities 515560
(CLIENT 3)
(a) Profit and loss statement of Raintree Ltd. For the year ended 30th September 2017
Particulars Amount Amount
£ £
Revenue W2 105000
cost of sales w1 -31000
gross profit 74000
administration Costs w1 -30000
Distribution costs w1 -30000
Operating Profit 14000
finance costs 0
Profit before tax 14000
Tax payable -4000
Profit for the year 10000
(b) Statement of financial statement of Braintree Ltd.
ASSETS £ £
NON-CURRENT ASSETS
Property, plant and equipment w3 92000
CURRENT ASSETS
Inventory 18000
Trade Receivables 24000
Prepayments 3000 45000
TOTAL ASSESTS 137000
EQUITY AND LIABILITIES
Equity
Share capital @ £1 each 50000
Share premium 20000
Retained Earnings w4 32000
18

Total Equity 102000
Current Liabilities
Trade Payables 14000
bank overdraft 15000
Accruals 2000
tax payable 4000 35000
TOTAL EQUITY AND LIABILITIES 137000
Working Notes.
w1 COS ADMIN DIST
OPENIN INV 17000
ADD PURCHASES 32000
LESS CL INV NOTE 1 -18000
BALANCE 31000
AS PER QUESTION 28000 22000
DEP ON BUILDINGS 1000
DEP ON P&M 10000
ADMIN SALARIES ACCRUED 2000
RENT PREPAID -3000
BALANCE AT 30/9/17 31000 30000 30000
W
2
SALES 107000
LESS RETURNS INWARDS -2000
105000
w3 PPE L N B P N M
AS PER QUESTION 60000 65000
Acc. Dep @1/10/2016 -7000 -15000
dep 30/09/17 -1000 -10000
19

52000 40000 92000
w4 retained earnings
as per question 22000
add profit for the year 10000
32000
(c) Accounting concept
Concept of prudence : it is required to centralise the efforts to opt effective accounting
and measurement method at initial level. For example organisation have two valuation methods
such as historical cost method and net realisable value method, now organisation must prudent
while electing the option.
Concept of consistency : as per this accounting rule organisation must consistent with its
accounting standards and principles. Channing in accounting procedures and standards create
complexity and reduce the credibility of financial position among investors and share
stockholders.
CLIENT 4
(a) Bank reconciliation statement
It is a statements which clarify the difference of multiple transaction which remain
uncleared from owner's and bank's perspective.
(a) Bank Reconciliation Statement As on 1december December 2017
Particular Amount
balance as per bank statement 17478
add: outstanding deposits 176
17654
less: Unrepresented cheques (426+737) -1163
balance as per cash book as at 31 December 2017 16491
(b) Corrected cash book as at 31 December 2017
Date receipts Amount
£
date payments Amount £
20

01/12/31 balance b/d 19973 Error of
adjustments
1
Error of
adjustments
9 Bank charges 47
Standing
charges
137
direct debit 297
310923 19500
19982 19982
balance b/d 19500
(c) Adjusted Reconciliation statement as at 31 December 2017
Particular Amount
balance as per bank statement 19738
add: Deposits adjustments 119
19857
less: Unrepresented cheques (97+260) -357
balance as per cash book as at 31 December 2017 19500
CLIENT 5
Purchase ledger account
Particulars Amount Particulars Amount
To general ledger control a/c
By opening balance
on (Cr. balance) 9160
Purchase return 1110 Credit purchase 116500
Payment to creditors 101010
Discount Received 290
To transfer from sales ledger 330
To balance c/d 22920
125660 125660
Sales ledger control account
21