Financial Accounting Assignment Details

This financial accounting assignment provides detailed solutions to various questions related to the topic. It starts by explaining the concept of consistency and prudence in financial reporting, followed by discussions on depreciation methods such as straight-line method (SLM) and written-down value (WDV). The assignment also touches upon the difference between a sole trade and a limited company, highlighting that a sole trade does not have a legal identity while a limited company has one. It further explains the purpose of depreciation in accounting. Additionally, it covers the concept of suspense accounts and how they are used in financial reporting. A bank reconciliation statement is also prepared for client 3, demonstrating how to balance and reconcile discrepancies between a company's records and its bank statements. Lastly, an imprest system is discussed as a method for managing petty cash funds.

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
a. 1. Financial accounting and its purpose..................................................................................1
2. Two Internal stakeholders and four External stakeholders of Marks and Spencer ................2
B) Different Clients portfolio......................................................................................................3
CLIENT 1........................................................................................................................................3
CLIENT 2........................................................................................................................................8
A). The statement of profit and loss of Munteanu Ltd. For the year ended 31st December
2018.............................................................................................................................................8
B). Statement of financial position of Munteanu Ltd, as at 31st December 2018......................8
C). Explaining the accounting concept of Consistency and Prudency........................................9
D). Describing the purpose of the depreciation with the two method of calculating
depreciation...............................................................................................................................10
E). Evaluating the difference between the financial statement of sole trader and limited
companies..................................................................................................................................11
CLIENT 3......................................................................................................................................12
A.) Purpose and reasons for preparing Bank Reconciliation Statements .................................12
B. Areas which cause deviation in bank records.......................................................................12
C. Explanation of term “ imprest” in petty cash statement.......................................................13
D). Update Burcu Ltd. Cash book for September 2018 and bank reconciliation statement as at
30 September 2018....................................................................................................................13
CLIENT 4......................................................................................................................................14
ii). Purchase Ledger accounts...................................................................................................15
CLIENT 5......................................................................................................................................15
A) Suspense account and its main features...............................................................................15
B). Trail balance using control account....................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Financial accounting is defined as reporting of financial information in the statements in order to
determine the profitability and position of firm for the period. In this study, Marks and Spencer
will be consider which is involved in the retail industry and its offering different products and
services. Moreover, it will provide understanding about the financial accounting and its purpose.
Furthermore, it will contain information about the internal and external stakeholders.
MAIN BODY
a. 1. Financial accounting and its purpose
Financial accounting can be defined as accounting of the financial information for
identifying the performance and profitability of business by performing various business
operations. The financial statement are prepared for recording financial information in various
statements (Macve, 2015). It consists of income statement, balance sheet and cash flow
statement. Income statement involves the incomes and expenses for a period which assist the
organisation in determining the profitability earn by the business by conducting various business
operations. The purpose of financial accounting is to provide accurate and reliable information
about the business activity in order to make effective business decision for improving
performance of firm. The information is used by the stakeholders for various purposes.
With the help of financial accounting organisation in able to provide better understanding
to the stakeholders about the financial performance of company. Financial accounting helps
business in improving their future profitability and performance through statements prepared by
the firm that reflect the profits earned during the period. The purpose of financial accounting is
to prepare financial reports that provide information about firm's various operations to the
investors and other stakeholders to make business decision. Cash flow statement include the
information about the cash inflow and outflow for the period to identify the cash requirement of
business. Balance sheet prepared by firm assist in identifying the financial position through use
of assets and liabilities. Financial accounting helps firm in better understanding about their
operation and reducing their expenses through use of income statement to increase their
profitability.
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2. Two Internal stakeholders and four External stakeholders of Marks and Spencer
The internal stakeholder of the company are those which are present in the business
environment of organisation and use the financial statements for making the various business
decisions. The internal stakeholder of Marks and Spencer consist of following :
Management: The management is the internal; stakeholder of firm as it uses the
financial information in order to manage the resource inn the most efficient way to increase the
future profitability of business (Henderson anmd et.al., 2015). With the help of financial
information management is able to understand the factors which are affecting profitability of
business and can make effective decision for improving future performance.
Employees: The employee of Marks and Spencer are considered as internal stakeholders
as they use the financial information for identifying the growth of company in order to
identifying their due career opportunities for improving the job satisfaction. Marks and Spencer
provide the financial information to the employees in order to provide them understanding about
the various operations performed by firm.
The external stakeholder of the company can be termed as the individuals, group or
companies who are not a part of an organisation, but can be affected or can affect the business
decisions and performance of the company. The external stakeholder do not have any financial
stake from the company but do concern with the performance of the company and its success.
They are critical for the overall success of the company. There are many extyernal; external
stakeholder of a company, some of them are:
Customers: they are most important part of the company as they consumers the goods
and services of the company (Edwards, 2013). They are the one who generate revenue for the
business. They are concerns in order to determine the profitability and ability of the company in
order to survive for a longer time in market. Financial information will be beneficial for those
customers who are dependent on the company's product and services.
Shareholders and investors: They are considered as the main source of funds for the
company. Shareholders or investors purchases the shares of the company in order to invest their
money in the company. It can be said that, financial information will assist in knowing the
financial performance of the company, the profitability of the company and security of their
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investment. These financial information is beneficial assist them in knowing their potential
return from their investment in company.
Competitors: They are rivals of the business who will be keen to know the financial
performance and capabilities of the companies and their financial performance. These financial
statements will assist the competitors to set as the benchmark in order to make appropriate
competitive strategics.
Government: they are the authority of the states or local where the company is
operating. The financial information and statement will assist in ensuring the government that the
business is disclosing their accurate financial information in according to the regulation (Weil,
Schipper and Francis, 2013). The government will also keen to know the financial performance
and profitability which assist them in tax purposes as well.
B) Different Clients portfolio.
CLIENT 1
Journals and capital account as per January 1st 2019
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4

5

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Trail balance:
Trial balance for the month ended January
Particular Debit Credit
S. Hood 10000
J. Brown 12000
R. foot 160
W. Tone 960
L. Mole 1830
W. Wright 1910
J whilson 80
F. syme 20
T.cole 2330
J. Allen 1020
P white 2520
F.lane 2020
J.fox 1310
P.mullen 3000
Sales 11460
Purchase 9820
purchase return 50
sales return 680
storage cost 450
Motor expense 470
salary 4800
drawings 1500
business rates 1320
capital 382900
premise 240000
van 51250
Fixtures 8100
inventory 23900
Cash in hand 21650
Cash at bank 52230
suspense account 7200
428470 428470
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CLIENT 2
A). The statement of profit and loss of Munteanu Ltd. For the year ended 31st December 2018.
Statement of profit and Loss as per the year ended 31st December 2018
Particulars £ £
Sales 138000
Less : COS
Opening Stock 15000
Add: Purchases 61000
Less: Closing Inventory 20000
depreciation treated as cost of sales 800 56800
GP 81200
Less : expenses
Wages and salaries 2000 2000
operation cost 30000
Add : 50% depreciation on plant 4000 34000
Distribution expenses 35000
Add: 50% depreciation on plant 4000
Less: Rent prepaid 3000 36000
Corporation tax 2000 2000
depreciation on building /Cost of sales 800
74000
Net profit 7200
B). Statement of financial position of Munteanu Ltd, as at 31st December 2018.
Particular £ £
Current assets
Stock 20000
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Prepaid rent 3000
Receivables 26000
Sales return 3000
Total current assets 52000
Non – current assets
Land & building 60000
Less : accumulated depreciation 10000
- Depreciation on building 800
49200
Plant and machinery 60000
Less : 20000
Less : 8000 32000
Total fixed assets 81200
Total assets 133200
Liabilities
Current liabilities
Payables 22000
accrued salary 2000
Bank overdraft 18000
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Total current liabilities 42000
Tax payable 2000
Capital 40000
Add: net profit 7200
47200
retained earnings 22000
share premium 20000
total liabilities 133200
C). Explaining the accounting concept of Consistency and Prudency.
Consistency: As per this concept of accounting, the company once adopted an accounting
method in order to treat or record a transaction or event, should follow the same accounting
method for the company year as well. As per the concept, the company should be consistent in
adopting an accounting method. The company can not adopt an accounting method in one year
and change the method in another year, as it will lead to create problem in understanding and
comparing the financial statement of different years (The consistency principle , 2019). The
consistency principles implies that a company can changes its accounting method only at some
reasonable grounds and valid reason. The new method adopted must be more appropriate in
order to reflect the true picture of the financial information. The company needs to disclose the
nature, reason and its effect of the new method in financial statement.
Prudency: It is the fundamental concept and principle of the accounting which assist in
formulating the financial statement of the company. As per this concept, the accountant of the
company should overstateted its assets, revenue and losses and not understated its liability, losses
and expenses. As the accounting transaction are uncertain have to report in books in time. This,
prudency is termed as the key principles which assist in ensuring the accountant that, the assets,
revenue or income will be recorded only when it is actually realised by the company (Beatty and
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Liao, 2014). But, the entry or transaction related to losses, expenses and liability will be recorded
at the same time. This concept assist in making the financial statement more realistic.
D). Describing the purpose of the depreciation with the two method of calculating depreciation.
Depreciation can be termed as the deduction in the recorded cost of fixed asset in its
useful life. It can be said the cost of the asset declining each year die top usage and wear and
tear, the cost of the asset got decline until the value of the asset become zero or negligible ( The
Purpose of Depreciation , 2019). Depreciation can be said as an accounting method of allocating
the cost of a tangible asset and is used in order to declines in value the main purpose of the
depreciation is to match the expense of the productive asset to the revenue earned from using that
asset. Depreciation assist in systematically allocates or moves the asset's cost from the balance
sheet to expense on the income statement over the asset's useful life. There are different method
of calculating the depreciation, the two widely used method of depreciation are as follows:
Straight line method: It is the simplest and commonly used method of determining the
depreciation expenses. This method assumes that the depreciation amount if the asset will be
same over its useful life (Edmonds and et.al., 2013). It is appropriate in using where there is no
particular pattern given for the use of the asset ion company. The formula for straight line
depreciation are as follows:
Depreciation expenses= (Asset cost- salvage value) / useful life of asset.
Declining method of depreciation: In this method of calculating depreciation, the
expenses of depreciation keeps on reducing with each year of its useful life. This method is
appropriate for the asset which are more useful or productive at the starting period and then
slowing the depreciation in later years (Marshall, McManus and Viele, 2011). In this method, a
constant rate of depreciation is fixed and each year the depreciation on the asset is charged as per
the rate. The formula for the declining method of calculating depreciation are as follows:
Depreciation charge per year =(net book value – residual value) * depreciation rate
E). Evaluating the difference between the financial statement of sole trader and limited
companies.
Sole trader ship can be termed as the business arrangement which is run by one single
owner. He is liable for all the losses and will enjoy all the profit. He will take all the decision
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related to the business activities. Whereas, the limited companies can be refers as the business
structure which is run by wither a single person or group of the partners. Such partners are
responsible for the activities and finances of the company (Taipaleenmäki and Ikäheimo, 2013).
The limited companies are incorporated and will consider as the separate legal body from its
owner. The difference between the financial statement of sole trader and limited companies are
as follows:
Sole trader Limited Company
There is only one capital account There are more than one capital account which
are based on the number of partners in firm.
All the profit will belong to the single owner Profit and loss account will be made in order to
be distributed to the capital accounts of
partners.
There is no such statement made The income statement of the partnership shows
a schedule on how the net profit/loss is
distributed to the partners (Porter and Norton,
2012).
Balance sheet sow only one capital account The balance sheet shows all the balance of
capital amount of each partners.
CLIENT 3
A.) Purpose and reasons for preparing Bank Reconciliation Statements
Bank Reconciliation Statement shows summary of bank and company which can be
compared with the balances of both bank statements and company accounting records to identify
if records are matching (Bank Reconciliation Statement, 2018).
Purpose for preparing bank reconciliation statements
1) It helps in analyzing errors and frauds by comparing bank records with company
accounting records.
2) It helps in regular reviewing of accounts which leads to early identification of problem.
3) It helps in detection of fraud .
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4) It helps identify missing transaction, dishonoured cheques, entry errors and help reconcile
the issue effectively.
Reason for preparing bank reconciliation statements
1) BRS helps in ensuring accuracy of the amount disclosed by both the accounting records
of company and bank.
2) The major reason behind preparing BRS is that it helps helps in early identification of
frauds and errors which can be rectified at the right time.
3) Reconciliation of account helps in preventing administrative issues.
B. Areas which cause deviation in bank records.
1) Cheque outstanding,i.e., issued but not yet presented in bank.
2) Different amount entered in both the books.
3) Dishonouring or bill discounting of cheque.
4) Amount debited by bank but credited in company's book.
5) Mistake in recording wrong amount in the books.
6) Bank charges, commission and interest by bank not recorded in cash book.
7) Recording of transaction under the ledger of wrong clients.
8) Recording the amount of debtor in the account of creditor.
9) Deposit in process or transit.
C. Explanation of term “ imprest” in petty cash statement.
Imprest means recording of the routine financial transactions which are to be maintained
at fixed amount in the petty cash statement (Imprest system, 2018). Petty cash statements records
all small expenditures which are to be carried out for the routine or day to day working of
organization. Imprest is a cash account which are used by business to pay small routine expenses
for specific purpose. Imprest system is used to track the cash expenses and keeps proper record
of cash expense payments.
D). Update Burcu Ltd. Cash book for September 2018 and bank reconciliation statement as at 30
September 2018.
Bank reconciliation account as at 30th sept 2018
Details Cheque no In £
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Balance as per bank statement 515
Add: C lyons 87
s leemings 116
Cash sales 122
325
Less: debit rates 105
Bank charges 36
Adjustment in cash book 184
Updated cash book for the year ended on 31st sept 2018
dates Receipts Amount date payment amount
1 sept 2018 Balance b/d 515 9th sept 2018 M. potter 251
7th sept
2018 cash sales 64 10th sept 2018 C. lyons 87
17th sept
2018 cash sales 171 14th sept 2018 C hallen 89
24th sept
2018 cash sales 103
20th sept
2018 C daVID 122
12th sept
2018 M pointer 26 28th sept 2018 S leeming 116
17 th sept
2018
Direct debit
rates 105
30th sept 2018 bank charges 36
806
879 30th sept 2018 Balance c/d 73
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Bank statement as at 30th sept 2018
dates particulars receipt Payment balance
01/09/18 opening balance 515
08/09/18 cash sales 64
11/09/18 101202 251
13/09/18 deposit 26
17/09/18 101204 89
17/09/18 debit rates 105
18/09/18 cash sales 171
26/09/18 cash sales 103
30/09/18 Bank charges 36
10/09/18
C.lyons (Bank
Reconciliation Statement,
2018)(Imprest system,
2018) 87
20/09/18 C . david 122
28/09/18 S .leeming 116
364 806
balance as per cash book 73
CLIENT 4
A). I). Sales Ledger in the books of Hilly, for January 2018:
Sales ledger control account
dates details Amount Date Details Amount
1st jan Balance b/d 12600 Bad debts written off 1600
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Credit sales 152350 discount allowed 1060
Return inwards 4320
Payment received 120610
164950
Transfer to purchase
ledger 640
128230
balance c/d 36720
ii). Purchase Ledger accounts.
Purchase ledger control account
dates details Amount Date Details Amount
Return outwards 3110
1st jan
2019 Balance b/d 11360
discount received 850 Credit purchase 126500
payment to suppliers 91010
refund received from
supplier 500
transfer from sales
ledger 500
95470 138360
balance c/d 42890
CLIENT 5
A) Suspense account and its main features
Suspense account: it can be defined as the account prepared in the books of account of
an organization to reconcile the trial balance at the end of an accounting or income year. A
suspense account is the section of a company's books where it records its unclassified debits and
credits (What is a suspense account?, 2018). The suspense account temporarily holds these
unclassified transactions while the company makes a decision about their classification. An
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example is mortgage suspense account that holds the funds when the payment of the borrower is
less or more than the standards required payment.
Features of Suspense account:
 This is temporary in nature.
 Prepared at the end of account period.
 The transaction are vetted out after the completion of the financial year.
 Holds the information of discrepancies of recoding of the data.
B). Trail balance using control account.
Trial balance
Particular Debit Credit
Purchases 7000
sales 11000
Rent paid 2500
Cash in bank 8400
Travel expenses 1600
Receivables 3200
Payables 3500
Opening inventory 2200
Capital 7100
suspense 3300
24900 21600
Suspense account
Particular Debit Particular Credit
whites 7500 difference in books 3300
Jonas 4200
7500 7500
Trail balance after adjustment:
Trial balance after adjusting suspense figure
Particular Debit Credit
Purchase 7000
sales 11000
Rent paid 2500
Cash in bank 8400
travel expense 1600
Receivables (3200+4200) 7400
Payables (3500+7500) 11000
Opening inventory 2200
Capital 7100
29100 29100
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particular Debit Credit
Simon A/c dr 2200
To Smith A/c 2200
Jones A/c Dr 4200
To suspense A/c 4200
Suspense A/c dr 7500
To White A/c 7500
CONCLUSION
From the above report it can be concluded that financial accounting is of vital importance
to a business organization. This assist in identification of the performance of the business a
along with its performance of a specific time period. The external stakeholder of the have been
identified as customers, shareholders, competitors and government and internal one are
employees and management. For the first client calculation of ledger account have been prepared
and then trial balance is drawn out with a total of 428470. For client 2 profit of the years have
been determined as 7200, with total assets and liabilities of 133200 respectively. With this the
concept of consistency and Prudencey have also been explained. Two methods of calculation
depreciation are determined as SLM and WDV. The sloe trade is not registered under the legal
framework while a limited company have a legal identity. The BRC assist in determining any
misreporting that can raise any discrepancy. For the client three BRS statement have also
prepared. For the client 4 different ledgers have been prepared which includes sales, purchase
ledger, which a trial balance with a balance of 29100. To the client 5 concept of suspense
account is explained with presentation of trial balance using the control account which gives a
total of 7500.What is a suspense account?. 2018.
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REFERENCES
Books and Journals
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics. 58(2-3). pp.339-383.
Edmonds, T. P. and et.al., 2013. Fundamental financial accounting concepts. New York, NY:
McGraw-Hill Irwin.
Henderson, S. anmd et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Marshall, D. H., McManus, W. W. and Viele, D. F., 2011. Accounting: what the numbers mean.
McGraw-Hill/Irwin.
Porter, G. A. and Norton, C. L., 2012. Financial accounting: The impact on decision makers.
Cengage Learning.
Taipaleenmäki, J. and Ikäheimo, S., 2013. On the convergence of management accounting and
financial accounting–the role of information technology in accounting
change. International Journal of Accounting Information Systems. 14(4). pp.321-348.
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Online
The consistency principle . 2019 [Online] Available Through:
<https://www.accountingtools.com/articles/2017/5/15/the-consistency-principle>.
The Purpose of Depreciation . 2019 [ONLINE] Available
Through:<https://bizfluent.com/about-6308573-purpose-depreciation.html>.
What is a suspense account?. 2018. [Online]. Available
through:<https://www.accountingcoach.com/blog/suspense-account>.
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