Financial Accounting and Analysis Assignment

The provided document is an assignment on financial accounting and analysis, which covers various aspects of the subject. It includes topics like bank reconciliation statements, adjustment accounts, suspense accounts, ledger control accounts, and trial balance concepts. The assignment also provides a list of references from books and journals, including publications by Andon, Bellanca, and Palepu, among others.

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
BUSINESS REPORT .....................................................................................................................1
1. Financial accounting and its purpose......................................................................................1
2. Regulations relating to financial accounting...........................................................................2
3. Accounting rules and principles governs the presentations....................................................4
4. Conventions and concepts relating consistency and material disclosure................................5
CLIENT 1........................................................................................................................................6
CLIENT 2........................................................................................................................................9
CLIENT 3......................................................................................................................................10
CLIENT 4......................................................................................................................................14
CLIENT 5......................................................................................................................................15
CLIENT 6......................................................................................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Financial accounting is the key field of accounting which remain associated with
analysing, summarising and reposting the financial transaction. It furnishes management a path
to deal with financial challenges and problems (Bellanca and Vandernoot, 2014). By
implementing financial rules and principles, managers be able to gather, summarise, bifurcate
and consolidate the financial information in a single format. This report contains two sections,
first section consist of the meaning and purpose of financial accounting, accounting rules and
principles, conventions to accounting concepts. Second portion contains practical evaluation of
bookkeeping and accounting system, preparing the financial statements, purpose of bank
reconciliation, ledger control accounts and suspense accounts that are illustrated in the
assignment.
BUSINESS REPORT
1. Financial accounting and its purpose
Financial accounting is a branch of accounting along with management accounting which
helps managers and accountants to deal with transactions and events related to finance. All the
finance related and monetary nature transactions are systematically records and summarised in
financial accounting. Financial analysis, forecasting, planning and controlling are the main
objective of financial accounting. Main purpose of financial accounting is to collect, summarise,
bifurcate and produce financial reports. It is essential part of organisation to make the
organisational structure viable and effective from stakeholders, owners, clients and director's
perspective.
Purpose of financial accounting
Providing accurate and fair financial report is the main purpose of financial accounting.
There are type of financial statements that are prepared under financial accounting which
represents and define the entire position and control of organisation.
Cash flow statement: This statement is prepared to analyse the fluctuation of cash
within operation and management. This statement provide brief information of fluctuation of
cash for a specific time duration. Information mainly bifurcated in major three categories as cash
generated form operation activities and functions, cash flow generated from investing activity
and cash flow generated by financing activity.
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Financial position statement: For investors and stakeholders's point of view, it is very
important to analyse the financial position of organisation. Financial position statement is
prepared to analyse the financial position of organisation. This statement is made on the basis of
common accounting assumption that is considered as the assets remain equal to total liabilities
and capital.
Assets = capital + liabilities.
Income and expenditure statement: To analyse the profitability and control of
organisation, it is important to define the profit and loss of business. All the incomes are
compensated with expenditures and profit and loss is find out.
Change in equity statement: This statement is mainly prepared to analyse the change in
the capital structure and retain earnings. Profit, reserves, share capital are considered in this
statement (Saleh, Jaffar and Yatim, 2013). It helps to analyse the level of fluctuation of capital
and reserve in business.
2. Regulations relating to financial accounting
Ethics, rules and regulations assist the organisation to operate and execute the operations
in ethical and prominent way. Any unethical use and fluctuation is prohibited in the financial
accounting due to protecting customer interest and faith. Multinational organisation are bound to
adhere financial rules and regulation to validate the financial information form stakeholder and
owner's perspective (Palepu, Healy and Peek, 2013). Financial rules and regulations provides a
format to record financial information and details in proper manner so that stakeholders and
owners of organisation could understand the values of organisation. Financial rules and
regulations mainly helps in managing and operating the business operations with more
significant and specific manner. Accounting rules and financial representations helps in
providing effective structure to maintain and record the financial information and details in
accurate manner.
International Accounting Standard Board (IASB)
International Accounting Standard Board This is one of the essential aspect in terms of
managing the operations and functions at next level. This is one of the authoritative body which
is mainly associated with implementing the financial plans, rules and policies in subject to make
new plans and infrastructure of business. Board mainly associated with framing the framework
of completing the process of effective management and control.
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International Financial reporting Standards (IFRS)
This is one of the major authority which helps in managing and controlling the practical
practice of accounting procedure and managing the standards in more effective manner.
Accounting standards board IASB retains the roles and liabilities to assist the technical matters
of the IFRS foundations. As the board mainly provides accounting formants and treatment for
different type of financial transactions, here are discussed some of the basic standards of IFRS
mentioned as below:
IFRS 1 (First-time approval of the standards of international financial reporting):
This rule provides a structure of presenting the financial reports for international organisations.
This rule mainly focus upon clear and complete presentation of financial records and
information.
IFRS 2 (Shared Based Payment): This rule provides a guilds and procedures regarding
treatment of losses and profit for a specific matter. IFRS 2 is formed to measure and prescribe
the revenue recognition for shared based payments. It is applied to those transactions which
remain unsettled in terms of cash and other assets.
IFRS 3 (Business Combination): This rule provides information and its details remain
associated with producing rules and articles for treatment of losses and profits. This rule help in
managing the transactions and evenest related to business combinations. It build up principles
and requirements that is how acquisition process take place in a business.
 Evaluation and recognition of assets and liabilities acquired from existing business and
value of other assets acquired by acquiree form other parties.
 Goodwill evaluation after acquisition or merger of existing business.
 Evaluation of information to disclose and enable the financial statements to evaluate the
nature and financial effects of the business effect from the combination of business.
IFRS 9 (Financial Instruments): This rule contains the rules and procedures in terms of
identifying instruments used under financial accounting. Rule is made to classify and measure
financial assets, financial liabilities and contracts to buy or sell non-financial items and
instruments. It requires to recognise a financial assets or a financial liability in statements of
financial position when it become more viable to instruments. Financial assets and financial
liabilities are considered in this context to determine the profit and loss.
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IFRS 10 (Consolidated statement of Finance): This is one of the essential aspect in
terms of determining and presenting the information subject to total control and management
(Păşcan, 2015). This is also one of the essential element in terms of deriving the skills and
management to next level for developing plans and diverting the skills for specific manner.
3. Accounting rules and principles governs the presentations
Accounting rules
There are three major accounting rules are found in accounting around which accounting
procedures flows or not. This is one of the essential process which helps in creating rules and
standards to make accurate financial statements and retaining the books (Louwers and et. al.,
2015). These rules are as follows:
Debit what comes in, credit what goes out: This management is utilized as a part of the
instance of genuine records. Genuine record covers every one of the records which are connected
with the advantages of the association, for example, building account, generosity account,
hardware account and so on. These benefits has a default charge adjust. As per this manage,
when an adjustment of the advantages is expanded or gotten then they are known as charge
exchanges. Apart form it, when adjust of these benefits diminish then these exchange are known
as credit exchanges.
Debit all the expenditures, losses and credit all the incomes and receivables: This
lead is connected on counterfeit records. Imitative record are the invented accounts which are
related with different costs, misfortunes, incomes and so on. As per this control, every one of the
costs are considered and recorded as charge exchanges and all incomes and salaries are executed
as credit.
Debit the receiver and credit all the giver: This manage is regularly followed on
account of individual records. Individual record manages an individual or legal person. As per
this lead, when a gathering gives their assets to the person that gathering is known as bank and
the collector organization is borrower and the other way around.
Accounting Principles
Principles of conservatism: This principle mainly help in adapting changes in cash
flows. Lowest possible inflows are considered with possible cash out flows.
Cost principles: This principle mainly says that all of the assets must be recorded at cost
rather than estimated cost and selling price.
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Going concern: As per this principle, an organisation is formed to operate the business
and operations for longer run. Rules and regulations are adapted to continuing the business for
longer run (Liubing and Feng, 2013).
Monetary unit: These transactions mainly helps in managing the inventories and
operations for longer run.
Full disclosure: This mainly helps in presenting the information regarding policies, rules
and standards which are used from long period.
Matching principles: This principle mainly centralised around one point that all the
expenditures must be compensated and equal to income.
Revenue recognition: This principle provides a time duration subject considering the
revenue within income and expenditure account.
Materiality: According to this rule, an accounting can overlook whatever other standard
which is considered as non appropriate in their mentality. Every single irrelevant rule can be
overlooked.
Time assumption: Under this rule, all the money related books and records are set up as
indicated by the time distributed. This announcements are set up in a money related year.
Economic substance presumption: According to this rule, it ought to be accepted that
the association has an unexpected element in comparison to its proprietor. This rule is considered
as reasonable for the organizations since they have various of proprietors which are known as
investors.
4. Conventions and concepts relating consistency and material disclosure
Consistency concepts
Consistency concepts and conventions defines that accounting principle that is once
adopted must be applied consistently in future accounting period and same principles or methods
are used for similar situations. If an organisation is changing its accounting principles or methods
on reasonable grounds in same accounting period then they must disclose the nature of change
and its impact on the financial statement (May, 2013).
For example if a company is using straight line depreciation method on its equipments
and alter, they wants to change it to declining balance depreciation method, then the company
must disclosed it in the financial reports.
Material disclosure
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Convention of material disclosure means that all material things must be disclosed clearly
in the financial statements. Full disclosure doesn't define to disclosed all information of items but
it means disclosed only that information which is relevant to owners, investors & creditors which
are important to matter for talking various financial decisions and immaterial items are ignored
while preparing profit and loss a/c & balance sheet (Wang, 2014).
For example, in case of debtors, not only all the information regarding secured debtors
should be disclosed but unsecured or doubtful debtors amount are also disclosed in the financial
statements.
CLIENT 1
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Trial balance
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CLIENT 2
a) Profit and loss statement for sierra Laurent for the year ended 31st July 2018
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b) Statement of financial position for Sierra Laurent as at 31st July 2018
Capital 6,44,590
Add :- Profit 2,18,590
Less :- drawings (35,000) 183590
Total equities and liabilities 8,91,510
CLIENT 3
a) Profit and loss of LMS Ltd. For the year ended 31st 2018
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b) Statement of financial position of LMS LTD.
c) Accounting concepts
Concept of consistency
Consistency means that once a company adopts any accounting methods then those
method should be followed consistently. Consistency means to use same policies for long period
and do not prefer to change. In every business, consistency is important to achieve a higher level
of growth and to maximize the profits of the business. Compatibility is totally dependent on
consistency so that investors and other users can easily compare financial statement. Consistency
makes accounting information useful. It is very important for any company to consistently apply
accounting methods, policies and principle from one accounting year to another. In other words,
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company should not change accounting methods frequently like use one method today another
tomorrow and again change the method day after tomorrow (Mulford and Comiskey, 2011).
Concept of prudence
Prudence concept says that a company should only record any revenue when it is definite
and only record any expense when it is predictable. Prudence concept do not bound companies to
record exact data but the data which have been recorded by the company should be compatible
and realistic. Prudence concept is just a simple guideline that ultimately company should use for
the best judgement to decide when a transaction should be recorded. Prudence concept is helpful
in determining the expenses which have not yet been identified. Prudence concept is used to
record the transaction which is going to happen in future and it is certain and predictable.
d) Concept of depreciation and importance in making financial statements
Deterioration is a system of determining real estimation of an advantages by diminishing
all depreciable sum. The fundamental reason for this system is to charge a cost on the
advantages. This strategy is completely in view of coordinating standard as indicated by which
cost of profitable resource is coordinated with the incomes which are earned from utilizing that
asset.
Straight line technique: Under this strategy, bookkeeper will devalue the benefits on the
cost at a particular rate each year for a specific traverse of time (Skogstad and et. al., 2011). The
principle motivation behind this procedure is to discover real estimation of benefit from the
specific rate. For instance, an apparatus is deteriorating each year with a rate of 12%.
Recorded strategy: According to this technique, the estimation of the benefits are
deteriorated with a recorded rate (Vyas, 2011). For instance, a hardware is devalued with a
recorded rate each year like 12% in first year, 11.8% second year follow on. The primary
motivation behind this strategy is to find out present estimation of the benefits on account of
thinking about all present environment (Narayanaswamy, 2017).
CLIENT 4
a) Bank reconciliation statement
This is the statement which mainly focused around determining the difference and causes
of balance created among bank passbook and cash book. This mainly affect the process of
manual handling and operating the transaction in effective and efficient manner. This statement
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is prepared in the end of the month to reconcile the end balances of both the bank book and cash-
book (Openshaw, 2013).
b) Fields which creates the difference among bank passbook and cash book
There are various fields that create difference between the cash book and bank pass book
which are as follow;
 Outstanding cheques which are presented to the bank but not cleared for further payments
 A deposit sent to bank but not credited in the account of owner
 Bank Charges which are directly charged by bank but the transaction is not recorded in
the books of owner.
 Interest credited in the account of owner but the entry not passed in the books of owner.
 Errors in terms of recording the digits.
c) Cash book of Kendal Ltd for the July 2018
Cash book
Date Particulars Amount(Dr) Date Particulars Amount(Cr)
01/07/18 To Balance b/d 5150 09/07/18 By M Potter a/c 2510
07/07/18 To sales a/c 640 10/07/18 By C Lyons a/c 870
12/07/18
To M Pointer
a/c 260 14/07/18 By C Hallern a/c 890
17/07/18 To sales a/c 1710 20/07/18 By C David a/c 1220
24/07/18 To sales a/c 1030 28/07/18 By S Leeminga/c 1160
By balance b/d 2140
8790 8790
d) Bank reconciliation statement at July 2018
Bank Reconciliation Statement
Dr. Cr.
Balance as Cash Book 2140
Cheque paid to C Lyons but not Deducted from bank 870
Payment made by bank but not recorded in cash book 1050
Cash received from sales but not recorded in Bank
Cash paid to C David but not deducted from Bank 1220
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Cash paid to S Leeming but not recorded in Bank 1160
Bank charges paid but not deducted from cash bank 360
Balance as per Pass Book 3980
CLIENT 5
a) Ledger accounts in the books of Henderson for the month of July
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b) Term of Control accounts
Control accounts are prepared to incorporate the similar accounts retains bulk of
informations in a single ledger control account. A single ledger control account is prepared to
records the similar transactions in a single format (P Simnett and et. al., 2011.).
CLIENT 6
a) Term of Suspense Account
Suspense account mainly helps to recognise the difference amount which remain
uncountable in the end of year (Scott, 2015). These accounts are opened when uncleared
accounts and amounts remain unrecognised.
b) Trial balance
Particular Debit amount Credit amount
Opening inventory 2200
Sales 11000
Rent paid 2500
Receivables 3200
Travel Expenses 1600
Purchase 7000
Payables 3500
Cash at bank 8400
Capital 7100
Suspense a/c 3300
Total 24900 24900
c) Suspense account
Suspense account
Particulars Amount Particulars Amount
To White's personal account 7500 By balance b/d 3300
By Jones personal account 4200
7500 7500
d) Distinguish suspense and clearing accounts
SUSPENSE ACCOUNT CLEARING ACCOUNT
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Suspense accounts are usually utilised to
evaluate the transactions omitted during
accounting period
This clarify that accounting informations are
correctly recorded and compensated or not.
Unclassified amount and nominal values be able
to detected easily in suspense account.
These accounts are used to verify the
informations regarding expenses and revenues.
CONCLUSION
The above report concludes the purpose and meaning of financial accounting i.e.
summarised subject to organisational growth and development. There are type of accounting
rules and legislations concluded subject to prepare financial statements. Basic accounting
concepts and rules, accounting conventions and financial standard rules are utilised in order to
maintain discipline in financial accounting. It is understand that bookkeeping system and
procedures of financial planning helps in resolving the practical situations and problems.
Preparation of financial accounts in predefined format provides path to present financial
information. Bank reconciliation statement, adjustment accosts, ledger control accounts,
suspense accounts and trial balance concept also illustrated with practical evaluation.
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REFERENCES
Books and Journals
Andon, P., 2012. Accounting-related research in PPPs/PFIs: present contributions and future
opportunities. Accounting, Auditing & Accountability Journal. 25(5). pp.876-924.
Bellanca, S. and Vandernoot, J., 2014. International public sector accounting standards (IPSAS)
implementation in the European Union (EU) member states. Journal of Modern
Accounting and Auditing. 10(3).
Liubing, C. and Feng, L., 2013. Bank Supervision and Discrimination——From the Perspective
of Accounting Conservatism. Accounting Research, 1, p.006.
Louwers, T. J. and et. al., 2015. Auditing & assurance services. McGraw-Hill Education.
May, G. O., 2013. Financial accounting. Read Books Ltd.
Mulford, C. W. and Comiskey, E. E., 2011. The financial numbers game: detecting creative
accounting practices. John Wiley & Sons.
Narayanaswamy, R., 2017. Financial accounting: a managerial perspective. PHI Learning Pvt.
Ltd.
Openshaw, K., 2013. Cost and financial accounting in forestry: a practical manual. Elsevier.
P Simnett, R. and et. al., 2011. Impact of assurance and assurer's professional affiliation on
financial analysts' assessment of credibility of corporate social responsibility
information. Auditing: A Journal of Practice & Theory. 30(3) .pp.239-254.
Palepu, K. G., Healy, P.M. and Peek, E., 2013. Business analysis and valuation: IFRS edition.
Cengage learning.
Păşcan, I. D., 2015. Measuring the effects of IFRS adoption on accounting quality: A
review. Procedia Economics and Finance. 32.pp.580-587.
Saleh, N. M., Jaffar, R. and Yatim, P., 2013. Family ownership, related-party transactions and
earnings quality. Asian Academy of Management Journal of Accounting and Finance.
9(1). pp.129-153.
Scott, W. R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Skogstad, G. D. And et. al., 2011. Policy paradigms, transnationalism, and domestic politics
(Vol. 35) . University of Toronto Press.
Vyas, D., 2011. The Timeliness of Accounting Write‐Downs by US Financial Institutions
During the Financial Crisis of 2007–2008. journal of accounting research. 49(3) .
pp.823-860.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research.
52(4) . pp.955-992.
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