Financial Accounting: A Comprehensive Guide with Practical Examples

Financial Accounting
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Table of Contents
Part A..............................................................................................................................................3
Part B..............................................................................................................................................8
Client 1........................................................................................................................................8
Client 2......................................................................................................................................16
Client 3......................................................................................................................................18
Client 4......................................................................................................................................21
Client 5......................................................................................................................................23
Client 6......................................................................................................................................25
Bibliography.................................................................................................................................28
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Part A
Financial Accounting: Financial accounting is the system of accounting in which there is
inclusion of steps involving recording, summarizing, classification, analysing, interpretation and
decision making in the business concern are the part of its working. Financial accounting is
object of preparing the financial statements which include the following contents:
a) Income statement or Trading profit and loss A/C
b) Statement of financial position or balance sheet
c) Cash flow statements (as per applicability)
This system of accounting is core accounting system which is the symbol of accuracy and
appropriateness. It is most required system, without this any conclusion or report does not exist.
Financial accounting is prepare for the purpose of serving of information to the outsider and third
person of business. Not prepare for the intention to daily usage. While prepare for the year end
result. The outside user of financial information are consumers, trade suppliers, banks,
government authority, employees, business owners, and other stake holders who have interest in
companies activity for decision making activities.
This system of accounting is hold and run by both local and international Generally Accepted
Accounting Principle (GAAP). This GAAP help the accountant and financial users to create the
uniformity and equality in working, it is the basic function of GAAP.
Similarly, for the view of preparation of financial statements it does apply the International
financial reporting system (IFRS). IFRS gives the guidelines and format of financial statements
for a particular entity whether it is a small enterprises, sole trading, or a corporate. IFRS are
issued and implement by the International Accountancy Standard Board IASB. This IASB is the
international accounting body, which elaborate and sort out the issues in accounting system as a
whole. It also make and modification and alteration in the accounting principles and conventions.
This aforesaid are the function of financial accounting.
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Regulation relating to financial accounting: Financial accounting regulations refer to the steps
and guidelines which is the set of applications which assist the users quietly. There are various
standards that are being followed which are as follow:-
Financial Reporting Standards’ (FRSs), Statements of standard accounting practice’ (SSAPs),
Accounting Standards.
Regulations include the three contents which are given below:
a) Functions of accounting standard boards: The aforesaid statements already define the ASB
and its functions. There has some further functions of ASB which are:
Development of ASB- There are various roles that are being performed by the ASB such as the
advising, pronouncements and practice with respect to economic, legal and practical
applicability. The contents identification can be from various sources such as the research or
suggestion from the interested parties.
Urgent issues task force- It is important to have proper implementation of the standards which
are being solved or improvements in the standards if required which is done by the team having
15 members in it for the benefit of the stakeholders of the company such as the auditor, users etc.
International accounting standards board- The IASB is based in London having
responsibility of setting standards founded in April 2001. The rules are being set by the
committee on the basis of issue that are being faced and publish them until March 2001.
b) Function of principle issued by ASB: these principles are the basic concept and key term for
doing the task of accounting. It is the significance of uniformity and accuracy. The ASB are the
principles for financial reporting. The fundaments was created on the basis of review committee
which was headed by Sir Ron Dearing
The statement of principles does express the accounting model that is used by the ASB as the
fundaments for their work.
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The responsibility is to provide the accounting standards which are consistent and logical as per
the current scenario and take steps if required to make changes in the existing so that the issues if
any can be resolved in an effective way. The presentation of the statements must be true and fair
with the adoption of the standards established by the board.
c) Financial reporting and their applicability: The statements of principles for financial
reporting is prepared with a accumulation of more than 100 pages and it is complex documents
for thoise approaching which freshly introduce and has first experience. There are some
examples of FRS
a. Cash flow statement
Issued (sept 1991)
FRS 1 (Revised 1996)
b. Reporting financial performance
Issued (oct1992)
FRS 3
c. Goodwill intangible assets
Issued (dec1997)
FRS 10
d. Tangible Assets
Issued (feb1999)
FRS 10
e. Accounting policies
Issued (dec2000)
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FRS 18
Rules and principles of accounting: Accounting consist and based on six golden rules
which are wholly applied at entire world. This rules are as follows:
• Debit the receiver
Credit the giver
• What would be come in that is debited
What would be goes out that is credited
• All the expenditure and losses will be debited
All the income and gain will be credited
And the principles of accounting are those by which accountant can get the uniformity, accuracy
and neglect the mistake and error as well. The principles of accounting are as follows:
I. Economic concept
II. Going concern
III. Consistency
IV. Accrual
V. Conservatism
VI. Materiality
VII. Money measurement
VIII. Cost concept
IX. Full disclosure
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