Financial Accounting - Assignment
Added on 2021-02-20
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Financial Accounting
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Explaining FA and purpose .......................................................................................................1Differentiating FA and the MA ..................................................................................................1Explaining regulatory framework and its objectives .................................................................3Explaining conceptual framework and its usefulness in the accounting community ................3Explaining the accounting concepts and its principle ................................................................4Explaining qualitative characteristics and it types .....................................................................4Explaining users of financial information ..................................................................................5CLIENT 1........................................................................................................................................6a. preparing journal and ledger....................................................................................................6..........................................................................................................................................................8ii. Ledgers....................................................................................................................................8iii. Preparation of the trial balance............................................................................................24........................................................................................................................................................24CLIENT 2......................................................................................................................................24a. P&L ACCOUNT...................................................................................................................24b. preparing balance sheet ........................................................................................................26c. Stating the consistency & the prudence accounting concept................................................28d. Explaining purpose of the depreciation and its techniques...................................................29e. Evaluating the difference in between financial statements of the sole trader and the limitedcompanies. ................................................................................................................................30CLIENT 3......................................................................................................................................30a. Explaining the bank reconciliation statement ......................................................................30b. Explaining the reasons for the variation in the bank and the cash records...........................31c. Explaining imprest under the system of petty cash ..............................................................32d. Preparation BRS....................................................................................................................33CLIENT 4......................................................................................................................................34a. Preparing ledger accounts of purchase and sales..................................................................34
b. Explaining the control account and its need of preparation .................................................36CLIENT 5......................................................................................................................................36a. Describing the term called suspense account and its characteristics.....................................36b. Drafting trial balance.............................................................................................................36c. Rectifying entries..................................................................................................................38CONCLUSION..............................................................................................................................38
INTRODUCTIONFA means an area of accounting which focuses on facilitating the external and theinternal users with the useful information. Financial accounting is counted as the way in whichthe activities of the business are reported and such information is communicated to the peoplewithin and outside the organization. The present study is based on various aspects of FA andincludes the contrast in between the financial and the MA. Furthermore, it includes accountingprinciples that is to be followed by firm in respect of preparing its financial statements. Explaining FA and purpose FA is considered as the specialized branch that helps in keeping the track of an entity'sfinancial transactions (Barth, 2015). With the use of the appropriate guidelines, the businesstransactions are been entered in the books, presented and is summarized in the financial reportlike income statement and the balance sheet. The objective of the FA is facilitating sufficientinformation for the users so that they can assess value of the enterprise on their own. Majorpurpose of the FA is to accurately formulate final accounts & providing appropriate financialreporting in relation to performance and position of an enterprise (Libby, 2017). Thisinformation helps the users in reaching the decisions in relation to managing the business,investment and the other important decisions. Differentiating FA and the MA Basis FAMADefinition This system of accountingemphasizes on the formulationof the financial statement inorder to provide financialinformation to interestedparties. Management accounting is anaccounting system thatprovides for the relevantinformation to managers inrespect of making the policies,strategies and the plans forrunning business effectivelyand efficiently. CompulsionFinancial accounting iscompulsory for each and everyManagement accounting is notcompulsory for the enterprise1
organization. to the adopt. InformationIt only provides monetaryinformation.However, it facilitatesmonetary as well as the non-monetary information. ObjectiveThe major objective of the FAis facilitating financialinformation to the internal &the external parties. The foremost objective of themanagement accounting isenabling management inmaking decision and theplanning process with thedetailed information on severalmatters (Difference BetweenFinancial Accounting andManagement Accounting,2019). Format The format under FA isspecified in the accountingstandards as provided by IFRSand GAAP. On the other side, managementaccounting does not have tofollow any specified format. Time frameFinancial statements are beenprepared during the end of anaccounting period that is oneyear. Under this, preparation of thereports is based on the needsand the requirements of anenterprise. UsersMain users of the financialaccounting information are theinternal and the externalparties. Internal management is beencounted as the main user of themanagement accounting. ReportsFinancial accounting providesfor the summarized reportsregarding the financial positionof organization. Management accountingprovides for the complete andthe detailed report in relationto various information. 2
Auditing Under this, the financialstatements are required to beaudited by the statutoryauditors. The reports under themanagement accounting needrequire any auditing by thestatutory auditors. Explaining regulatory framework and its objectives Regulatory framework refers to the regulating authorities that has provisioned the set ofthe standards for formulating & presenting financial reports (Balakrishnan, Watts and Zuo,2016). Such standards and the regulations has been framed by IFRS based on the generallyAccepted Accounting principles (GAAP). The major and the foremost objective in introducingthe regulatory framework is as follows-In order to ensure that the requirements of users relating to financial statement has beenmet with adequate financial information. For ensuring that each and every information facilitated is within the appropriateeconomic arena that is it should be consistent and comparable. For regulating behaviour of an enterprise & directors towards an investors. Explaining conceptual framework and its usefulness in the accounting community Conceptual framework called as the comprehensive set of the concepts that are beenissued by IFRS for the purpose of financial reporting (Christensen, Nikolaev and Wittenberg‐Moerman, 2016). Conceptual framework helps out the accounting community in followingways-This helps the accounting community in setting out the objectives for the financialreporting.In knowing the qualitative characteristics relating to the useful accounting information.Description relating to the reporting entity and boundaryDefines the accounts such as asset, income, liability, equity and the expenses. Provides guidance on the presentation and the disclosure requirements. Assist all the parties in understanding and interpreting the standards.Enables the preparers of the financial reports in developing the consistent policies for theaccounting transactions.3
Helps the board in developing the IFRS standards on the basis of the consistent conceptsthat results in the financial information which is useful for the investors, creditors and thelenders. Explaining the accounting concepts and its principle Recording in the final reports is been made on the basis of accounting principles andassumptions. These accounting concepts act as the rules that has to considered while preparationof the accounts and final reports (Azar, Zakaria and Sulaiman, 2019). There are variousaccounting concept that are going concern, accrual concept etc. Going concern concept- This principle states that the firm will be carrying on itsoperations for an indefinite period. It means each and every business has the continuity in its lifeand does not runs for dissolving in the future. For example- for computing the depreciation,fixed asset cost will be allocated over useful life of an asset and does not considered as only forcurrent year. Accrual concept- This concept of accounting is considered as the fundamental principlethat requires for recording the revenues at times when it has been earned & not at times whenthe revenues is received in form of cash and also recording the expenses at time of its occurrenceand at the time of its payment (Andon, Baxter and Chua, 2015). For instance- sales made byram on credit amounting to 5000 on 5th July and the amount received on 15th July, the revenuewill be recorded in the books of account on 5th July, the date on which the sales is made and noton the date when the amount is received. Explaining qualitative characteristics and it types Qualitative features of an accounting information involves usefulness of the accountinginformation in terms of its relevancy, reliability, materiality and understandability. Mainly thereare two types of the qualitative characteristics that includes fundamental and enhancingcharacteristics. Fundamental qualitative characteristics- It is type of the qualitative characteristicswhich sates the relevance and the faithfulness of the information. It includes as follow2s-Relevance- Financial information is said to be relevant as if it influences the decision ofthe users. 4
Faithful representation- It means that the accounting information provided should becomplete, error free and neutral. Enhancing qualitative characteristics- There are various kinds of the enhancingcharacteristics that includes-Comparability- Financial results should be such that the entity could be compared withother entities over the time.Verifiability- Information must be capable of verification as it facilitates the assurance tousers regarding its credibility and the reliability.Understandability- An information should be such that it is understandable to the peoplewho wants to review it. It can be attained through appropriate presentation, classification and thecharacterisation. Timeliness- Financial information provided to the users within the timescale for purposeof making suitable decisions. Explaining users of financial information Internal users- It means the parties that are working within an enterprise that are as follows-Management- They requires the FI for planning and monitoring in order to makeappropriate business decisions (Cohen and Karatzimas, 2017). Financial information helps themanagers in assessing the performance of the business by applying appropriate performanceindicators such as bench-marking, KPI etc. Employees- It refers to the internal party who have the keen interest in assessing thefinancial state of an entity as it has the implications directly to their job security and the income. External users- It means the parties present outside the premises of an entity. Suppliers- Suppliers needs the financial information for assessing credit-worthiness of acompany to which they are offering the goods and the services on credit. Lenders- They offer the loans and the advances to the organization on analysis of thefinancial state of borrowers. Government- This party act as the reviewing authorities of the accounting information asregarding all the disclosures are been made or not and the statements prepared are in accordancewith regulations. They monitors such information in order to protect the other stake holder'sinterest. 5
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