Financial Accounting: Types of Transactions, Principles, and Statements

Financial Accounting

Table of Contents
Introduction......................................................................................................................................2
Scenario 1........................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................4
Question 3....................................................................................................................................5
Question 4....................................................................................................................................6
Question 5....................................................................................................................................7
Question 6....................................................................................................................................8
Question 7....................................................................................................................................9
Scenario 2......................................................................................................................................10
Question 1..................................................................................................................................10
Question 4..................................................................................................................................12
Question 5..................................................................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................15
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Introduction
Financial accounting as a particular branch of accounting and it represents to an ongoing
procedure of recording identifying and analysing summarising all the transactions which has
been taken place in the business operations for an accounting period (Yerznkyan and et.al 2020).
All these transactions are further categorised and summarised and different financial statements
such as balance sheet income statement and cash flow which records all the operating
performance of the company for specified time duration. This report further demonstrate about
various types of business transactions and it also includes single entry and double entry
bookkeeping. Importance of trial balance has also been defined in this report. Key difference
between financial statement and financial reporting has also been elaborated in this report.
Different principle of accounting it is also being jotted in this report. Bank reconciliation and its
importance has also been discussed in this report. Role of control account in financial
management has also been defined in this report along with this suspense account and reason for
drafting suspense account is also been mentioned in this report.
Scenario 1
Question 1
Different types of business transaction
There are number of business transactions held in the organisation such as:
Purchase of raw material and goods
Every organisation needed various goods and raw material so that they can produce
quality goods. Purchase can be categorised into cash or credit (Types of Business Transactions
and Documentation., 2020). Those organisation which go for cash purchase then they need to
make payment immediately on the other hand when they go for credit then they will not need to
take immediately to the supplier so most of the organisation works on credit purchase.
Sales
Sales also divided into two parts such as cash sales and credit sales. In the credit scenes
organisation gets the payment after some time but in cash saves the get immediate payment by
selling goods and services.
Wages and salary
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Organisation needs cash to make payment of their employees and it is one of the
important business transactions because if organisation fails to pay salary and wages to their
employees on time then they may switch to other company.
Purchase of services
Organisation need to purchase some services as well such as electricity telephone
insurance and others. This is also an important business transaction because in the absence of
these organisations can’t run effectively (Hope and et.al 2019). It is mandatory for the
organisation that they properly order and receive these services.
Single entry and double entry bookkeeping
As the name suggests single entry bookkeeping is having only one entry for each and
every transactions on the other hand double entry bookkeeping contains 2 entry of every
transaction one is debit side and other is credit. But on the flip side single entry bookkeeping
system uses only one account for every transaction and therefore there is no need to match debit
side and credit side of the transaction.
Trial balance
Trial balance worksheet of bookkeeping which contains balance of all the ledgers which is
being compiled into debit and credit account and both debit and credit side should be equal. The
main purpose of producing trial balance is to make sure that all the entries in the bookkeeping
system of companies are accurate and mathematically flawless.
Trial balance is very important for the organisation because it helps the management to
detect various errors by providing them information from the beginning. It also provides
background for preparing final accounts so that in the final accounts management not have to
face any fraudulent activities and transaction.
Apart from this the primary benefit of preparing trial balance is to make sure that all the
transactions was get recorded in the books of accounts and must be mentioned in the debit side
and credit side. Debit and credit amount should be matched to each other. Trial balance plays
Critical role to check the accuracy of ledger accounts organisation to prepare financial
statements. It is very important for the organisation to know that all the transactions of balance
sheet especially the Asset side should be equal and matched to the liability side.
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