Financial Accounting: Principles, Transactions, and Statements

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Scenario 1........................................................................................................................................3
Q1. Business transaction types....................................................................................................3
Q2................................................................................................................................................4
Q3. Difference between report and financial statement..............................................................9
Q4. Basic accounting principles................................................................................................10
Q5..............................................................................................................................................11
Q6..............................................................................................................................................12
Q7. Cash flow statement............................................................................................................14
Scenario 2......................................................................................................................................15
Question 1..................................................................................................................................15
Question 2..................................................................................................................................16
Question 3..................................................................................................................................16
Question 4..................................................................................................................................17
Question 5..................................................................................................................................20
CONCLUSION..............................................................................................................................21
REFERENCES..............................................................................................................................22

INTRODUCTION
The study is on financial accounting. Financial accounting is the basic accounting principles used
to record transactions in a business. The study talks about the principles, financials used like
journal, balance sheet and cash flow statement. It also speaks about the financial terms used in
accounting and gives an overview of same.
Scenario 1
Q1. Business transaction types
Purchasing products and materials: Purchases might be for credit or cash. The cash transactions
are paid in an instantaneous way and are rare in many firms. In every firm, purchases of
commodities and materials are commercial transactions. Credit purchases are repaid after a
period of time.
Purchasing services include, for example, equipment repair, advertising, and printing costs
(Ionescu, 2019).
In shops, for example, cash sales are paid instantly. After taking into account the authorised
credit period, credit sales are paid later.
Wage and salary payments: Salaries are paid to employees.
Purchase of non-current assets.
Financing and payment of rewards to finance providers. Owners investing capital or taking out
loans from financial organisations, for example:
Tax accounting and payment
Money in and out of a bank account.
Single entry system
The system is designed to handle single-sided transactions. The algorithm recognises cash and
personal things associated with transactions while ignoring impersonal items. As a result, there's
a chance it'll be inaccurate.
Double entry system

This method of bookkeeping records the two sides of a company transaction, which is known as
double-entry accounting. In every commercial transaction, this system records the two parts of
debit and credit in a value equalling manner.
The significance of trial balance
It acts as a check on the double entry process, ensuring that every matching debit is matched by a
credit of equal value. It usually detects a large number of errors, but not all of them. The balance
of the ledger accounts is established and used in the compilation of financial statements (Ionescu,
2019).
Q2.
1. Journal entries
Date Particulars Debit Credit
1/6/2016 Cash A/c Dr 65000
To capital A/c 65000
(Capital being introduced in
starting a business)
2/6/2016 Purchase A/c Dr 8000
To Accounts Payable A/c 8000
(Goods being purchased on
credit)
7/6/2016 Cash A/c Dr 4000
To Sales A/c 4000
( ¼ inventories being sold for
cash)
8/6/2016 Accounts Payable A/c Dr 4000
To Bank A/c 4000
(Half of the payment being
for goods purchased on credit
has been done)

2. Ledger accounts
Capital A/c
Date Particulars Amount Date Particulars Amount
1/6/2016 By Bank A/c 65000
30/6/16 To Balance carry forward 65000
Cash A/c
Date Particulars Amount Date Particulars Amount
7/6/2016 To Sales A/c 4000 18/6/16 By Computer equipment A/c 3000
21/6/16 To Sales A/c 10000 30/6/16 By Stationary A/c 30
25/6/16 To Bank A/c 100 30/6/16 By Balance carry forward 11070
Bank A/c
Date Particulars Amount Date Particulars Amount
1/6/2016 To Capital A/c 65000 8/6/2016 By Accounts Payable A/c 4000
(Half of the payment being
for goods purchased on credit
has been done)
14/6/2016 Insurance A/c Dr 75
To Bank A/c 75
(Cheque issuance for payment
monthly insurance)
15/6/2016 Accounts receivables A/c
Dr
12000
To Sales A/c 12000
(Credit sales being made of
remaining inventories)
16/6/2016 Purchase A/c Dr 10000
To Accounts Payables A/c 10000
(Goods purchased on credit)
18/6/2016 Computer equipment A/c
Dr
3000
To Cash A/c 3000
(Computer equipment being
purchased for cash)
20/6/2016 Rent A/c Dr 150
To Bank A/c 150
(Rent being paid through
Cheque)
21/6/2016 Cash A/c Dr 10000
To Sales A/c 10000
(Goods being sold for cash)
25/6/2016 Cash A/c Dr 100
To Bank A/c 100
(Amount being withdrawn
from bank account and
transferred to cash in hand
account)
30/6/2016 Stationary A/c Dr 30
To Cash A/c
(Stationary being purchased
from cash in hand)
30
TOTAL 116355 116355

14/6/2016 By Insurance A/c 75
20/6/16 By Rent A/c 150
25/6/16 By Cash A/c 100
30/6/16 By Balance carry forward 60675
Purchase A/c
Date Particulars Amount Date Particulars Amount
2/6/2016 To Accounts Payable A/c 8000
16/6/16 To Accounts Payables A/c 10000 30/6/16 By Balance carry forward 18000
Sales A/c
Date Particulars Amount Date Particulars Amount
7/6/2016 By Cash A/c 4000
15/6/16 By Accounts receivables
A/c
12000
30/6/16 To Balance carry
forward
26000 21/6/16 By Cash A/c 10000
Accounts payables A/c
Date Particulars Amount Date Particulars Amount
8/6/2016 To Bank A/c 4000 2/6/2016 By Purchase A/c 8000
30/6/16 To balance forward 14000 16/6/16 By Purchase A/c 10000
Accounts receivables
Date Particulars Amount Date Particulars Amount
15/6/16 To Sales A/c 12000 30/6/16 By balance carry forward 12000

Insurance A/c
Date Particulars Amount Date Particulars Amount
14/6/2016 To Bank A/c 75 30/6/16 By balance carry forward 75
Computer Equipment A/c
Date Particulars Amount Date Particulars Amount
18/6/16 To Cash A/c 3000 30/6/16 By balance carry forward 3000
Rent A/c
Date Particulars Amount Date Particulars Amount
20/6/16 To Bank A/c 150 30/6/16 By balance carry forward 150
Stationary A/c
Date Particulars Amount Date Particulars Amount
30/6/16 To Cash A/c 30 30/6/16 By balance carry forward 30
3. Trial Balance
Trial balance as at 30th June 2016
Particulars Debit Credit
Capital A/c 65000
Cash A/c 11070
Bank A/c 60675
Purchase A/c 18000
Sales A/c 26000
Accounts payables A/c 14000
Accounts Receivables A/c 12000
Insurance A/c 75
Computer Equipment A/c 3000
Rent A/c 150
Stationary A/c 30

TOTAL 105000 105000
Q3. Difference between report and financial statement
Financial statements and financial reporting are two phrases that are occasionally used
interchangeably. There is a distinction between financial reporting and financial statements in
accounting. Reporting is used to give information for decision-making. Financial statements
include the balance sheet, income statement, and cash flow statement. Internally for management
and externally for shareholders, they are utilised for both internal and external purposes
(Stakhovska, 2021).
Financial reporting provides a detailed study of a company's performance. The report can help
with business valuation, cash flow forecasting, and investment planning. The financial
consequences of decisions are depicted by transactions in the reports. External statements,
financial notes, quarterly and annual records, and government reports are examples of financial
reports. Financial statements show how effectively money has been managed. Financial
reporting also includes financial analysis in addition to statements, such as operating margin,
debt-to-equity ratio, and working capital, among other ratios.
The reports are required because they accurately portray the company's finances, which include
revenues, expenses, and profits. Financial KPIs displayed in corporate reports illustrate the
organization's financial health (Weekley, 2020).
Financial Reporting's Advantages
The following are some of the advantages of financial reporting:
Debt management improvement: Debt can hinder a company's progress; there are numerous sorts
of financial reporting that are linked to software that can manage debt effectively.
Identification of trends: It is aided by the type of reporting used, regardless of the financial
activity being tracked.
Q4. Basic accounting principles
Accounting's basic concepts are as follows:
a) Monetary unit: Accounting mandates that values be recorded in terms of a single monetary
unit. It does not account for things in the same way that the barter system does. Assigning values